Passed - Business enrolled agent exam Flashcards
Precontribution gain
Partner contributes property and it is distributed within 7 years. The distribution is recognized as a sale.
The adjusted basis of Steve’s partnership interest is $10,000. He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. What is Steve’s adjusted basis in the property?
His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives).
Partner’s basis in distributed property
Unless there is a complete liquidation of a partner’s interest, the basis of property (other than money) distributed to the partner by a partner ship is its adjusted basis to the partnership immediately before the distribution. However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money re ceived in the same transaction.
In a complete partnership distribution of property, allocate basis where shareholder basis exceeds partnership interest.
First allocate basis to properties that are appreciated. Next, allocate excess partner’s basis pro-rata based on FMV of properties.
Capital Loss Property - Treatment of capital loss for property sold within 5 years.
If the property was a capital asset in the contributing partner’s hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. The capital loss is limited to the amount by which the partner’s adjusted basis for the property exceeded the property’s fair market value immediately before the contribution.
Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. The partnership assumed payment of the mortgage. The basis of Ivan’s interest is:
Adjusted basis of contributed property . . . . . .
Minus: Part of mortgage assumed by other partners (80% × $4,000) . Basis of Ivan’s partnership interest is $8,000 - $3,200 = $4,800. If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan’s partnership interest would be zero. The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or ex change of a partnership interest. However, this gain would not increase the basis of his partner ship interest.
1120 Tax Rates
15% ($0-$50,000) 25%($50,000+) 34%($75,000+) 39%($100,000+) 34%($335,000+) 35%($10,000,000+) 38% ($15,000,000+) 35% ($18,333,333+)
2015 Gift / Estate Exemption
$5,430,000
1099 DIV due date
Jan 31 to client
Feb 28 to IRS if paper filing
March 31 if e-filing
2015 GST Exemption and top rate
$5,430,000 and 40% top rate
GST is imposed on gifts to beneficiaries of at least _____ years younger.
37.5 years younger or related persons like grand children.
Failure to File penalty
5% per month up to 25%. Penalty is the lesser of $135 or 100% of your tax if at least 60 days late.
1120 Estimated Payments
If tax will be at least $500. Pay PY tax or 100% of current year.
1041 Estimated Payments
If tax will be at least $1,000. 90% of current year or 100% of prior year tax (110% of PY if income exceeds $150K). Exceptions: Estates that had no PY tax aren’t required to pay. Estates less than or equal to two years after the decedents death aren’t required to pay estimated tax.
1120 Dividend received deduction
70% deduction for 0 - 20% Ownership
80% deduction for 20% - 80% Ownership
100% > 80% Ownership
S Election terminates if
> 25% of income is passive for 3 years
Form for a corporation to elect S
Form 2553
Form for a LLC electing to be treated as a corporation
8832
1120 date to file if dissolved
15th day following the 3rd month of dissolution
IRC 179
For 2014, up to $500,000, phased out when IRC 179 property reaches $2,000,000 - $2,500,000
1099-misc deadline
February 2 to client
March 2 if paper filing and March 31 if electronically filing
Car Depreciation Limits
First $3160
Bonus $11,160
Truck Depreciation Limits
First $3460
Bonus $11,460
*179 Depreciation for trucks exceeding 6,000 pounds
Consignment and inventory
Goods that you sent out on consignment are still included in inventory.
Startup and organizational costs
Up to $5,000. Phased out between $50,000 and $55,000.
Period to use net operating loss
Back 2 or forward 20
Farming estimated payments
Smaller of 100% of current year tax or 66% of PY tax.
Bill and Jimmy formed a new partnership. Bill contributes property that has an adjusted basis of $1,400 and a fair market value of $2,000 to the partnership. Jimmy contributes $2,000 in cash to the partnership. Each partner’s capital account as reflected on the partnership’s books is $2,000. What is the adjusted basis of each partner’s interest?
Bill’s at $1,400 and Jimmy’s at $2,000
Nelson, Inc. owned a manufacturing building with a fair market value of $95,000 and an adjusted basis of $75,000. Nelson, Inc. entered into an agreement to exchange the manufacturing building for a warehouse with an adjusted basis of $80,000 and a fair market value of $90,000 with Roberts Corporation. In addition, Nelson, Inc. would pay Roberts Corporation $5,000 in cash. Nelson, Inc. also incurred and paid attorney and deed preparation fees of $5,000 on this exchange. What is Nelson, Inc.’s basis in the warehouse it received in this like-kind exchange?
Original Basis $75,000 + $5,000 cash + $5,000 expenses = $85,000
Arlene traded her old computer that she used in her business, for a new computer priced at $5,000 that she will also use in her business. In addition to her old computer, Arlene paid $4,000 cash for the new computer. Her old computer was worth $2,000 and had an adjusted basis of $500. What is Arlene’s basis for depreciation in the new computer?
$4,000 cash + $500 transferred basis = $4,500
Kayla exchanged her unimproved land with an adjusted
basis of $80,000 and a fair market value of $130,000 for
unimproved land with a fair market value of $100,000
and $10,000 in cash. Kayla also paid $5,000 in closing
costs. The unimproved land that Kayla gave up was subject to a $30,000 mortgage for which she was liable.
The other party assumed this mortgage. What is Kayla’s
realized gain on this exchange?
*Realized Gain* $100,000 FMV property received $10,000 Cash $30,000 Mortgage assumed by new buyer -$80.000 Remaining Cost Basis -$5,000 Expenses ---------------------------------- =$55,000
Reminder about accrual based businesses and insurance
Only take 1 years of expense under accrual
Reminder about building versus land
Pay attention to the language. Only building is deductible.
In 2004, Linda sold her partnership interest for $25,000.
Her adjusted basis at the time of the sale is $22,500
which includes her $12,500 share of partnership liabilities.
When she initially invested in the partnership, she
contributed $10,000 worth of equipment. There was no
profit or loss at the partnership level at the time she sold
her interest. What is the amount and nature of her gain
or loss from the sale of her partnership interest in 2004?
$15,000 Capital Gain
Sally exchanges an apartment building with an adjusted
basis of $400,000 for an office building with a fair market
value of $750,000. She also agrees to assume the
mortgage on the office building in the amount of
$200,000 and paid exchange expenses of $25,000. The
other party agreed to assume Sally’s mortgage on the
apartment building in the amount of $125,000. What is
Sally’s adjusted basis in the new office building?
$400,000 Basis \+$200,000 assumed mortgage -$125,000 relieved mortgage \+$25,000 expenses -------------------------- =$500,000
Rich, Inc., a calendar-year taxpayer employing the accrual method of accounting, acquired a business warehouse building in 2003 for $100,000. Rich, Inc. deducted $3,000 in warehouse asset depreciation expense on December 31, 2003. In January of 2004, Rich, Inc.
incurred a $2,000 legal bill, successfully defending its title to the building. Later in the year a second floor office was added to the warehouse at a cost of $10,000. Rich, Inc. deducted $5,000 in warehouse asset depreciation expense on December 31, 2004. What is Rich, Inc.’s adjusted basis in the warehouse asset on January 1, 2005?
$100,000 Original basis -$3,000 Depreciation \+$2,000 Legal \+$10,000 Improvements -$5,000 Depreciation ------------------------ =$104,000 Adjusted Basis
Alternative Valuation Method for form 1041
Assets in an estate are valued 6 months after the date of death. This is generally used if assets decreased in value since the date of death. It will hurt the estate if the assets increase in value.
A corporation is dissolved on July 9. What is the deadline for the short year?
October 15
% of ownership for a controlled corporation.
80%
Backup withholding rate for a dividend recipient without a tax ID number
28%
An estate tax return should be filed within ** months of death.
9 months
A prompt assessment will be completed within ** months.
18 months
Maximum number of shareholders for an S corp
100 shareholders
Pine Street Corporation is an S corporation. The Form 1120S for 2004 reflects a $3,500 ordinary loss. Mr. Jones, the sole shareholder of Pine Street Corporation, has a basis in the corporation at January 1, 2004, of $1,500. How should his loss be treated?
He should deduct $1,500 on his 2014 taxes and he will receive a carry forward loss of $2,000.
What percent of shareholders is necessary to terminate an S Corp election?
> 50%
Simple trusts
Distribute all income
Has no provisions for charitable donations
Warren purchased stock in 2002 for $10,000. In 2003 Warren sold this stock to his sister Gail for $8,000. In
2004 Gail sold this stock to an unrelated party for $11,000. How much gain must Gail recognize in 2004 on the sale of this stock?
$1,000 gain
Rose Corporation is a calendar-year filing corporation that had accumulated earnings and profits at the end of 2003 of $5,000. At the end of 2004 Rose Corporation had current-year earnings and profits of $1,000. On December 31, 2004 Rose Corporation distributed to sole shareholder Paul Rose an automobile purchased for $10,000 with a fair market value of $8,000. Paul
Rose assumed a liability on the automobile of $1,000. What amount of dividend paid to Paul Rose must Rose Corporation report as an ordinary dividend in Box 1a of Form 1099-DIV?
The dividend is the amount up to retained earnings and accumulated earnings, $6,000.
The remaining $1,000 is a non-dividend distribution.
Hampshire, Inc., a calendar year taxpayer, had an accumulated earnings and profits balance at the beginning of 2004 of $20,000. During the 2004 year, Hampshire, Inc. distributed $30,000 to its sole individual shareholder. On December 31, 2004 Hampshire, Inc. reported tax-able income of $50,000, federal income taxes of $7,500,and had tax exempt interest on municipal bonds of $2,500. What is Hampshire, Inc.’s accumulated earnings and profits balance at the beginning of 2005?
$20,000 accumulated earnings -$30,000 distributed \+$50,000 taxable income -$7,500 taxes paid \+2,500
=$35,000 accumulated earnings and profits
Healey, Inc. owned a parcel of undeveloped land with an adjusted basis of $10,000, an attached liability of $4,000, and a fair market value of $15,000. In 2004 this land was distributed by Healey, Inc. to its sole share-holder who also assumed the liability. Healey, Inc. will recognize how much of a gain on this distribution?
$15,000 FMV
-$10,000 Basis
$5,000 of gain
How long can medical expenses be deducted after a decedent’s death?
Deduct medical up to one year after a decendent’s death. Deduct on form 1040.
Non-Deductible Expenses
Look at them like distributions for personal expenses. They reduce basis.
John is the sole shareholder of Maple Corporation, a qualified S Corporation. On 1/1/2004, John has basis in Maple Corporation of $2,000. The corporation's tax return shows: $10,000 of ordinary income $1,000 of interest income $2,000 of non deductible expenses $5,000 of real estate loss $1,500 of IRC 179 deduction $3,000 distribution to John
What is John’s basis at the end of the year?
$2,000 Basis \+10,000 Ordinary Income \+1,000 Interest Income -2,000 Non-deductible expenses -5,000 Real estate loss -1,500 of IRC 179 -3,000 distribution
$1,500 remaining basis
Waco Corporation reported net capital gains as follows
$6,000 in 2000
$8,000 in 2002
$1,000 in 2003
In the tax year 2004, Waco, Inc. had $40,000 of LT losses and $25,000 of ST gains. How much loss will be available for carryover?
Loss can be carried back three or forward five.
$25,000 gain
- $40,000 losses
- $1,000 2003
- $8,000 2002
$6,000 carry foward loss
1120-S failure to provide K-1 penalty
$100 per K-1
If information is intentionally not furnished, then the penalty increases to $250 per K-1.
Change accounting method with form
Form 3115
Form for the election to have a tax year other than a required year
Form 8716
1120-S Reportable Transactions
Form 8886
- Transactions to pay an advisor with confidentiality for amounts greater than $50,000
- Transactions that are listed by the IRS as tax avoidance
- Transactions where the taxpayer received protection from typically disallowed transactions
- Transactions resulting in a loss of $2mm in one year or $4mm in multiple years
Hours needed for material participation in real estate
750 hours
S corp consent requires this percent
Unanimous consent, 100%
S corp 2553 election must be filed by this date
By 2.5 months after the year starts
S Corp should file this form to elect a different tax year
Form 1128, Change of Tax Year
File by the 15th day of the 6th month
1120 charity deduction
10% of taxable income
Excess can be carried forward for 5 years
Recognition period for built in capital gains
10 years
Estates are only required to file form 706 if …
The gross estate exceeds the annual exclusion ($5.43MM in 2014)
Estates must fine 1041 when gross income exceeds …
Exceeds $600
Domestic trusts must file form 1041 when gross income exceeds
Exceeds $500
Form 990 deadline
15th day after the 5th month of the tax year end.
990 is revoked
After three years of late filing or non filing
Form 706 valuation understatement
20% penalty if estate tax is understated by more than $5,000 due to valuation. Understatement occurs when a property is valued at 65% or less of its actual value.
Form 706 gross understatement penalty
40% penalty if property is valued at less than 40% of value.
Preparer willful or reckless conduct
Penalty equal to the greater of $5,000 or 50% of the income derived from preparation of the return.
Tax rates on gifts exceeding the exclusion
18% to 40% in increments of 2%. The first bracket starts at $0 to $1,800
Form 706 special use valuation
For farmers or closely held business
Real property used in trade or business
Must be used for business purposes for 5 out of 8 years before the decedent’s death
1099 DIV and INT deadline and 1099-R
To client by Feb 2
To IRS by Feb 29
E-file by March 31
Realized versus recognized gain
Recognized = taxable. Basis passes to a related party.
Realized does not factor in related party transfers.
Once a S election is terminated, a company can’t reapply for _______ years
5 Years
2015 Trust tax rates
15% up to $2,500 25% up to $5,900 28% up to $9,050 33% up to $12,300 35%
