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CPA Regulation R6 > R6 Other Entity, Professional Responsibilities, and Fed Tax Procedures > Flashcards

R6 Other Entity, Professional Responsibilities, and Fed Tax Procedures Flashcards

1
Q

M1- What are Simple Trust v. Complex trust

A

Whether a simple or complex, it will effect the tax of the beneficiary and trust.
Simple trust requirements:
Required to distribute all income(Interest or dividends) currently.
Cannot make a charitable contribution
Does not make distributions from principal

Complex trust: any violation of simple trust makes tust a complex trust.

Year of determination, it is a complex trust because it is distributing principal.

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2
Q 
A complex trust company has two trustee :  Pete is distributed 50% of the trust and Rose 25%.
Amount Allocable are:
Dividends                 35000
Tax Exempt interest  15000
Rental Income           25000
Less Rental Expense (5000)
Net Rental Income     20000
Capital Gain L-t                         10,000
What is allocated to both
A

this is a complex trust due to all current income was not distributed.
Get Adjustment to total Ordinary income:

Dividends                 35000
Rental Income           25000
Less Rental Expense (5000)
Net Rental Income     20000
Capital Gain L-t            10,000
Adjusted Total Incom  65,000

Adjustments:
Tax Exempt interest 15000
Capital Gain L-t ( 10,000) Capital is corpus and back to trust
Distibuted Net Income 70000

Trust Income Alloc for DNI
Dividend taxable: 35,000/70000 = 50%
Tax-exempt int; 15000/70000 = 21.43%
Net Rental Income 20000/70000= 28.57%

DNI alloc to Pete(allocated from 35000 or 50% of div income) 7000050%= 35000
Dividend tax 35000 50% = 17500
Tax- exempt inter 3500021.43%= 7500
Net Rental inc 3500028.57% =10000
total DNI 35000

DNI Alloc to Rose
Div  (70000 div*25% = 17500)
Dividend tax 17500*50% = 8750
Tax-exempt int 17500*21.43% = 3750
Net Rental Inc    17500*28.57%  5000
Total DNI=                                    17500

Total DNI to trustee 35000+17500= 52,500- Total DNI 70000 = remaining balance. If DNI to trustee would have over DNI to trust rest is Corpus non taxed.
DNI is reported and taxed to trustee on Sch k1 on form 1041
the 10,000 L-T is corpus and stays in trust and trust file on return.

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3
Q

For tax purposes, the estates taxable period for a decenent who died on October 24th is

A

Either a fiscal year or calendar year on the date of the decedents death.

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4
Q

An estate made a $12K distribution to sole heir.

Estate income:
Taxable income $65
Net LT cap gain 5

Estate disbursement
Admin fee 14
Charitable contrib 9

what is DNI

A

DNI is to allow income with no cap gain less expense and allowed charitable contrib

Taxable income $65
less
Estate disbursement
Admin fee ( 14)
Charitable contrib ( 9)
DNI 42
Corpus 5 LT gain

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5
Q 
An estate sole benficiary was distributed $15K
Accounting funds
Estate Income:             $40K
Estate Disburse          (34)
DNI                   6
What is taxable to benificiary
A

Beneficiary taxable on any $$ in DNI over DNI not taxed
40-34 = 6 tax DNI
Distr 15
Not taxed 9

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6
Q

An executor estate with US citizens as beneficiary must file a returne if estate gross income is at least

A

$600

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7
Q

Charitable contirbution deduction on estate’ tax return is allowable if?

A

The decedent’s will specifically provides for the contribution.

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8
Q

What is the standard deduction for estate

Are person exemption deductible

A
  1. Standard deduction and person exemption are not permitted.
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9
Q

Are Estates and trust ( except those that are tax exempt) required to use calendary year for tax period

A

Estates : NO

Trust: Yes.

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10
Q

Ordinary and necessary adm fees paid by fiduciary on an estate are tax deductible when

A

the estate tax deduction is waived for these expenses.

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11
Q

If trust DNI $120K and it distributed $60K to Ken and $90K to Lind. what is Lind gross income

A

Add both distributions 90 Lind + 60 Ken = 150
Alloc Lind 90/150= 60%
120 DNI*60% = 72 gross income taxed to Lind
18 not taxed.

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12
Q 
if accouting income is 
Div                               10
Interest corp bonds;    12
tax-exempt int               4
capital gain( to corp)     2
trust ree ( to corp)         6
what is accounting income
A 
Account income is any transaction that will get to DNI
Div                               10
Interest corp bonds;    12
tax-exempt int               4
DNI                                26
capital gain( to corp)     2
trust ree ( to corp)         6
When corpus transaction are specifically stated do what it say.
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13
Q

If a person is a grantor over a trust and retained disretionary power to receive income.

who will income be taxed

A

to the grantor

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14
Q

If person created a trust and retained certain interest. what type of trust is this

A

a Grantor trust.

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15
Q

what is the disadvantage of a revocable trust

A

If the trut is revocable, then a completed gift has not taken place. therefore , still in the power of the grantor. or it is a grantor trust.

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16
Q

M2- what is included in decedent’s estate

A

You always use FMV at date of death or AVD 6 months FMV.
MFJ and spouse dies: Houses assessed at FMV so estate would include 50% of FMV of house at date of spouse death.
Share bank account : What ever decedent put in bank account is included in her estate.
Life insurance policy. who ever is the owner of the policy not who is the beneficiary of the policy. None of would be in owners estate.
Assets received by gifts to decedents is included in estate at fmv

Revocable trust (gurantor) is included in trust at FMV at time of death
Income (paycheck)  is Income respect of decedent  (IRD) or income earned prior to death is included in estate. tax for estate taxes.
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17
Q

Joe, a single tax payer, made the following transfers when the annual gifts exclusion was $14K
His sister Joyce: transfered cash of $500K to a revocable trust
Isabell his niece: cash payment of $15K to a 529 plan

Raymond, his nephew: $12K to local Unversity for his room and board
transfer 1000 shares of stock to James his sone

Joanne Lindley, $50K cash payment to the Dr. during her hip replacement
Sale rental house with a fMV of $200K to his daughter grace for $50K
which be treated as gifts

A

Gift annual exclu tax to Joe
Joyce 0 0 0
Not a gift since it is a revocable trust

Isabell 15 14 1
529 plan would be a gift

Raymond 12 12 (meet exclusion) 0
direct payment to school ( that is not room and board) or direct payment to hospital excluded. If I give cash to someone included. since cash was paid for room and board it is a gift.

James 25 14 11
Gift for stock transfer
Joannae 0 0 0
direct payment to school ( that is not room and board. same for medical) or direct payment to hospital excluded. If I give cash to someone included. since cash was paid for room and board it is a gift.
Grace 150 14 136
Sell to relative at loss is a gift. loss on sale gift that is taxed.

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18
Q

What is the gift exclusion per person

A

$15000. Exclusion is different from Unified credit

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19
Q

What is the unified tax credit a decedent estate can take

A

$11,400,000. tax free transfer amount is $4,505,800

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20
Q

If one spouse gives another spouse money is it a gift and a marital deduction

A

Spouse money transfer are not subject to gift. They are considered a marital deduction. no tax

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21
Q

Are expenses for administering and settling estate a deductions

A

Yes.

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22
Q

When are gift tax for 709 due

A

April 15th following year.

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23
Q

If a child is a beneficiary of a gift tax. Will not receive the gift until 21. What is the current gift exclusion

A

Zero. Until child with gift at 21.

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24
Q

Is generation-skipping transfer tax is the same as gift tax and estate tax

A

No. This is a separate imposed tax

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25
Q

Are applicable credit and prior gift taxes a way to determine payable amount for gift tax

A

Yes.

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26
Q

If a person give her son $15K and will gift him her home when she dies. what is the completed and incompleted

A

Gift money= completed

Home+ incompleted

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27
Q

Is cancelling debt and giving a bond to some one as a gift part of a inclusion in gift tax

A

Yes

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28
Q

If a person give money to a doctor to pay for friend surgery is that a gift tax

A

No. Must give the money to freind.

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29
Q

If a parent lend money to son with interest free subject to gift tax

A

Yes. There will be an imputed tax on interest and gift tax assessed until paid off

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30
Q

If a couple have a home worth $8M and husband has a $10M policy naming wife a beneficiary. what is the marital deduction if husband dies.

A

Husband estate which is the $10M policy and $4M for have the FMV of the house = $14M marital deduction.

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31
Q

Can the following be deducted from estate taxes: attorney fees, burial lot, $5000 state estate taxe and credit card debt paid off.

A

Yes all deductible.

32
Q 
Which is consider a gift tax:
$50K paid to:
Child
University located in the US
Church
 spouse
A

Child.
University No if made for tution
Church . No charitable
Spouse No Marital deduction.

33
Q

If I reimburse my son for medical expense he paid would this be considered gift tax

A

Yes. paid him cash.

34
Q

Is transfer of trust where donor determine the amount as gift tax

A

No. Not subject to gift tax.

35
Q

If a decedent spouse leave a $1M policy to his spouse and three kid at equal amount what is the marital spouse deduction

A

1,000,000*25%= 250,000 marital deduction.

The $1M would be in departed spouse estate less $250K marital deduction.

36
Q

M3: What form is needed to be a tax exempt organization

A

You must complete form 1023, Application for Recognition of Exemption, to become a tax exempt organization

37
Q

How do you maintain tax exempt status

A

Tax exempt organization could lose their status if they engaged in a prohibited or restricted activity
Exempt organization are prohibited from:
participating in campaigns or candidates of local state and federal offices.
Can not be organization for the benefit of private interest of board members, officers, key management, other insiders such as freinds, or shareholders.
Must have policies and procedures on conflict of interest, whistle blower, compensation to officers and board, and gift acceptance.
Must not engaged in acts that are illegal or violate fundamental public policy
Can not have a full time employee lobbying congress on legislative issues
Does not include judicial, executive and admin branches of government.

38
Q

What tax form do you use to file return and what date is return due

A

You completed for 990 due on the 5 month and 15 day of the organizations calendar year or fiscal year.

39
Q

the exempt the organization provides a literacy camp for children living in poverty. they have a paid employee operating a gift shop and restaurant, a thrift store. All proceeds are used to support the exempt organization purpose. They also have other businesses
An exempt organization had the for business activities:
Camp Tuition; $250K
Corp sponsorship: $100K
Interest: $50K
Dividends: $125K
Rental Income fro lease of 50 acres for unrelated
business $145K
Gift shop net income not run by volunteers $86K
Restaurant net income not run by volunteers $67K
Sale of surplus inventory
Gift shop $8.5K
Thrift shop net income run by volunteers $$25K
Gain on sale of 20 acres
to electri co-op $200K
Rental income from river
floats $26K
Which are UBIT and which are not UBIT

A

UBIT Non Ubit

Camp Tuition; $250K x
Normal ops
Corp sponsorship: $100K x
As long as spon to give $ to organization
major exposure UBIT

Interest: $50K
normal ops x
Dividends: $125K
normal ops x
Rental Income fro lease of 50 acres for unrelated
business $145K
passive income x
Gift shop net income $86K x
non volunteer paid non ubit
Restaurant net income $67K x
not run by mission volunteers
Sale of surplus inventory
Gift shop $8.5K x
sames as gift shop
Thrift shop net income $25K x
volunteer run gift shop
Gain on sale of 20 acres
to electri co-op $200K x
normal ops
Rental income from river
floats $26K x
non volunteers

40
Q

An incorp exemp organization subject to tax on UBIT must comply to

A

IRS code provision regarding installment payments of est. tax by corp.
Est tax payment are $500 or more.
Must pay 100% of tax due

41
Q

When does a private foundation status terminate

A

when private foundation becomes public charity an collecting more than 60% of charity contributions

42
Q

To qualify as a tax exempt organization, applicant must not be a

A

private foundation organized to operate exclusively to influence legislation.

43
Q

Does UBIT include work performed by unpaid volunteer

A

NO. Must be paid workers.

44
Q

To qualify as an exempt organization other than church or an employee qualified pension or profit sharing trust., the applicant must

A

file written application 1023 to the IRS.

45
Q

will the sale of trade association publications used in seminars as course materials to its members be considered UBIT

A

NO. work was performed by employees and not unpaid volunteers. Is part of operation for member organization.

46
Q

In the articles of incorp for an exempt organization, should it include limit of purpose of entity to the charitable purpose and filing return

A

Yes to imit of purpose of entity to the charitable purpose and No. filing return

47
Q

If a exempt organization buys stock in an Scorp engaged in UBIT what is the impact of the investment

A

The income from the Scorp will be taxed to the organization at a corp tax rate as UBIT.

48
Q

M4- What are the violations and non violations to Cir. 230 professional ethics

A

230 regulate tax professionals on advertising. Nothing false, misleading or untrue.
Can not guarantee to eliminate your tax liability
If you say that you have tax experts. They experts must have the property education and experience to due taxes.
Must do what they say the will do to reduce taxes.
If you advertise that you have former IRS employees that help write the rules, this is a conflict of interests because former IRS employees (inplying they have inside information. every tax profession has the same information) must wait 1 year sit out if write rules. 2 year sit if you enforce the rule to have tax business.
Can advertise that you have former Irs employee but can not imply they have inside information.
Can not have contingent fees. Exception with an audit.
Can not get client refund check and then give to client.
If you advertise fee must honor fee for 30days.

49
Q

What are the rules for written advice under cir 230
Would a father who hire his sons. One that grad colleger at $150K and the other 16 in higher as part timer at $20 an hour to take advantage of the SS rules.
What are the compliance for reasonable compensation

A

five test to meet

  1. employee roles in the company
  2. compensation comparison paid by simular companies
  3. character and condition of the company
  4. potential conflict of interest
  5. internal consistency of compensation arrangement.

Can not give advice on the probility of an audit.
As tax must know what sons’ role are.
Must not rely on knowledge of someone else.
Tax prepare must know all reasonable facts and legal assumption
Must consider all the facts on audit. can not do this
Must do due diligence on sons’s role
Must not rely on the advise of person that he has not found out his experience on the subject
Written must be related to applicable authorities and facts.
Written advice on audit risk. can not do this.

50
Q

If a tax preparer sees that information from the client does not seemed to match what was give and does the return anyway. what implication can the prepare be charged with

A

May be assessed a tax return penalty. Must make reasonable inquiry.

51
Q

Under Cir 230, is electron written advice satisfacttory

A

Yes. via email

52
Q

Under Cir 230, how can fees be communicated

A

Via : professional list, email, telephone directory, tv, mailings, radio, magazine publications. tax prep fees are never contingent. Only audit fees are contingent.’
If fees are advertised, they must be good for 30 days.

53
Q

M5 What meets the definition of a preparer

A

If person meets the definition of a tax return preparer
you are subject to all rules and regulations
must get a tax preparer ID number.
you are subject to all the penalties

A tax preparer:
License is not required: CPA , EA, tax preparer certificate
Returns are prepared for compensation
You employ one or more persons as preparers and they are compensated
Two types of tax return preparers
1) those who sign- has primary responsibility: the overall review for accuracy of returns
2) those who don’t sign- prepare the returns: this person can give advice. do significant portion of returns ( prepare schedules)
Key word Knowing if someone is taxprepare or not

                         Tax preparer       Not tax preparer Prepare at no charge                          X
employee does tax clerical
work:  efiles, enter tax data
answers phone                                    X
does not excersise any 
discretion or indepent judgement

employee: makes tax decision
about tax postion X

Owner signs returns X

Works for Co. in
corp tax dept                                            X
If you prepare tax returns
for you co.  No tax preparer
returns

Works for CPA firm as
and provide schedule, spreadsheets,and provide significant postion on returns X

54
Q

Tax preparers’ penalties

A

Sec. 6694: Compliance violation:
Understatement of liability due to an unreason position : the greater of $1,000 or 50% of fee charged to client.
Understatement due to willful or reckless conduct by the return preparer. the greater of $5K or 50% of amount charged to client,

Sec 6695 penalties for unethical behavior
all these $50 (maximum $25.5K) for each return
failure to furnish a copy of return
sign the return as a tax perparer
furnish a tax ID number
retain a copy of the return
to file a correct information returns’
These are $510 for each return penalties
cashing a refund check
failure to due dilligence on an earned income credit

IRC Section 6702, 6703(a) : Aiding and abetting Understatement of tax liab. $1,000 for all tax payers with the exception of corp $10,000.

Section 6713, 7216: Wrongful disclosure and/or use of tax return information $250 for each disclosure ($10K max)
exception IRs or court order of information
allowable use for state or local returns
US treasure peer review and administrative orders
or client consent.

55
Q

In a cash were you employee someone , i.e, tax accountant to prepare returns of corp for no charge, are you still violation

A

Yes. because you have a hired person to do returns.

56
Q

What is the disciplinary power of the state board of accountancy

A

Three broad categories of misconduct: 1. misconduct while performing accounting services, 2. misconduct while performing outside of the scope of accounting serivces, 3. criminal conviction.

57
Q

What are other disciplinary powers of the state board

A

They must proof via perponderus of evidence. Board can conduct a formal hearing for possible disciplinary actions.

58
Q

What disciplinary actions can the AICPA or CPA societies take

A

They can suspend or terminate membership without a hearing.

59
Q

Which agency is responsible for determining CPE requirements for CPAs

A

State Board of accountancy

60
Q

What is the exemption amount on a complex trust

A

complex $100 & simple $300

61
Q

When is an estate tax return 706 due

A

9 months after decedents death.

62
Q

A trust has Gross income of $20K+ taxable int $7K + tax exempt int + 2K - deduction of 3 . distrib to benefitiary was $30K what is income distrution or total DNI

A

20+7+2-3 =26 DNI 4 corpus

63
Q

Cari has a revocable trust. After her death income shall be distributer her son. How shuld trust income be reproted while Cari is alived

A

On her 1040. K1 are issued to beneficiaries

64
Q

If a gift is in the future for the determination of annual gift exclusion and Gifter has used $15K exclusion. Is future tax in year 1 if it is a trust

A

Yes.

65
Q

Of the below list, which ones are tax preparer required to retain:
Name & ID # of client
Working papers

A

Name & ID # of client

66
Q

Where is IRS field work done

A

An IRS rep comes to taxpayers home or office or place of business ( key word IRS Field worK)

67
Q

What is included in aCir 230 Covered opinion

A

Written and electronic advice concerning transactions specified by the IRS lists of transactions.

68
Q

when can CPA charge a contigent fee

A

for IRS audit examinations, claims of refund of interest and/or penalites and judicial proceeding .. Not fo raudit of F/s

69
Q

A person has a revokable trust. will the asset be transfered to person gross estate at time of death

A

Yes. because trust is revokable at any time, which nullify the transfer.

70
Q

Does person get $15 gift exclusion for each gift

A

Yes

71
Q

What is the calc for DNI

A

Gross income - deduction - capital gain

72
Q

Can simple trust distribute from corpus

A

No. corpus, can nont make charitable contribution. can only distribute all income.

73
Q

If DNI = $20 gross+ $7 tax interest+ 2 tax exempt int - 3= 26 dni. The Actual distribution was $30. what is income distribution deduction

A

the total distibution is the lesser of actual distrib $30 and DNI less tax exempt 26-2- 24.

Total = 24

74
Q

Is trusted fee deducted to get DNI

A

Yes

75
Q

When there is a gurantor that is still living, is the DNI

A

NO

76
Q

What is income distribution

A

the amount out of DNI

77
Q

When fees are allocated between both trust and benefiicary do I do it

A

yes. split fees.

CPA Regulation R6 (1 decks)

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