R6 - Other Entity Taxation

Question 1

What are the allowable reasons for tax preparer to disclose taxpayer information?

Answer 1

-Consent of client
-court order
-allowable uses (to prepare state return)
-disclosures by US treasury for quality and peer reviews.
If tax preparer discloses for any other reasons, pays penalty of $250 each (not to exceed $10K) and can be guilty of misdemeanor.

Question 2

What is the only organization that has the authority to suspend or revoke a CPA’s license to practice public accounting.

Answer 2

State Board of Accountancy

Question 3

• Misconduct while performing accounting services (negligence, dishonesty, fraud)
• Misconduct outside the scope of accounting services (accounting under the influence)
• Criminal conviction (felony, failure to file tax returns)

Answer 3

What are the three broad categories of CPA misconduct?

Question 4

What are the due diligence requirements for determining eligibility for earned income credit?

Answer 4

eligibility checklists, computation worksheets, record retention, reasonable inquiries to taxpayer.

Question 5

How much estimated tax does an individual need to pay to avoid penalties?

Answer 5

-At least 90% of current year tax OR
-100% of last years tax (110% if AGI exceeded $150K)
OR less than $1000 tax due in current year
*Penalty accrues from the date the estimated income tax was due until tax return due date

Question 6

How much is the failure to file penalty?

Answer 6

5% of the amount of tax due for each month the return is late. Maximum of 25%.

• If no tax due, no failure to file
• If failure to pay penalty also exist, FTF is reduced by FTP penalty.

Question 7

What type of penalties will be applied to portion of tax underpayments attributable to negligence or disregard of tax rules and regulations as well as to any substantial understatement of income?

Answer 7

Accuracy related penalties

Question 8

The tax court
the US District Court
US Court of Federal Claims

Answer 8

What are courts of original jurisdiction for tax matters?

Question 9

If a tax payer receives a notice of deficiency (not related to mathematical errors), how long do they have to file a petition with the Tax court for redetermination?

Answer 9

90 days from the date of the mailing

Question 10

What is considered substantial authority for tax treatment of an item?

Answer 10

• Internal Revenue Code and other statutory provisions
• Proposed, temporary, and final regulations construing statutory provisions
• Revenue rulings
• Court cases

Question 11

What is the tax deadline for gift tax return?

Answer 11

April 15th

Question 12

What is the Distributable Net Income for a simple trust?

Answer 12

Total Income
-Deductions
=Adjusted Total income 
-capital gains
\+tax exempt income
=Distributable Net Income

*Note: Personal exemption of $300 is available to simple trust in calculating taxable income, no exemption is allowed for purposes of DNI

Question 13

Within how many months after the date of a decedent’s death is the federal estate tax return (Form 706) due if no extension of time for filing is granted?

Answer 13

9 months

Question 14

For federal estate taxation, the alternate valuation date Can be elected only if its use decreases both the value of the gross estate and the estate tax liability.

Answer 14

When can an alternative valuation date be used?

Question 15

What is the tax treatment under the unified rate schedule? (estate and gift)

Answer 15

Lifetime taxable gifts and transfers at death are taxed on a cumulative basis.

Question 16

What is the 2021 exception amount for gifts?

What are unlimited exclusions?

Answer 16

$15,000
Per Person
Per year 
to anyone
Unlimited exclusion:
-Directly to educational institution
-Directly to health care provider for medical care

Question 17

• Only makes distributions of current income (not corpus)
• required to distribute ALL income currently
• CANNOT take a deduction for charitable contribution
• entitled to $300 exemption

Answer 17

What are the features of a simple trust?

Question 18

• May accumulate current income
• May distribute principal
• May deduct charitable contributions
• permitted exemption of $100

Answer 18

What are the features of a complex trust?

Question 19

What are small business stock gain exclusions ?

Acquired between 8/11/1993 and 2/17/2009 - 50% capital gain exclusion
Acquired between 2/18/2009 and 9/27/2010 - 75% capital gain exclusion
Acquired after 9/27/2010 - 100% capital gain exclusion

Answer 19

What are the gain exclusions for qualified small business stock? (Issued by C-Corp having less than $50m capital at stock issuance.

Excluded gain can not exceed greater of:

• 10 times basis in the stock OR
• $10 Mil

Question 20

What is the taxation for UBI (Unrelated Business Income) for charitable organizations?

Answer 20

Unrelated business income (UBI) refers to income obtained from regularly operated business activities which are not related to the organization’s tax exempt purpose.

Question 21

What type of entities can form a 501(c)(3) exempt organization?

Answer 21

Corporations, foundations, or funds

NOT partnerships.

Question 22

• Games of chance (legal)
• convenience of members, students, or patients
• trade show activity
• sale of merchandise received as gifts (thrift store)
• Sales of articles made by disabled persons
• Substantially all work done by volunteers

Answer 22

What type of work is EXCLUDED from the definition of UBI, and therefore not taxed?

Question 23

What is the standard for CPA preparing returns involving tax shelters (to avoid penalties)

Answer 23

a tax shelter transaction must have more than 50% chance of being sustained on its merits to avoid penalty. (more likely than not)`

Question 24

What are the limitations on NOL (Net Operating Loss)?

Answer 24

Net operating losses arising after December 31, 2017, are deductible only to the extent of 80% of the taxpayer’s taxable income, and can be carried forward indefinitely but generally cannot be carried back. Net operating losses that arose before January 1, 2018, will not be subject to the 80% limitation.

Question 25

What are the basis for NOLs?

Answer 25

Net Operating Loss (NOL) is the excess of a taxpayer’s deductions over income (Salaries & Wages, Schedule C income, Rental income, and Farm income) including personal casualty losses. The most common reason for an NOL is the operation of a business.

Question 26

What is excluded from NOLs?

Answer 26

• NOL carryback or carry forward from other years,
• excess capital loss ($3,000),
• Standard Deduction,
• Itemized Deductions except casualty losses, contributions to a self-employed retirement plan,
• interest and dividends.

Question 27

In what type of tax cases have no right to appeal?

Answer 27

Cases tried in the Small Cases Division of the U.S. Tax Court