R8 - Business Law Pt 2

Question 1

What does a client need to prove when suing a CPA for negligence?

Answer 1

• Material misstatement or omission in F/S
• Loss - actual loss as a result
• Proximate cause - information on F/S was proximate cause of the harm
• Breach of duty of care
• NOT reliance

Question 2

When are trustees required for bankruptcy?

Answer 2

REQUIRED - Chapter 7 and 13

NOT required - Chapter 11 - court may appoint if needed

Question 3

What are the major types of bankruptcy?

Answer 3

Chapter 7 - Liquidation (IPC)
Chapter 13 - individual re-org
Chapter 11 - Reorganization, No Liquidation, Trustee Not required (IPC)
Chapter 15 - multinational insolvency
Chapter 9 - municipal debt adjustment

Question 4

Who is NOT eligible to file Chapter 7 bankruptcy (RIBS)?

Answer 4

Railroad (May file under 11)
Savings institutions
Insurance
Small business investment companies

Question 5

How many creditors / debt is required to file INVOLUNTARY bankruptcy?

Answer 5

• Must owe more that $16,750
• if fewer than 12 creditors - One or more owed $16,750 unsecured
• if 12 or more creditors - three owed $16,750 unsecured
• Farms and charities may not be forced into involuntary*

Question 6

What is preferential payment in bankruptcy?

Answer 6

• Made for the benefit of the creditor for existing debt
• Within 90 days prior to filing
• Within 1 year for insiders
• receiving more that creditor would have if it went through bankruptcy

Question 7

What are the three basic categories of claimants paid in order?

Answer 7

Secured claimants
Priority Claimants
General creditors who filed their claim on time
*If there is not enough to pay all creditors at particular level, creditors share pro rata

Question 8

What are the priority claimants (highest to lowest priority)? SAG WEG CTI

Answer 8

S- Support obligations to spouses and children
A- Expenses of bankruptcy Administration
G- Gap - claims that accrue in ordinary course of business after involuntary petition, before order of relief
W - Wage claims of employees 0 180 days - up to $13,650
E- Employee benefits
G - gains of farmers and fishermen - up to $6,275
C- Consumer deposits up to $3,025
T - Tax Claims
I - Injury claims from intoxicated driving

Question 9

What debts CANNOT be discharged in bankruptcy?

WAFTED

Answer 9

• Willful and malicious injury
• Alimony
• Fraud
• Taxes
• Educational loans
• Debts undisclosed in bankruptcy petition

Question 10

What is subject to 15.3% self-employment tax for self employed individuals?

Answer 10

Net profits

And only if net profits exceed $400 for the year