REG 1 Flashcards
How do you calculate net operating loss?
NOL = Business income exceed business expenses
When does an agent’s apparent authority terminate?
An agent’s actual authority is terminated by the principal’s revocation. Apparent authority of the agent continues to exist until a third party receives notice of the termination by an act of the principal or the agent. Constructive notice must be given to other third parties to terminate apparent authority.
What are adjustments to AGI vs. itemized deductions?
What is section 1244 stock?
Stock in a small business corporation; if there is a loss on disposition, up to $50,000 ($100,000 if MFJ) can be classified as an ordinary loss
How do you calculate a distribution from corporations to shareholders?
Distribution Amt = Money + Obligations (FMV, e.g. bond) + Property (FMV) - Related Liabilities
Distribution is a transfer of property by a corporation to its shareholders (e.g. money, bonds, stock, other property)
How do you calculate partner’s basis in partnership?
Cash Contributed
+Adjusted Basis of Property Contributed
+Any gain recognized on contributed property or services
+Share of partnership liabilities
-Partner’s liability assumed by partnership
=Basis in partnership interest
What is a substantially disproportionate stock redemption?
A redemption is substantially disproportionate if after the redemption the shareholder owns:
- Less than 50% of the voting power of outstanding stock
- Less than 80% each of the (a) voting stock owned before the redemption and (b) common stock owned before the redemption
What is Accumulated Earnings Tax (AET)?
AET is a penalty imposed on C corporations for avoiding income tax at the shareholder level
- Taxable Income
- +/- Adjustments
- Current E&P (undistributed current year earnings)
- -Dividends paid
- -Accumulated Earnings Credit (AEC)
- ATI
- x20%
- AET
What is the Personal Holding Company (PHC) Tax?
The PHC tax is a 20% penalty tax imposed on the undistributed income of personal holding companies.
Entities subject to tax:
- Non-exempt entities (not a S corp, bank, insurance company)
- More than 50% owned by 5 or fewer shareholders
- 60% or more of the adjusted ordinary gross income is PHC income
What is Section 351?
Section 351 states that no gain or loss be recognized if property is transferred to a coporation and, immediately after the exchange, such person controls the corporation.
- Control is 80% or more
- Solely for stock
What is the IRA deduction?
For 2022, contributions are fully deductible up to the lesser of $6,000 ($7,000 for age 50 and up) or 100% of includible compensation
What is the doctrine of ultra vires?
Ultra vires states that a corporation may not act beyond inherent powers in articles of incorporation and statues.
3 exceptions where power to act can be questioned:
- Shareholder seeks injunction
- Corporation proceeds against directors or officers
- State attorney proceeds against corporation
What are the tax consequences of distribution when there is current and accumulated E&P?
How do you allocate a distribution if it exceeds current E&P?
- Must allocate current and accumulated E & P to each distribution.
- If CEP positive, allocate current E&P pro rata (proportionally using dollar amounts) to each distribution.
- If CEP negative, allocated equally, evenly during the year
- Apply AEP in chronological order (always)
For corporate property dividends, what is the effect on the shareholder?
Amount distributed equals FMV of property
- Taxable as dividend to the extent of E&P
- Excess is treated as return of capital to the extent of stock basis
- Any remaining amount is a capital gain
For corporate property dividends, what is the effect on the corporations E&P?
Property dividends:
- Increases E&P for excess of FMV over basis of property distributed (i.e. gain recognized)
- Reduces E&P by FMV of property distributed (or basis, if greater) less liabilities on the property
- Distributions of cash or property cannot generate or add to a deficit in E&P (deficits can only arise through corporate losses)
What is the donee’s basis in property acquired by gift?
Gift tax paid x [(FMV at the time of gift - Donor’s basis)/(FMV at the time of the gift - Annual exclusion)]
*The 2022 annnual exclusion is $16,000 per person
How do you calculate the foreign income tax credit?
(Foreign source taxable income/Worldwide taxable income) x U.S. taxable income = Foreign tax credit limitation
How are partnership property distributions handled for the partner (distributee)?
- The distributee partner generally recognizes a gain only to the extent that money (including liability relief) exceeds their AB in their partnership interest.
- The partner’s basis in distributed property is the partnership’s AB before the distribution, limited to the distributee’s AB in their partnership interest less money received.
How are partnership property distributions handled by the partnership?
- No gain or loss recognized on property or money
- Precontribution gain or loss - recognize to the extent of unrealized gain or loss which existed at contribution date (allocate to contributing partner; increase contributing partner’s basis)
- Distributing unrealized receivables or appreciated inventory result in gain recognition (taxed as ordinary income)
What is the failure to file penalty for S Corporations?
Penalty base amount = No. of shareholders x $220 X no. of months
In what situations can a tax practitioner before the IRS charge a contingent fee?
A practitioner cannot charge a contingent fee except for fees in relation to an IRS examination of
- an original return
- an amended return
- claim for refund or credit
- a judicial proceeding
What is a revenue ruling?
Revenue ruling is issued by the IRS and is an official interpretation of Internal Revenue law as applied to a given set of facts.
- Published in Internal Revenue Bulletins
- Promotes uniform application of tax
- May be cited as precedent cited as primary authoritative source
When is qualifying widow status available?
The qualifying widow or surviving spouse status is available for 2 years following the year of death of spouse if the following is in place:
- Taxpayer did not remarry during the tax year
- Widow(er) qualified for MFJ status for the year of death of spouse
- Qualifying widow(er) maintains a household for the entire taxable year (furnishes > 50% of costs)
What are the tax prepayments and penalties for individuals?
Individuals who earn income not subject to withholding must pay estimated taxes in quarterly installments.
Each installment must be at least 25% of the lowest of the following:
- 100% of the prior year’s tax (110% if AGI > $150,000)
- 90% of the current year’s tax
- 90% of the annualized current year’s tax
What is the statute of limitations for assessing tax liability for individual tax payers?
The general statute of limitations (S/L) is 3 years from the date the return was filed. A return filed before the due date is treated as filed on the due date (April 15th). The IRS generally has 10 years following the assessment to collect.
The S/L is 6 years if there is ommission of items of more than 25% of gross income.
What are the due dates of individual tax returns?
Individuals - 15th day of the 4th month following the close of tax year (e.g. April 15th)
C corporations - 15th day of the 4th month following end of the tax year (extended due date is 6 months later)
S corporations - 15th day of the 3rd month following close of tax year (extension of 6th months available)
Partnership - 15th day of the 3rd month (extension of 6 months available)
What is the statute of limitations for claims for refunds?
Refund claims must be filed by the later of:
- 3 years from the due date (April 15), OR
- 2 years after the tax was paid
NOTE:
- Early returns are treated as filed on the due date (April 15th)
- Taxes withheld, estimated tax payments, and credits are deemed to be paid on the 4th month after close of tax year (April 15th)
When are alimony payments included in gross income?
Alimony payments are included in gross income of the recipient and are deducted from gross income of the payor for divorce decrees prior to 2019.
What are employer FICA taxes?
- 6.2% on the first $142,800 of the wages (Social Security tax)
- 1.45% on all wages (Medicare tax)
