REG 1 Flashcards

1
Q

How do you calculate net operating loss?

A

NOL = Business income exceed business expenses

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2
Q

When does an agent’s apparent authority terminate?

A

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.

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3
Q

What are adjustments to AGI vs. itemized deductions?

A
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4
Q

What is section 1244 stock?

A

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

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5
Q

How do you calculate a distribution from corporations to shareholders?

A

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)

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6
Q

How do you calculate partner’s basis in partnership?

A

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

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7
Q

What is a substantially disproportionate stock redemption?

A

A redemption is substantially disproportionate if after the redemption the shareholder owns:

  1. Less than 50% of the voting power of outstanding stock
  2. Less than 80% each of the (a) voting stock owned before the redemption and (b) common stock owned before the redemption
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8
Q

What is Accumulated Earnings Tax (AET)?

A

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
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9
Q

What is the Personal Holding Company (PHC) Tax?

A

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
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10
Q

What is Section 351?

A

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
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11
Q

What is the IRA deduction?

A

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

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12
Q

What is the doctrine of ultra vires?

A

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:

  1. Shareholder seeks injunction
  2. Corporation proceeds against directors or officers
  3. State attorney proceeds against corporation
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13
Q

What are the tax consequences of distribution when there is current and accumulated E&P?

A
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14
Q

How do you allocate a distribution if it exceeds current E&P?

A
  • 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)
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15
Q

For corporate property dividends, what is the effect on the shareholder?

A

Amount distributed equals FMV of property

  1. Taxable as dividend to the extent of E&P
  2. Excess is treated as return of capital to the extent of stock basis
  3. Any remaining amount is a capital gain
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16
Q

For corporate property dividends, what is the effect on the corporations E&P?

A

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)
17
Q

What is the donee’s basis in property acquired by gift?

A

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

18
Q

How do you calculate the foreign income tax credit?

A

(Foreign source taxable income/Worldwide taxable income) x U.S. taxable income = Foreign tax credit limitation

19
Q

How are partnership property distributions handled for the partner (distributee)?

A
  • 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.
20
Q

How are partnership property distributions handled by the partnership?

A
  • 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)
21
Q

What is the failure to file penalty for S Corporations?

A

Penalty base amount = No. of shareholders x $220 X no. of months

22
Q

In what situations can a tax practitioner before the IRS charge a contingent fee?

A

A practitioner cannot charge a contingent fee except for fees in relation to an IRS examination of

  1. an original return
  2. an amended return
  3. claim for refund or credit
  4. a judicial proceeding
23
Q

What is a revenue ruling?

A

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
24
Q

When is qualifying widow status available?

A

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)
25
Q

What are the tax prepayments and penalties for individuals?

A

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
26
Q

What is the statute of limitations for assessing tax liability for individual tax payers?

A

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.

27
Q

What are the due dates of individual tax returns?

A

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)

28
Q

What is the statute of limitations for claims for refunds?

A

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)
29
Q

When are alimony payments included in gross income?

A

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.

30
Q

What are employer FICA taxes?

A
  • 6.2% on the first $142,800 of the wages (Social Security tax)
  • 1.45% on all wages (Medicare tax)