REG 1 Flashcards
What is the time limit for the IRS to collect after a tax is assessed?
10 years
In the absence of an election to adopt an annual accounting period, the required tax year for a partnership is:
a tax year of one or more partners with a more than 50% interest in profits and capital.
Tax shelters (regardless of ownership form) are generally prohibited from using the cash basis.
Tax shelters (regardless of ownership form) are generally prohibited from using the cash basis.
Accrual basis accounting must be used for the sale and expensing of inventory (with limited exception for very small businesses).
Accrual basis accounting must be used for the sale and expensing of inventory (with limited exception for very small businesses).
Accrual method must be used if
Corporations or partnerships with a C corporation partner with annual gross receipts in excess of $5 million for any year
Personal service corporations can
use cash basis acct
Adjusted basis of an asset is
the original cost (or other substituted basis—as in an exchange or contribution to a business in exchange for an ownership interest, or a gift, or inheritance) plus any additions or capitalized improvements, then reduced by depreciation allowed or allowable and amounts written off due to sale or involuntary conversion.
s corp-the adjusted basis can also be affected by the proportionate amount of partnership or corporation income and losses and distributions from the entity to the partner-shareholder.
The business gift deduction is limited to
up to $25 per donee
Engraving, gift wrapping, mailing, and delivery charges may be deducted in addition
The estate tax return is due
nine months after the date of death - A 6-month extension is available if requested prior to the due date.
Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is mandatory for a sole proprietor with average annual gross receipts of over $1 million when there are
year-end retail trade merchandise inventories.
Section 197 intangible costs include
goodwill, going concern value, patents, copyrights, franchises, trademarks, trade names, and various other intangibles. 15 year amortization
Under the Negotiable Instruments Article of the U.C.C., for an instrument to be negotiable it must:
be payable to order or to bearer.
The five requisites of negotiability (if any requisite is lacking, the instrument is nonnegotiable) are:
must be signed (S) by the maker or drawer (the signature can be a stamp that is intended as a signature),
must appear on the face (“within the four corners”) of the writing (W) (the instrument); adding “Pay to the order of X” to the reverse side does not cure the defect (if these words are lacking on the face),
must contain an unconditional (U) promise or order to pay (P) a sum certain (S) in money (and no other promise, order, power, or obligation is given by the maker or drawer),
must be payable (P) on demand or at a definite time, and
must be “payable (P) to order of or to bearer” (these are the magic words of negotiability; must be present as shown: “Pay X” or “Pay to X” does not meet this requirement and does not convey negotiability).
itemized deductions are
a deduction from AGI
deductions to arrive AT AGI
Alimony payments, trade or business expenses, and excess capital losses over capital gains (limited to $3,000 per year)
Deductions from AGI are
unreimbursed employee business expenses are a miscellaneous itemized deduction
IRC Section 1231 transactions include
sales or exchanges of real property or depreciable personal property. This property must be used in a trade or business and held longer than one year.
benefits of 1231
Generally, a net Section 1231 loss is ordinary loss and a net Section 1231 gain (except for depreciation recapture) is long-term capital gain.
how are start up costs taxed?
taxpayers may deduct up to $5,000 in the taxable year in which the business begins. The $5,000 amount is reduced by the amount by which the cumulative cost of start-up expenditures exceeds $50,000. Any remaining start-up expenditures not deducted are amortized over a 15-year period (180 months).
exceptions to the uniform capitalized rules
Editorial costs incurred by a freelance writer,
Research and experimental expenditures,
Mine development and exploration costs
After an S corporation elects to revoke its status as an S corporation, it must:
wait five years, but can apply to the IRS for an earlier reelection
Organizational costs are:
connected directly with the creation of the business:
Expenses of temp directors
fees paid to state
accounting and legal fees
Which act imposes liability on a CPA who prepares materially misleading financial statements issued in conjunction with the initial offering of securities. imposes
securities act of 1933
securities at of 1933
initial public offerings and private placement securities
sec act 1934
deals with annual reports
By recording the mortgage, Jet protects its rights against
the claims of subsequent bona fide purchasers for value.
Which of the following securities is exempt from registration under the Securities Act of 1933?
A class of stock given in exchange for another class by the issuer to its existing stockholders without the issuer paying a commission. The reason is that no “new” securities are really being offered. This is really an “exchange.”
resales of the offering must be made under a registration or a different exemption provision of the 1933 Act.
Under the Securities Act of 1933, original offerings of securities may be made without registration (i.e., exempt from registration requirements) under one of the specified “exemptions” under Regulation D. However, any resales of the offering may be subject to registration unless another exemption provision of the Act is applicable.
What is REG D
A series of rules that establish three exemptions (for limited offerings) to the registration requirements of the Securities Act of 1933:
Rules 501–503 set forth definitions, terms, and conditions.
Rules 504–505 provide “safe harbor” for small offering exemptions.
Rule 506 provides an exemption for private placements.
Chapter 11 bankruptcy was revised under the 2005 Bankruptcy Reform Act. Some of the more material changes and additions include:
- confirmation of a Chapter 11 plan of reorganization does not discharge an individual debtor.
- individual debtors must use assets acquired after the petition was filed as necessary in the reorganization plan.
What is the cram down rule
the court may it may confirm a reorganization plan over the objection of creditors if it is shown the plan is equitable.
When does the 1934 Act apply if not traded on a national exchange?
Gross assets of $10 million
500 shareholders
Under the Negotiable Instruments Article of the U.C.C., what kind of indorsement is made by the use of the words “Lee Louis”?
Blank, nonrestrictive, and unqualified
Writing an indorsement with only a name without specifying a further indorsee is a “blank indorsement.” Since nothing else was added to the indorsement, it is also an unqualified indorsement and a nonrestrictive indorsement. The check then becomes “bearer paper.”
What is a bearer?
The bearer is the party in possession of an instrument that is payable to bearer or indorsed in blank.
If a person is induced to enter into a contract by another person because of the close relationship between the parties, the contract may be voidable under which of the following defenses?
Undue influence
as this “assent” or inducement to contract arises from special or close relationships between the parties, which is exactly the point of the question. One party’s views are usually overcome by the other because of this close relationship.
The tax preparer must maintain a file of returns and log of all returns for
three years after the close of the return period.
ERISA sets forth standards for
fiduciary duties for pension-plan sponsors and managers, but does not include a requirement that employers are required to include employees and pension-plan managers.
Under Chapter 7 of the Federal Bankruptcy Code, what effect does a bankruptcy discharge have on a judgment creditor when there is no bankruptcy estate?
The debtor is relieved of any personal liability to the judgment credito
Are corporate shareholder liable for the debts of the corporation?
Corporate shareholders are not personally liable for the debts of the corporation: unless the corporate veil is pierced, they are liable only to the extent of their investment (limited liability).
What is NOVATION?
the substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.
What is accord and satisfaction?
The discharging of a liability through payment.
The following would impair auditor independence:
determining which, if any, recommendations for improving the internal control system should be implemented.
approving or being responsible for the overall internal audit work plan, including the determination of the internal audit risk and scope, project priorities, and frequency of performance of audit procedures.
preparing source documents on transactions.
Section 11 of the Securities Act of 1933 imposes a civil liability on all issues, underwriters, etc. for
any material errors or misrepresentations in the registration statements REGARDLESS of whether an investor actually relied on the statement or not.
A check must be
payable on demand
What are the types of drafts?
- Time draft: payable at some future, determinable time.
- Money order: instrument with name of purchaser and payee on its face and drawn on a bank or post office.
- Banker’s acceptance: draft drawn on and accepted by a bank (drawer = Bank A; drawee = Bank B).
- Checks: a draft drawn on a bank and payable on demand.
- Trade acceptance: draft drawn by seller of goods on the buyer and accepted by the buyer (drawer = payee = seller; drawee = buyer)
