Reg 2 Flashcards
In a principal-agent relationship, which of the following remedies is not available to the agent whose principal is guilty of violating a duty owed the agent?
A. Recovery for past services.
B. Recovery for indirect losses.
C. Novation.
D. Specific performance.
C. Novation.
A taxpayer received a notice of deficiency from the IRS. If the tax underpayment is not the result of the taxpayer’s mathematical or clerical error, how long does the taxpayer have to file a petition with the Tax Court for a redetermination of the deficiency?
A. If the notice is addressed to a taxpayer outside of the United States, 120 days from the mailing date of the notice.
B. Sixty days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States.
C. If the taxpayer has filed for bankruptcy under Chapter 11, 150 days from the mailing date of the notice.
D. Ninety days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States.
D. Ninety days from the mailing date of the notice if the notice is not addressed to a taxpayer outside of the United States.
Under the liquidation provisions of Chapter 7 of the federal Bankruptcy Code, which of the following statements applies to a person who has voluntarily filed for and received a discharge in bankruptcy?
A. The person will be discharged from all debts.
B. The person can obtain another Chapter 7 bankruptcy discharge in bankruptcy after three years have elapsed from the date of the prior filing.
C. The person must surrender to the bankruptcy trustee amounts received as an inheritance if the receipt occurs within 180 days after filing the bankruptcy petition.
D. The person is precluded from owning or operating a similar business for two years.
C. The person must surrender to the bankruptcy trustee amounts received as an inheritance if the receipt occurs within 180 days after filing the bankruptcy petition.
An individual taxpayer owned 100% of Alpha Corp., an S corporation. At the beginning of the year, the taxpayer’s basis in Alpha was $25,000. Alpha realized ordinary income during the year in the amount of $1,000 and a long-term capital loss in the amount of $3,000 for this year. Alpha distributed $30,000 in cash to the taxpayer during the year. What amount of the $30,000 cash distribution is taxable to the taxpayer?
A. $0
B. $4,000
C. $7,000
D. $30,000
B. $4,000
In this scenario, to determine how much of the $30,000 cash distribution is taxable, the beginning basis of $25,000 is first increased by ordinary income of $1,000, for basis of $26,000. Next, basis is decreased (but not below zero) by the distribution of $30,000. Basis is reduced to zero, and the excess distribution of $4,000 ($30,000 distribution − $26,000 basis) is taxable (Choice A).
Beginning basis $25,000
+ Ordinary income 1,000
Adjusted basis 26,000
− Distribution* (30,000)
Ending basis (not below $0) $0
*Excess distribution of $4,000 ($30,000 distribution − $26,000 basis) is taxable.
Because basis is already zero, the $3,000 capital loss is suspended (and tracked by the shareholder) until there is sufficient basis to absorb it.
A taxpayer gave a gift of land worth $90,000 to a cousin. The land’s original cost to the taxpayer was $30,000. As a result of the transfer, the taxpayer paid a gift tax of $12,000. Assuming an annual gift exclusion of $15,000, what is the cousin’s basis in the land?
A. $30,000
B. $38,000
C. $39,600
D. $42,000
C. $39,600
In this scenario, because the gift was appreciated property (ie, $90,000 FMV when gifted > $30,000 adjusted basis), the cousin assumed the carryover basis (ie, $30,000) plus a portion of the gift tax paid by the taxpayer. The portion of the gift tax is calculated as:
$
$90,000
FMV
-
$30,000
basis
$90,000
FMV
-
$15,000
gift tax exclusion
×
$12,000
gift tax
=
$9,600
Therefore, the cousin’s basis in the land is $39,600 (ie, $30,000 + $9,600).
Which of the following rights will a third party be entitled to after validly contracting with an agent representing an undisclosed principal?
A. Disclosure of the principal by the agent.
B. Ratification of the contract by the principal.
C. Performance of the contract by the agent.
D. Election to void the contract after disclosure of the principal.
C. Performance of the contract by the agent.
Under the Revised Model Business Corporation Act, which of the following conditions is necessary for a corporation to achieve a successful voluntary dissolution?
A. Successful application to the secretary of state in which the corporation holds its primary place of business.
B. A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote.
C. Approval by the board of directors of an amendment to the certificate of incorporation calling for the dissolution of the corporation.
D. Unanimous approval of the board of directors and all shareholders entitled to vote on a resolution of voluntary dissolution.
B. A recommendation of dissolution by the board of directors and approval by a majority of all shareholders entitled to vote.
Partnership P has an operating loss of $10,000 for the year. Partner A had a 50% interest in the partnership, with a basis of $5,000 at the beginning of the year. P distributed $2,000 to A during the year. What amount of loss is deductible by A?
A. $2,000
B. $3,000
C. $5,000
D. $7,000
B. $3,000
Since Partner A had a 50% interest in the partnership, A’s share in the loss is $5,000. With a basis of $5,000 at the beginning of the year and a distribution of $2,000 to A during the year, there is $3,000 of basis left to absorb part of the loss; thus, $3,000 of the loss will be deductible, the partner’s basis will be reduced to zero, and the remaining $2,000 loss will be suspended until the partner has sufficient basis to absorb the loss.
System Corp. is an accrual-basis, calendar-year C corporation and a 1% owner of an investment company that paid System dividends included in book income. The corporation’s current year reported book income is $100,000. Included in that amount are the following items:
Municipal bond interest income $7,000
Reportable dividend income 10,000
Net capital loss 6,000
Business meals expense 2,000
Federal income tax expense 21,000
What should be the amount of System Corp.’s current year taxable income as reconciled on System’s Schedule M-1 of Form 1120, U.S. Corporation Income Tax Return?
A. $116,000
B. $118,000
C. $121,000
D. $122,000
C. $121,000
To get from book income to taxable income, System Corp.’s federal income tax expense, net capital loss, and 50% of the business meals expense are added to the book income of $100,000. The municipal bond interest, which is tax exempt, is subtracted from book income. Therefore, Schedule M-1 taxable income is $121,000 ($100,000 + $21,000 + $6,000 + $1,000 − $7,000).
Take this one with a grain of salt as it appears to leave out the dividend received deduction.
