REG 2 Flashcards
What remedy can surety seek before paying a debt?
Exoneration ( Indemnification, subrogation, and contribution are all remedies available to the surety after he has paid the creditor.)
Which report must be file to SEC in case of material event?
8-K within 4 days the material event occurred
Which account must be capitalized in order to convert AMTI to ACE
Amortization of organizational expenditures.
Which exception allows C corporation to use cash method of accounting?
If the C corporation is a qualified personal service corporation, or if the C corporation for every year has average gross receipts of $5 million or less for any prior three-year period and does not have inventories.
Which factor is important to determine if an express warranty has been created?
Whether the promises made by the seller became part of the basis of the bargain (may be made either orally or in writing and will exist regardless of the seller’s intent).
Give one debt not dischargeable in bankruptcy
Liabilities that arose from intentionally obtaining property or money by false representations or fraud.
When does ultra vires doctrine apply?
When a corporation enters a contract outside the scope of its express or implied authority granted by its Articles of Incorporation. (when executed on one side, can’t avoid performance or rescind)
What is a non-taxable like-kind exchange?
The term “like kind” means the same class of property (e.g., real estate must be exchange for real estate, personal property must be exchanged for personal property within the same general asset or product class).(do not apply to an exchange of securities.)
Who can exclude the amount of a scholarship or fellowship that is used for tuition and course-related fees, books, supplies, and equipment.
Decree Candidate ( Amounts used for other purposes including room and board are included in income.)
What is a preferential transfer
It is a voidable preference : Can be set aside if made made within the previous 90 days prior to the filing of the petition.Made for preexisting debts which enable the creditor to receive more than s/he would have otherwise under a Chapter 7 liquidation proceeding
What is sec 1245 recapture
1245 recapture = depreciation1231 gain (Long term)= Gain -depreciationOffice furniture is Sec. 1245 property and gain from its sale is subject to Sec. 1245 recapture, which recaptures gain as ordinary income to the extent of all depreciation previously deducted. Any gain not recaptured would be a Sec. 1231 gain because the office furniture was property that was used in a trade or business and held for more than one year. Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale, the taxpayer’s depreciation deductions totaled $20,700.Selling price $37,000Cost $30,000 Depreciation ∁E20,700 Adjusted basis ∁E9,300Recognized gain $27,700Sec. 1245 recapture ∁E20,700Sec.. 1231 gain / LTCG $ 7,000
Who has joint liability for clean-up cost of a site
Past owners of the site as well as current owners and operators of the site all have joint and several liability for the cleanup costs. Therefore, any of these may be held liable for any proportion or all of the cleanup costs.
What is a quitclaim deed?
A quitclaim deed conveys merely whatever interest the grantor has in a specified piece of real property. It gives no warranty as to title, right to convey, etc.
What is an insurance deed
An insurable deed is one where an insurance company, usually a title company, assumes the risk of any defects in title.
What is a general warranty deed
General warranty deeds contain covenants guaranteeing that the grantor has title to the property and the right to convey it.
What is a special warranty deed
Special warranty deeds contain covenants guaranteeing that the grantor has title to the property and the right to convey it.
Is past consideration sufficient for a new contract?
No
What is the charitable contribution base for a corporation?
Taxable income computed before the charitable contributions deduction, the dividends-received deduction, a NOL carryback (but after carryover), and a capital loss carryback (but after carryover)
What are the necessary requirements for a valid deed
(1) the names of the buyer (grantee) and the seller (grantor), (2) words evidencing an intent to convey, (3) a legally sufficient description of the land, (4) the grantor’s (and usually the spouse’s) signature, and (5) delivery of the deed.
What is not included in a trust’s accounting income?
“allocated to corpus”
Under Sec Act 1933, when is an accountant liable to a purchaser of security?
Purchaser proves a false statement or omission existed and the specific securities were the ones offered through the registration statement.
How much can be excluded from income on gain that is realized on the sale or exchange of a residence,
250’000
Can an offeror withdraw its offer?
Yes always, unless prohibited from doing so because of the existence of an option or the firm offer rule.
Is the firm offer rule applicable to sale of property?
No
What is the essence of a surety agreement?
The surety promises to perform upon default of the principal debtor. Further action by the creditor versus the principal debtor is not necessary (unlike a guarantor of collection). The surety, upon satisfaction of the principal debtor’s obligation to the creditor, is subrogated to the creditor’s rights in the collateral.
When can a creditor resort to pledged collateral?
Immediately upon default
When can ratification of a contract take place (for a minor)?
After reaching majority
Which between fraud in execution and fraud in the inducement is making a contract voidable?
Fraud in the inducement (parties are free to go ahead). Fraud in execution makes the contract void (paper has been falsified)
What is inducing a failure to file within the statutes of limitation
Failure to file within the time period removes from the court the ability to grant a remedy. Although the plaintiff cannot seek a judicial remedy, valid contract can still be voluntarily completed, and for debts (an underlying obligation, for example), can be revived.
What is it possible to recover in case of not material breach of contract?
Monetary damages (i.e. not full array of remedies available by law or contract)
When is a liquidated damage close unenforceable?
If either at the time of contract formation, damages would not be difficult to estimate, or the amount set as damages is considered as a penalty
What are the conditions to be a creditor beneficiary
one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt.
Describe the gain/loss basis for gifts
Gain basis = donor’s adjusted basisLoss basis = lower of fair market value or adjusted basisIf sales for amount between gain and loss basis, no gain or loss is recognizedExample : Bluff purchases equipment for business use for $35,000 and makes $1,000 of improvements to the equipment. After deducting depreciation of $5,000, Bluff gives the equipment to Russett for business use. At the time the gift is made, the equipment has a fair market value of $32,000. Ignoring gift-tax consequences, what is Russett’s basis in the equipment?Gain basis = 35 E00+1 E00-5 E00 = 31 E00Loss basis = lower of 31 E00 and 32 E00 = 31 E00Basis = 31 E00
What are the characteristics of property bequeathed due to death of owner?
It has a fair market value basis to the beneficiary, and a long-term holding period.
What is a tax payer’s original basis in property acquired by purchase?
The amount paid in cash or property and/or the liabilities incurred. Example : Fred Berk buys a plot of land with a cash payment of $40,000 and a purchase-money mortgage of $50,000. In addition, Berk pays $200 for a title insurance policy. ->basis = 90 E00
What is the basis assumed by taxpayer for property received from a decendent through inheritance?
Basis equal to the fair market value of the property at the date of decedent’s deathExample : Lee inherits a partnership interest from Dale. The adjusted basis of Dale’s partnership interest is $50,000, and its fair market value on the date of Dale’s death (the estate valuation date) is $70,000. -> basis = 70 E00
How are capital assets defined?
Assets hold for investment or personnal use
What is the depreciable basis of equipment?
The basis includes all of the costs incurred to prepare the asset to be placed in service/Example :Purchase price. $55,000 Delivery charges. $725 Installation fees, $300 Sales tax. $3,400Depreciable basis = 59 E25
What is te basis to classify capital gains in long-term or short-term?
A gain is classified as short-term if the property sold or exchanged is held for one year or less and as long-term if the property sold or exchanged is held for more than one year. Losses from the sale or exchange of a capital asset are not deductible unless the loss results from a personal casualty loss.
Give examples of Ordinary assets
Account receivable/ inventoryDepreciable property used in a trade/business and realty that have been owned for a year or less
Give example of Section 1231 asset
Depreciable property used in a trade/business and realty that have been owned for more than a year
What is the property’s basis when alternative valuation date is elected?
Its fair market value on the date that is six months after the date of death.
What is the lenght of holding required for Section 1231 assets?
More than a year (otherwise Ordinary asset)
What is the donee basis in property acquired by gift?
The donor’s basis in the property plus the gift tax paid. However, if the fair market value of the gifted property at the time of the gift is less than the donor’s basis in the property, the donee assumes the fair market value of the property at the time of the gift as its basis for computing losses. The donee still uses the donor’s basis in the property plus the gift tax paid in computing gains.
What is the holding period in property inherited?
Always long term (so always long term gains)
What is the basis for a joinlty owned property?
Proportion (example if 2 owners = 50/50)Example : Principal Residence (owned jointly with Karen as a tenancy by the entirety for five years) 400,000 (basis=$350,000) ->basis of $175,000 ($350,000 x 50%) + basis equal to fair market value ($400,000 x 50% = $200,000) =>375 E00
What is a wash sale?
When there is a purchase of same shares sold within 30 days of the sale.If totality of shares sold is purchased, no loss is recognized (loss generated by first sale)If only part is purchased, (number share purchased/number of share sold)% of loss is disaloowed (example 100/500 = 20% of loss is disallowed)
Are stock split taxable?
No, but the basis per share changes due to a stock split.Example : Green purchased 600 shares several years ago at $30 per share (basis = 18 E00). three years ago, when the stock price was $21, there was a 2-for-1 stock split (1 E00 shares for 18 E00 (same basis) and two years ago, when the stock price was $25, there was a 3-for-2 stock split (1 E00 shares for 18 E00 (same basis)). No other shares were sold by Green prior to year 2.
Are corporation capital losse’s deductible?
Deductible only to the extent of capital gains (since it is netted)Unused capital losses maybe carried back for 3 years and carried forward for 5 years
What is the maximum deduction for a given year for a Section 1244 loss?
50 E00 ($100,000 if married filing jointly) (ordinary loss). Remaining is treated whather in capital loss or ordinary loss (depending on the nature of asset)Example : In the current year, Fitz, a single taxpayer, sustained a $48,000 loss on Code Sec. 1244 stock in JJJ Corp., a qualifying small business corporation, and a $20,000 loss on Code Sec. 1244 stock in MMM Corp., another qualifying small business corporation. What is the maximum amount of loss that Fitz can deduct for the current year?=>$50,000 ordinary loss and $18,000 capital loss (since it is investment = capital asset).
Which of long-term or short-term capital gains are eligible to be taxed at preferential rates?
Long-term capital gains
Which is the amount thay can be deducted by a non-corporate taxpayer’s in case his capital loss exceed his capital gain?
Lower of 3 E00 or the amount by which capital losses exceed capital gains.Example : Lee has a net long-term loss of $8,000 in 2014 (capital losses exceed capital gains of 8 E00) => can deduct 3 E00.
What are the conditions to qualify for ordinary treatment?
1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.Example : Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244. The stock costs Jackson’s parents $20,000 and has a fair market value of $25,000 at the parents’ date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless. What amount may Jackson deduct as an ordinary loss in the current year? =>0
How is treated carryover (5 years) and carry back (3 years)?
It is treated as a short-term capital loss, whether or not it was short-term when sustained.
Can Capital losses in excess of gains be used to reduce the taxable income of the corporation?
No, however, the unused capital losses may be carried back for three years and carried forward five years.
Which code section and subsection provides for the treatment of an individual’s capital loss carryforward?
IRC§1212.b
What Internal Revenue Code section and subsection limits the deduction of a corporation’s capital losses?
IRC§1212.a
How are considered tangible assets that are used in a trade or business and owned for one year or less?
Ordinary Assets
How are gain on the sale of a realty taxed?
Taxed at a 25% rate to the extent of the straight-line depreciation claimed on the asset. (Note that there is no Section 1250 recapture if straight-line depreciation is used for the asset.)The remaining gain is taxed as section 1231 gain.
What does the lookback provision state?
It states that the net Section 1231 gains must be offset by net Section 1231 losses from the five preceding tax years that have not previously been recaptured. To the extent of these losses, the net Section 1231 gain is treated as ordinary income.Example :Year Results of Operations. 1 Section 1231 losses of $50,000. 2 Section 1231 losses of $30,000. 3 Section 1231 gains of $75,000 4 Section 1231 losses of $20,000 5 Section 1231 losses of $30,000 6 Section 1231 gain of $80,000 => $55,000 ordinary income; $25,000 Sec. 1231 gain.
