REG 2

Question 1

An exempt organization is not taxed on unrelated business income of less than $1,000.

Answer 1

An exempt organization is not taxed on unrelated business income of less than $1,000.

Question 2

Expenses incurred in preparing to open a new business are deducted over 180 months, rather than all at once as they would be if the business were already operating. Typical costs include investigating whether to open a business, ordering supplies needed, and training employees.

Answer 2

Expenses incurred in preparing to open a new business are deducted over 180 months, rather than all at once as they would be if the business were already operating. Typical costs include investigating whether to open a business, ordering supplies needed, and training employees.

Question 3

An individual’s deduction for cash charitable contributions cannot exceed an overall limitation of 60% of adjusted gross income, Example - ($60,000 AGI × 60%) = $36,000

Answer 3

An individual’s deduction for cash charitable contributions cannot exceed an overall limitation of 60% of adjusted gross income, Example - ($60,000 AGI × 60%) = $36,000

Question 4

A general business credit in excess of the limitation amount is carried back 1 year and forward 20 years.

Answer 4

A general business credit in excess of the limitation amount is carried back 1 year and forward 20 years.

Question 5

A general partner may also be a limited partner at the same time. This partner would have the rights, powers, and liability of a general partner, and the rights against other partners with respect to his/her contribution as both a limited and a general partner.

Answer 5

A general partner may also be a limited partner at the same time. This partner would have the rights, powers, and liability of a general partner, and the rights against other partners with respect to his/her contribution as both a limited and a general partner.

Question 6

When a corporation’s charitable contributions exceed the limitation for deductibility in a particular year (i.e., 10% of taxable income for the year), the excess may be carried over and deducted for five years.

Answer 6

When a corporation’s charitable contributions exceed the limitation for deductibility in a particular year (i.e., 10% of taxable income for the year), the excess may be carried over and deducted for five years.

Question 7

When a gift of a partnership is made, the tax basis of the partnership at time of gifting is used to determine how much of a gain to recognize. The time period to determine whether its a long term or short term capital gain upon selling the gift, you actually include the time period in which the person who gave the gift. Example - partnership interest was acquired in 2012, gifted in the middle of 2018 and then sold in late 2018. You would include the time from 2012 to 2018 to determine if its a short term or long term capital gain. In this example its a long term capital gain since its technically been held for over a year

Answer 7

When a gift of a partnership is made, the tax basis of the partnership at time of gifting is used to determine how much of a gain to recognize. The time period to determine whether its a long term or short term capital gain upon selling the gift, you actually include the time period in which the person who gave the gift. Example - partnership interest was acquired in 2012, gifted in the middle of 2018 and then sold in late 2018. You would include the time from 2012 to 2018 to determine if its a short term or long term capital gain. In this example its a long term capital gain since its technically been held for over a year

Question 8

A tax return preparer, who prepares a return or refund claim, which includes an “unreasonable position,” must pay a penalty of the greater of $1,000 or 50% of the income derived by the preparer for preparing the return (50% × $1,000 = $500). A position is unreasonable if there is not substantial authority for it. There is an exception to this rule if the position was disclosed and there is a reasonable basis for it.

Answer 8

A tax return preparer, who prepares a return or refund claim, which includes an “unreasonable position,” must pay a penalty of the greater of $1,000 or 50% of the income derived by the preparer for preparing the return (50% × $1,000 = $500). A position is unreasonable if there is not substantial authority for it. There is an exception to this rule if the position was disclosed and there is a reasonable basis for it.

Question 9

If the understated tax liability is due to an unreasonable position and the preparer willfully attempts to understate the tax liability or recklessly or intentionally disregards rules or regulations, the penalty is the greater of $5,000 or 75% of the income earned by the tax preparer for preparing the return or claim (75% × $1,000 = $750).

Answer 9

If the understated tax liability is due to an unreasonable position and the preparer willfully attempts to understate the tax liability or recklessly or intentionally disregards rules or regulations, the penalty is the greater of $5,000 or 75% of the income earned by the tax preparer for preparing the return or claim (75% × $1,000 = $750).

Question 10

Section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in § 368(c)) of the corporation.

Section 368(c) defines control to mean the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.

Answer 10

Section 351(a) provides that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in § 368(c)) of the corporation.

Section 368(c) defines control to mean the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation.

Question 11

The Uniform Commercial Code (UCC) is the body of laws governing commercial transactions in the US.

For example, transactions such as borrowing money, leasing equipment or vehicles, setting up contracts, and selling goods are all covered by the Uniform Commercial Code. The sale of services and the purchase of real estate is not a UCC transaction.

Answer 11

The Uniform Commercial Code (UCC) is the body of laws governing commercial transactions in the US.

For example, transactions such as borrowing money, leasing equipment or vehicles, setting up contracts, and selling goods are all covered by the Uniform Commercial Code. The sale of services and the purchase of real estate is not a UCC transaction.

Question 12

If property acquired by gift is sold at a loss, its basis is the lesser of (1) its gain basis ($4,000 above), or (2) its FMV at date of gift ($3,000).

Answer 12

If property acquired by gift is sold at a loss, its basis is the lesser of (1) its gain basis ($4,000 above), or (2) its FMV at date of gift ($3,000).

Question 13

To create a security interest that is enforceable::

1. The value has been given,
2. the secured party receives a security agreement describing the collateral authenticated by the debtor
3. and the debtor has rights in the collateral.

Answer 13

To create a security interest that is enforceable::

1. The value has been given,
2. the secured party receives a security agreement describing the collateral authenticated by the debtor
3. and the debtor has rights in the collateral.

Question 14

When a corporation makes a charitable contribution, the charitable contribution should be added back to book income, because the deduction for charitable contributions is limited to 10% of taxable income before the contribution deduction.

Answer 14

When a corporation makes a charitable contribution, the charitable contribution should be added back to book income, because the deduction for charitable contributions is limited to 10% of taxable income before the contribution deduction.

Question 15

Estates may use either the calendar year or a fiscal year for its tax year.

Answer 15

Estates may use either the calendar year or a fiscal year for its tax year.

Question 16

A partner’s basis in the partnership interest is increased by:

1. additional contributions;
2. additional interest’s purchased or inherited;
3. the partner’s share of the partnership’s income (including tax-exempt income); and
4. any increases in the partner’s share of partnership liabilities.

A partner’s basis in the partnership interest is decreased by:

1. cash and the partnership’s adjusted basis of property received by the partner in a nonliquidating distribution;
2. the adjusted basis allocable to any part of the partner’s interest sold or transferred;
3. the partner’s share of the partnership’s losses; and
4. any decreases in the partner’s share of partnership liabilities.

Answer 16

A partner’s basis in the partnership interest is increased by:

1. additional contributions;
2. additional interest’s purchased or inherited;
3. the partner’s share of the partnership’s income (including tax-exempt income); and
4. any increases in the partner’s share of partnership liabilities.

A partner’s basis in the partnership interest is decreased by:

1. cash and the partnership’s adjusted basis of property received by the partner in a nonliquidating distribution;
2. the adjusted basis allocable to any part of the partner’s interest sold or transferred;
3. the partner’s share of the partnership’s losses; and
4. any decreases in the partner’s share of partnership liabilities.

Question 17

Losses on stock are disallowed on sales between related taxpayers, including family members.

Answer 17

Losses on stock are disallowed on sales between related taxpayers, including family members.

Question 18

Worthless securities generally receive capital loss treatment. However, if the loss is incurred by a corporation on its investment in an affiliated corporation (80% or more ownership), the loss is generally treated as an ordinary loss.

Answer 18

Worthless securities generally receive capital loss treatment. However, if the loss is incurred by a corporation on its investment in an affiliated corporation (80% or more ownership), the loss is generally treated as an ordinary loss.

Question 19

However, the dividend received deduction is limited to a percentage of the taxable income of the corporation, unless the corporation sustains a net operating loss. If the corporation has a net operating loss, the dividend received deduction may be taken without limiting the deduction to a percentage of the corporation’s taxable income.

Answer 19

However, the dividend received deduction is limited to a percentage of the taxable income of the corporation, unless the corporation sustains a net operating loss. If the corporation has a net operating loss, the dividend received deduction may be taken without limiting the deduction to a percentage of the corporation’s taxable income.

Question 20

For taxable years beginning on or after January 1, 2018, the deduction for compensation with respect to a covered employee of a publicly traded corporation is limited to $1,000,000 per year per covered employee. For this purpose, compensation includes all compensation paid to an employee. Covered employees include the company’s CEO.

Answer 20

For taxable years beginning on or after January 1, 2018, the deduction for compensation with respect to a covered employee of a publicly traded corporation is limited to $1,000,000 per year per covered employee. For this purpose, compensation includes all compensation paid to an employee. Covered employees include the company’s CEO.

Question 21

To qualify as a dependent as an older person, you cannot earn more than $4150 per year (the 2018 personal exemption amount)

Answer 21

To qualify as a dependent as an older person, you cannot earn more than $4150 per year (the 2018 personal exemption amount)

Question 22

Income earned by a trust that is distributed to the income beneficiary, such as the dividends and interest, is taxed to the income beneficiary. If the income is retained by the trust, it is taxed to the trust.

Answer 22

Income earned by a trust that is distributed to the income beneficiary, such as the dividends and interest, is taxed to the income beneficiary. If the income is retained by the trust, it is taxed to the trust.

Question 23

1231 property, defined by section 1231 of the U.S. Internal Revenue Code, is real or depreciable business property held for over a year. Section 1231 property includes buildings, machinery, land, timber and other natural resources, unharvested crops, cattle, livestock and leaseholds that are at least a year old, but does not include poultry, trademarks, or inventory.

Answer 23

1231 property, defined by section 1231 of the U.S. Internal Revenue Code, is real or depreciable business property held for over a year. Section 1231 property includes buildings, machinery, land, timber and other natural resources, unharvested crops, cattle, livestock and leaseholds that are at least a year old, but does not include poultry, trademarks, or inventory.

Question 24

BREAKING DOWN Section 1231 Property
Broadly speaking, if gains on property fitting Section 1231’s definition are more than the adjusted basis and amount of depreciation, the income is counted as capital gains, and as result it is taxed at a lower rate than ordinary income. When losses are recorded on section 1231 property, however, that loss is classified as an ordinary loss and is 100% deductible against their income. Ordinarily, if income was qualified as capital gains, so would any losses which can only be deductible up to $3,000 for the tax year, and any losses in excess of that figure would be arrived at in the following year. This law makes it so taxpayers and business owners get the best of both worlds.

Answer 24

BREAKING DOWN Section 1231 Property
Broadly speaking, if gains on property fitting Section 1231’s definition are more than the adjusted basis and amount of depreciation, the income is counted as capital gains, and as result it is taxed at a lower rate than ordinary income. When losses are recorded on section 1231 property, however, that loss is classified as an ordinary loss and is 100% deductible against their income. Ordinarily, if income was qualified as capital gains, so would any losses which can only be deductible up to $3,000 for the tax year, and any losses in excess of that figure would be arrived at in the following year. This law makes it so taxpayers and business owners get the best of both worlds.

Question 25

S corporation income is not subject to double taxation

Answer 25

S corporation income is not subject to double taxation