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REG > REG 3-5 > Flashcards

REG 3-5 Flashcards

1
Q

How are the following items treated for book and tax purposes: interest incurred on loans to carry U.S. obligations and the provision for state corporation income tax?

A

There are treated the same for both; so, they do not appear on M-1 reconciliation

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2
Q

How much percentage of meal expenses are deductible?

A

50%

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3
Q

In a like-kind exchange, how do you calculate the new basis of property received?

A

Basis of new property = FMV of property received - Deferred gain + Deferred loss

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4
Q

In a like-kind exchange, how do you calculate the gain/loss realized?

A

G/L realized = (FMV of new property + Boot received) - Adj. basis of old property

Note: Boot = cash, debt assumed by buyer

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5
Q

In a like-kind exchange, how do you calculate the gain/loss recognized?

A

Lesser of realized gain or boot received

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6
Q

How do you approach a like-kind exchange with both debt assumed and debt relief?

A

NET THE DEBT. Result will either be boot received or boot given up.

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7
Q

What are the four steps in a like-kind exchange?

A
  1. Calc. G/L realized
  2. Calc. G/L recognized
  3. Calc. G/L deferred (1-2)
  4. Calc. basis of new property
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8
Q

In a C corporation formation, the shareholder contributing property has no G/L if which two conditions are met?

A
  1. 80% control immediately after transaction (sum of shareholders %)
  2. No receipt of boot (solely for stock)
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9
Q

Differentiate between real and personal property.

A

Real property: is land and all items affixed to it (buildings)

Personal property: property that is not classified as real property

Both can be used for business purposes.

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10
Q

What is nexus and what gives rise to it?

A

Nexus: min level of contact a taxpayer may have with a jurisdiction to be subject to its tax

  • Owning or leasing tangible personal or real property
  • Sending employees for training or work
  • Soliciting sales in a state
  • Providing installation, maintenance…
  • Accepting or rejecting sales orders, or accepting returns
  • Collection of delinquent accounts

Note: Delivery by a common carrier does NOT create nexus

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11
Q

In a liquidation, how do the corporation and shareholders recognize taxable G/L on distribution of assets?

A

Corp: FMV - Basis = G/L
SH: FMV - Stock basis = G/L

Recognize G/L as if the assets were sold for the FMV

Ex) Distribution of installment notes receivable is a distribution of an asset

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12
Q

In a liquidation, how do the corporation and shareholders recognize taxable G/L on distribution of cash? (sells assets and distr. cash)

A

Corp: Sale price - Basis = G/L
SH: Proceeds - Stock basis = G/L

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13
Q

How do you calculate the apportionment factor?

A

[(Property/ total property) + (Payroll/ total payroll) + (Sales/ total sales)] /3

Note: Use average numbers, NOT ending

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14
Q

A shareholder of a CFC is considered a U.S. shareholder if:

A

The shareholder is a U.S. person who owns at least 10% of the stock value OR voting stock

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15
Q

What kind of treatment do inherited assets receive?

A

Inherited assets automatically receive long-term treatment (G/L)

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16
Q

When determining if G/L is short or long-term for gifted property, which date should you use?

A

If using Donor’s basis –> date of donor’s purchase

If using FMV –> date of gift

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17
Q

What is true of losses that get carried forward?

A

Losses that are carried forward retain their character and are first offset against capital gains of the same character. (i.e. STCL from prior year will offset STCG in current year)

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18
Q

How are distributions allocated between current E&P and accumulated E&P? How are distributions in excess of E&P treated?

A
  1. Current E&P: allocated on a pro rata basis to each distribution, regardless of actual date of distribution
  2. Accum. E&P: applied in chronological order, beginning w/ earliest distribution

Distributions in excess of E&P:
-Return of capital (nontaxable)

-Capital Gains: remaining distribution when there is no current, accum E&P and all capital has been returned (taxable)

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19
Q

How does a person account for interest received in the capital of a partnership as a result of employment service?

A

The FMV of the interest acquired represents ordinary income and becomes their initial basis

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20
Q

When selling partnership interests, what portion of the gain is ordinary income?

A

The character of the gain is ordinary to the extent of share of unrealized receivables/appreciated inventories sold

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21
Q

What is the allowance and threshold for Section 179 expense election?

A

Allowance = $1,050,000

Above amount is reduced $-for-$ by amount of property exceeding $2,620,000

Note: *This deduction is not allowed in a year where there is a loss & it cannot be used to create a loss. Carried forward to taxable year.

MEMORIZE THESE #s!!

22
Q

How is the charitable contributions deduction calculated for corporations?

A
  • Corporations are allowed a max deduction of 10% of taxable income.
  • Taxable income is calculated BEFORE deduction of: (1) charitable contributions, (2) dividends-received deduction, (3) any capital loss carryback.

Note: Excess may be carried forward up to 5 years

23
Q

For the homeowner’s exclusion, how are unforeseen circumstances treated?

A

If taxpayer sells and does not meet requirements, they will receive a pro-rated exclusion on their max exclusion based on the time the home was their principal residence

24
Q

When does an S corporation status take effect?

A

By March 15: effective as of January 1st of that tax year

After March 15: effective on January 1st of the following year

25
Q

Keyman life insurance premiums and proceeds, for tax purposes, are:

A

Non-deductible and non-taxable

NOTE; Dividends on a life insurance policy are also non-taxable

26
Q

Life insurance premiums for employees are deductible by employers IF:

A

The employee has the right to assign a beneficiary (fringe benefit) and are claiming this benefit on their return

27
Q

How do you calculate the amount realized by a partner on the sale of their partnership interest?

A

Amount realized = cash + FMV property received + debt relief

28
Q

What is a Personal Holding Company?

A

PHC status applies if a corporation is owned more than 50% by 5 or fewer individuals AND at least 60% of current AGI is personal holding company income (interest, dividends, royalties..)

29
Q

Distinguish between capital and non-capital assets.

A

Capital assets include property (real and personal) held for INVESTMENT or PERSONAL USE:

  • Personal automobile
  • Furniture and fixtures in home
  • Stock and bonds
  • RP and PP not used in business
  • Interest in partnership
  • Goodwill
  • Purchased (as opposed to created) copyrights or compositions
  • Musical (only) compositions held by original artist

Non-capital:

  • Property in inventory or held for sale
  • Depreciable RP and PP used in a business
  • A/R and N/R arising from business
  • Copyrights, literary, musical, or artistic compositions held by original artist
  • Treasury stock
30
Q

When contributed property is sold by the partnership, how does the contributing partner recognize gain?

A

When a partner contributes property (FMV > or < NBV), all the build-in G/L (when sold) must be allocated to the contributing partner.

G/L in excess of build-in amount is shared by all partners.

NOTE: Partner takes NBV basis while partnership takes FMV basis to determine gain

31
Q

What is a wash sale loss and how are they treated?

A

Wash sale losses occur when a security is sold for a loss & repurchased 30 days before or after sale date.

They are NOT deductible (WRaP). Rather, the loss is added back to the basis of the repurchased stock*

32
Q

What are the PHC rules when it comes to family ownership?

A

A shareholder is considered to constructively own stock held by the following family members:

  • Brother/sister
  • Parents
  • Spouse
  • Child
  • Grandchild
  • Lineal descendants

Note: In-laws are NOT considered here

33
Q

What is the depreciation recapture rule for real property owned by individuals?

A

There is NO depreciation recapture for real property owned by individuals

34
Q

What is the depreciation recapture rule for real property owned by corporations?

A

Recapture as ordinary income 20% of the LESSER of:

1) recognized gain, or
2) accumulated straight-line depreciation taken

35
Q

When a corporation completely liquidates, can they deduct the filing fees, professional fees, and other expenditures incurred in this process?

A

Yes, the corporation generally deducts its liquidation expenses in its final tax return

36
Q

What are the charitable contribution AGI limitations for businesses and for individuals?

A

Businesses: 10%

Individual: varies; typically, 60% for cash

Note: Both have 5 year carryforwards

37
Q

What is the governing document for a corporation? For an LLC?

A

Corporation: Articles of incorporation
LLC: Articles of organization

38
Q

What is required when proposing a fundamental change such as a merger?

A

The board must pass a resolution, and the shareholder must be given notice and must approve the change by at least a majority vote

39
Q

What rules must a corporation satisfy to deduct an accrued contribution in the current tax year?

A

1) Authorized by the BOD before the end of the tax year

2) Paid by the 15th of the fourth month after end of tax year (typically, April 15th)

40
Q

What information is required in a corporation’s articles of incorporation?

A
  • Name of the corp.
  • Name of its registered agent
  • Name of its incorporators
  • Provisions for the issuance of stock

Note: The names of the officers are NOT required

41
Q

What rights does a general partner have in a general partnership?

A
  • Right to be indemnified
  • Right to be reimbursed for loans
  • Right to inspect books and records

Note: No right to compensation for services performed unless otherwise agreed

42
Q

What is the basis for contribution of land from a non-shareholder?

A

Carryover basis + costs to get it to working use

43
Q

What is the tax basis (capitalized amount) of a purchased asset?

A

Cost + installation + shipping + transit insurance + sales tax

Note: The value of a trade-in is NOT deducted; Warranty is not capitalized

44
Q

For organizational and start-up costs, what are included and excluded costs and what is the tax rule?

A

Included: legal services, accounting, state of incorporation

Excluded: cost of raising capital (issuing and selling the stock, commissions, underwriter’s fees, costs incurred in transfer of assets to a corp.)

45
Q

How long may intangibles be amortized for?

A

Intangibles (goodwill, licenses, franchises, trademarks, covenants) may be amortized using SL over a period of 15 years (or, 180 months)

46
Q

When is a loss from a sale to a shareholder not recognized?

A

A sale to a shareholder is considered a related party transaction if the shareholder owns > 50% of stock; therefore, losses are not recognized

47
Q

What will result in the termination of an S election having to do with a C corp?

A

If the S corp was a C corp and they still had E&P + earnings of more than 25% for the past 3 years from passive investment income, they will be terminated.

48
Q

What is a crucial rule limiting capital loss carryback?

A

A net capital loss carryback CANNOT be carried back to a year if it creates or increases a Net Operating Loss for that year* (If capital gains > taxable income, carryback can only offset up to taxable income so that the balance is 0)

49
Q

Bonus accruals may be deducted within the current year if it is paid within:

A

2 1/2 months of year-end (typically, March 15)

50
Q

When is gain recognized on sale of an incentive stock option (ISO) and how is the amount calculated?

A

Gain is recognized upon the sale of the stock

Gain = (selling price - grant date FMV) x shares

Note: FMV on exercise date does NOT matter

REG (3 decks)

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