REG 4 Flashcards
REG 4
REG 4-1 Partnership Taxation - What ist he initial basis of a partner’s interest?
Cash (amount contributed) + Property (adjusted basis NBV) - % (Liabilities) {Liabilities assumed by other partners} + Service (fair market value {and taxable to partner}) + % Liabilities (liabilities assumed by incoming partner) = Beginning Capital Account
Partnership Taxation - What is the basis of contributed property to the partnership?
The basis of contributed property to the partnership is the partner’s basis increased by any gain recognized by the parter on the contribution.
Partnership Taxation - State the holding period for a partner’s interest.
The holding period for a partner’s interest is equal to the holding period of the property contributed if the property were a capital asset or a Section 1231 asset in the hands of the partner. If the property were an ordinary income asset (i.e., inventory), the holding period starts on the date of contribution to the partnership.
Partnership Taxation - What is the formula for a partner’s basis in its partnership interest?
Basis = Capital account + Partner’s share of partnership recourse liabilites.
Partnership Taxation - When does a partnership cease to exist, for tax purposes?
*When operations cease *When 50% or more of the total interest (capital and profits) in the partnership sold or exchanged within a 12-month period *When there are fewer than two partnews (the partnership becomes a sole proprietorship)
Partnership Taxation - What is the treatment of guaranteed payments to a partner?
A guaranteed payment is a deduction on the partnership tax return, and the payment flows through to the partners as part of ordinary business expenses on the K-1. Then, because the partner is not considered an employee, the payment must be included as self-employment income on the partner’s return.
Partnership Taxation - What is the limit on the deductibility of a partnership loss to a partner?
Deductibility of Partnership Losses: *Partnership loss deduction to a partner is limited to the partner’s adjusted basis in the partnership interest (called the “at risk” provision) *Any unused loss can be carried forward and used in a future year when basis becomes available *The partner also my be subject to passive activity loss limitations
Patnership Taxation - How are the partnership income and losses reorted?
All of these are on Schedule K-1: (1)Net business income or loss (2)Guarenteed payments to partners (3)Net “active” rental income or loss (4)Net “passive” rental income or loss (5)Interest income (6)Dividend income (7)Capital gains and losses (8)Charitable contributions (9)Section 179 “conus depreciation” (10)Investment interest expense (11)Partner’s health insurance premiums (12)Retirement plan contributions (Keogh plan) (13)Tax credits
Partnership Taxation - How are partnership losses treated at the partner level?
A partner reports losses on the partner’s income tax return to the extent the partner has basis. A parter’s loss in excess of the partner’s basis and any loss not allowed on account of the “at risk” rules or the “passive activity loss” rules, will be a carryforward indefinitely (and remain suspended until basis becomes available or the partner disposes of the entire partnership interest).
Partnership Taxation - When a partnership is terminated, what basis does the partner assume for distributed property?
*Upon termination of a partnership, a partner’s basis in the property distributed from the partnership is equal to the partner’s basis in the partnership interest reduced by any money received. *The holding period of the property inclydes the partnership’s holding period.
Estate, Trust, and Gift Taxation - What are the filing requirements (Form 1041) and estimated tax requirement for the annual estate income tax return?
Form 1041 must be filed if annual income is $600 or more. Additionally: *Estate gets a person exemption, $600 *Estate is exempt from estimated tax payments for two years.
Estate, Trust, and Gift Taxation - Define distributable net income (DNI)
Estate (trust) gross income (including capital gains) - Estate (trust) deductions = Adjusted total income + Adjusted tax-exempt interest - Captial gains allocated to corpus = Distributed net income (DNI)
Estate, Trust, and Gift Taxation - What is the income distribution deduction?
The income distribution deduction is the lesser of the following:Total distributions (includeing income required to be distributed currently) to beneficiary less tax-exempt income OR DNI (less adjusted tax-exempt interest
Estate, Trust, and Gift Taxation - Define gross estate.
The gross estate is the fair market value at the date of death (or at the earlier of date of distribution or six months after the date of death if the alternate valuation date is elected) of all the decedent’s worldwide property, including real property, personal tangible property, and intangible property. The gross estate also includes the fair market value of the decedent’s share of jointly held property.
Estate, Trust, and Gift Taxation - Identify some nondiscredtionary deductions for an estate.
Examples of non discretionary deductions for an estate: *Medical expenses *Administrative expenses *Outstanding debts of decedent *Claims against the estate *Funeral costs *Certain taxes (including state death taxes)
Estate, Trust, and Gift Taxation - Define the applicable credit for 2011 and state the amount.
The applicatble credit is the estate and gift tax calculated on total lifetime and deathtime transfers of up to $5,000,000 (2011). For 2011, the tax credit is $1,730, 800. The amount of credit shelters lifetime and deathtime transfers (gift and/or estate) of up to $5,000,000.
Estate, Trust, and Gift Taxation - State the formula for determining the estate tax.
Gross estate - Nondiscredtionary and discretionary deductions = taxable estate + Aggrigate adjusted taxable gifts made furing life = Tentative tax base at death X Uniform tax rates = Tentative estate tax - Gift tax paid in prior years = Gross estate tax - Applicable credit = Estate tax due
Estate, Trust, and Gift Taxation - What is the annual exclusion for gifts?
Each year an individual can give any number of people up to $13,000 (2011) each without gift tax ramifications. Unlimite exclusions: *Amounts directly paid on behalf of a donee: ^Tuition paid driectly to an educational organization ^Fees paid directly to a health care provider for medical car of the donee *Charitable gifts *Marital deduction
Estate, Trust, and Gift Taxation - What is the difference between a present interest gift and a guture interest gift?
*The postponement of a right to use, possess, or enjoy the property distinguishes a guture interest from a present interest. *A present interest qualifies for the annual exclusion ($13,000 in 2011) *A future interest (or a present interest without ascertainable value) does not qualify for the annual exclusion.
Estate, Trust, and Gift Taxation - Identify how the tax due on current gifts is determined.
(1) Gross gifts in a calendar year (atFMV) - Exclusion of $13,000 per donee per year ($26,000 if married and “gift splitting”) - Payments made directly to educational institutions and/or health car providers - Unlimited marital deduction of gift to donor’s spouse - Charitable gifts = Taxable gifts this year +Taxable gifts prior years = Cumulative lifetime gifts (2) Tax on cumulative gifts (calculate) - Gift tax on prior gifts - Applicable credit = Tax due on current gifts
Estate, Trust, and Gift Taxation - Distinguish between the two types of trusts.
SIMPLE TRUSTS *Distribution is made out of current income only *Income is taxable to beneficiary *All income must be distributed *No deduction is allowed for charitable contributions *Exemption is $300 COMPLEX TRUSTS *Distribution may be out of principal (corpus) *Income may be accumulated within the strust (no income distribution requirement) *Deductions are allowed for charitable contributions *Exemption is $100
Ethics and Professional Responsibilities in Tax Services - List the various “authorities” for purposes of determining whether there is substantial authority for the income tax treatment of an item.
(1)The Internal Revenue Code and other federal statutes. (2) U.S. Treasury regulations (3) IRS revcenue and procedures; tax reaties, and U.S. Treasury Department explanations of such treaties. (4) Federal court cases. (5) Congressional intent set forth in committee reports, statements of managers included in conference committee reports, and bill manaher’s floor statements. (f) Explanations prepared by the Joint Committee on Taxation (the “Blue Blook”) (g) Private letter rulings and technical advice memoranda (h) Actions on decisions and general counsel memoranda (i) IRS information or press releases and notices, announcements, and other administrative pronouncements.
Ethics and Professional Responsibilities in Tax Services - What is a “listed transaction?”
The term “listed transaction” means a reportable transaction that is the same as, or substantially similar to, a transation specifically identified by the Secretary of the US Department of the Treasury as a tax avoidance transaction.
Ethics and Professional Responsibilities in Tax Services - What is a reportable transaction?
The term “reportable transaction” means any transaction which the Secretary of the U.S. Treasury Department has determined as having a potetial for either tax avoidance (the legan use and application of the tax laws and cases in order to reduce the amount of tax due) or tax evasion (efforts by illegal means and methods to not pay taxes).
Ethics and Professional Responsibilities in Tax Services - What is the “reasonable basis” standard?
Reasonable basis is a relatively high standard of tax reporting and is significantly highter than not frivolous or not patently improper. The reasonable basis standard is not satisfied by a return position that is merely arguable or that is merely a colorable claim. If a return position is reasonable based on one or more acceptable authorities, the return position will generally satisfy the reasonable basis standard even though the position may not satisfy the substantial authority standard.
Ethics and Professional Responsibilities in Tax Services - What is the “substantial authority” standard?
An objective standard involving application of the law to relevant facts; less stringent than the “more likely than not” standard. Substantial authority exists only if the weight of the authorities supporting the treatment is substantial in relation to the weight of authorities supporting the contrary treatment. There is substantial authority for the tax treatment of an item if the treatment is supported by controlling precedent of a U.S. Court of Appeals to which the taxpayer has a right of appeal with respect to the item. The taxpayer’s belief that there is substantial authority for the tax treatment of an item is not relevant.
Ethics and Professional Responsibilities in Tax Services - What is a tax shelter?
The term “tax shelter” means any (i) partnership or other entity, (ii) investment plan or arrangement, or (iii) other plan or arrangement if a significant purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of federal income tax.
Ethics and Professional Responsibilities in Tax Services - List the various penalties the IRS can impose on a tax return preparer who understates the taxpayer’s income tax liability.
Penalty for Understatement of Taxpayer’s Liability Due to an Unreasonable Position by the Tax Return Preparer. Penalty for Understatement of Taxpayer’s Liability Due to Weillful or Reckless Condust of the Tax Return Preparer. Penalty for Aiding and Abetting Understatement of Tax.
Ethics and Professional Responsibilities in Tax Services - List the paid income tax preparer’s responsibilities to the client and to the IRS.
*Providing to the client a competed copy of the tax return *Signing the tax return or refund claim *Indicating on the return or refund claim the tax identification number of the tax return preparer *Retaining tax return records (copies or lists) properly and for at least 3 years *Filing with the IRS the yearly information returns regarding other tax return preparers employed by the tax return preparer **not negotiating the client’s IRS refund check *Diligently determining the client’s eligibility for the earned income credit *Not disclosing except as permitted by law, client tax return information *not using, except as permitted by law, client tax return information for any purpose other than to prepare a tax return
Ethics and Professional Responsibilities in Tax Services - List the exceptions to the penalty and/or fine for wrongful disclosure and/or wrongful use of tax return information.
(1) Discclosures allowed by any provision of the IRC and disclosures pursuant to a court order. (2) Use a preparing state and local tax returns and declaration of estimated tax. (3) Disclosures and uses permitted by U.S. Treasury regulations (siclosure and use for quality and peer reviews, computer processing, and administrative orders). (4) Consent of the client.
Ethics and Professional Responsibilities in Tax Services - What is Circular 230?
Circular 230 is an IRS publication containing the U.S. Treasury regulations governing the authority of a tax procatitioner to practive before the IRS, the duties and restrictions relating to practive before the IRS, the sanctions for violation of the regulations, and the rules applicable to IRS desciplinary proceedings.
Ethics and Professional Responsibilities in Tax Services - Under what situations before the IRS may a tax practitioner charge a contingent fee?
(1) IRS examination (audit); (2) Claim solely for a refund of interest and/or penalties; or (3) A judicial proceeding arising under the Interal Revenue Code. (These are the only situations before the IRS when a tax practitioner may charge a contingent fee.)
Ethics and Professional Responsibilities in Tax Services - If a conflict of interest exists, under what circumstances may a tax practitioner represent the clients for which there is a conflict of interest?
The practitioner may represent both (all) clients if: (1) The practitioner reasonable believes that she/he can competently represent the clients; (2) No state or federal law prohibits such representation; and (3) Each affeted client waives the conflict of interest and with respect to the waiver so confirms in writing within 30 days after so waiving.
Ethics and Professional Responsibilities in Tax Services - What are the requirements for advertising?
No false or misleading advertising. Each solicitation must identify the solicitation as such. If applicable, identify the source of the information used to choose the recipient. If advertising by radio and/or TV, keep for at least 36 onths a recording of the actual broadcast transmition. If advertising by direct mail and/or e-commerce, keep for 36 months a copy of the communication and a listing of those to whom the communication was sent.
