REG Flashcards
1
Q
Individual Income Tax Formula
A
Gross Income (Adjustments) =Adjusted Gross Income (Std Deduction OR Itemized Deduction) =Taxable Income before QBI deduction (QBI deduction) =Taxable Income
Regular tax OR Alternative minimum tax (Tax credits) \+ Other Taxes (Payments) =Tax due OR Refund
2
Q
Filing Status
A
GR: December 31st determines status
>Exception=Spouse died during the year
Qualifying Widow(er)=supporting dependent the WHOLE year
>Only available for 2 years after death
Head of Household
>Provide support to qualifying person for at least HALF the year
3
Q
Qualifying Child (CARES)
A
Close relative Age Limit (19 or 24 & in college) Residency and filing requirements >More than half the year Eliminate gross income test Support test >Child did not contribute more than half of their own support)
4
Q
Qualifying Relative (SUPORT)
A
Support test (Did they provide more than half of their own support?)
Under gross income limitation
>(GR: exception amount, currently 4,300)
>Nontaxable income is ok
Precludes dependent filing a joint return
>(Unless return would result in no tax liability)
Only citizens of US or residents of US, Mex, or Canada
Relative OR
Taxpayer lives w/ the individual the WHOLE year
5
Q
Penalty Tax for IRA Distributions (HIM DEAD)
A
If done before the age of 59 1/2, must pay regular tax and 10% penalty Exceptions: Homebuyer (first time) Insurance (medial) Medical expenses in excess of AGI floor Disability Education (college tuition, books, fees) Adoption or birth Death
6
Q
Adjustments
A
-1/2 of self-employment tax
-Educator expenses (250)
-Traditional IRA contribution
-Student loan interest expense (up to 2,500)
>PO (70-85k UM / 140-170k MFJ)
-Health savings account
-Moving expenses (for active duty)
-Self-employed health insurance
-Self-employed retirement plans
-Alimony (Pre 2019)
-Tuition fees deduction
-Attorney fees in a discrimination case
-Qualified CC (up to 300)
-Penalty on early withdrawal of savings (interest income forfeited)
7
Q
Itemized Deductions
A
-Medical expenses
-State, Local, and foreign taxes (not to exceed 10k)
-Interest Expense (HIPPE)
>Home mortgage (up to 750k, first and second home)
>Investment interest expense (limited to inv income)
>Personal Interest = Not deductible
>Prepaid interest = Incurred and paid
>Educational loan interest (Adj, not itemized) 2,500/yr
-Charitable Contributions (60% cash, 50% ord inc property, 30% LTCG property FMV)
-Casualty losses (10% AGI floor, $100/ casualty)
>When in doubt go with the smallest option
-Other misc. = gambling losses (up to winnings)
-Note: home equity loan interest only includable up to the extent used to buy, build, or improve property
8
Q
Refundable Tax Credits
A
Child tax credit, earned income tax credit, W-2 withholdings, excess SS withheld by two or more employers, American opportunity tax credit (40%)
9
Q
Child and dependent care credit
A
20-35% of eligible care up to 3,000 for one child or 6,000 for 2 or more
- Must be under the age of 13
- Limited to the lowest earned income of either spouse
10
Q
Education tax credits
A
American Opportunity: 2,500/ student, 100% of first 2,000 + 25% of next 2,000
Lifetime learning credit: 2,000/taxpayer, 20% of first 10,000
11
Q
Foreign Tax Credit
A
Lesser of foreign taxes paid or (taxable income from all foreign operations divided by total worldwide income times US tax)
12
Q
Deductible SE Tax Calc
A
SE income92.35%= SE subject to tax15.3%=SE tax liability*50%=Deductible amount
13
Q
Exceptions to PALs from real estate
A
-Mom & pop exception: deduct up to 25,000 attributable to real estate when actively participating and own at least 10%
>Phase out =100-150k
-Real estate professional: More than 50% of taxpayers personal services and more than 750 hours of service/year
14
Q
Alternative Minimum Tax
A
Regular taxable income \+/- Adjustments \+Preferences =Alternative minimum taxable income - Exemption amount =Alternative minimum tax base *AMT rate =Tentative minimum tax -Regular income tax =AMT
15
Q
AMT exemption amount
A
=Full exemption - (AMTI-AMTI threshold*25%)
16
Q
AMT Adjustments (PANICTS)
A
\+/- >Passive activity losses >Accelerated depr. >Net operating loss of indy taxpayer >Installment income of a dealer >Contracts (% completion (required) vs. completed) \+ only >Tax deductions >Std deduction
*CC and home mortgage interest not add backs
17
Q
AMT Preferences (PPP)
A
Private activity bond-interest income
Percentage depletion deduction
Pre-1987 accel. depr.
18
Q
Gifted Property
A
-GR: Donor’s basis and holding period
-Exception:
>FMV Sell higher = SP-Basis=Gain
>Sell between = No G/L
>Sell Lower = SP-FMV = Loss
19
Q
Inherited Property
A
GR: FMV at date of death
>If alternative date elected, earlier of 6 mos. after death or distribution date
>Holding period ALWAYS LT
20
Q
Nontaxable Gains (HIDE IT)
A
Homeowner's exclusion -500,000 MFJ/250,000 Else Involuntary conversions -Gain excludable if proceeds reinvested in property similar to that disposed >Must be done within 2 years for personal or 3 years for business Divorce Property Settlement -Property rec'd in divorce=nontaxable Exchange of like-kind property -G/L deferred unless boot rec'd -Basis = FMV - G deferred + L deferred Installment Sale -Gain deferred until cash rec'd Treasury and capital stock transactions
21
Q
Nontaxable Losses (WRaP)
A
Wash sale losses -Losses deferred if repurchased within 30 days of sale -Basis of repurchase=purchase price+disallowed loss Related party transactions -Gift tax basis rules -Family and 50% or more owned business AND Personal losses = NEVER deductible >Gains are taxable though
22
Q
§1231 LT Trade or Business Use Assets
A
- Net gain=Capital, Net loss = ordinary income
- 5-year look back using cy 1231 gain against prior year 1231 loss
23
Q
Depreciation Recapture
A
-§1245 used for personal property sold at a gain
>Lesser of gain or A/D is treated as ord inc
>Any remaining gain is 1231 gain
-§1250 (Land and building)
>Partial recap = accelerated depr.-SL
-§291 (Corps only)
>If SL is taken: 20% of lesser of recog gain or A/D
>If 1250 applies = (Lesser of recog gain or AD)-1250 recap
24
Q
Depreciation (1BM)
A
- §179 deduction
>For personal property including qualified property improvements. NOT for (non)/residential buildings
>Max = 1,040,000, reduced $-$ by amount exceeding 2,590,000
>Deduction limited to taxable income, before deduction.
>Cannot be used to create or extend a net loss - Bonus Depreciation
>If asset converted from personal use to business or from family member, no bonus depr. or §179 - MACRS
>In year of disposal, month disposed of out of 12 for real property; 1/2 multiplied for personal property
25
DRD
50% (0-20% ownership) = unrelated
65% (20-<80%)
100% (80% +) = consolidating
=Lesser of DRD or rate x taxable income before deduction
>Exception: If full DRD would create a NOL, take full DRD
26
Operating Losses
```
Corporation:
>CB 2 years, CF 20 (Pre 2018)
>CB 5 years, CF Indef (2018-2020)
> No CB, CF Indef (2021 +) (80% limit)
>Capital Losses:
-Only deductiable to offset CG
-CB 3 years and CF 5
-Treated as ST
```
Individuals:
>Business Losses (Flow-throughs):
-Tax Basis (Includes Recourse debt if general partner or personally guaranteed, qualified nonrecourse debt, and other nonrecourse debt)
-At-risk Basis (includes Recourse debt if general partner or personally guaranteed and qualified nonrecourse debt)
-PAL
-Note: S corp SH or liable for debts personally guarenteed
>Capital Losses:
-CF indef
-3,000/year after matching against CG
-Maintain character
27
Tax Shelter
Any (1) pship or other entity; (2) investment plan or arrangement; or (3) other plan or arrangement if a significant purpose of such pship, entity, plan or arrangement is the avoidance or evasion of federal income tax. There are legal tax shelters that can be used to reduce taxes and there are abusive tax shelters.
28
Implied Duties of an Agent (LORAS)
```
Loyalty
Obedience
Reasonable Care
Account- For money and property rec'd and paid out
Subagent
```
29
Agent
Can lack capacity and be a minor (Principal must have both)
30
Ratification
- Principal must know all relevant facts
- Principal cannot be undisclosed at the time of making the contract
- Must ratify the entire transaction
- Must be done before the third party withdrawals
31
Duties of Principal to agent
-Compensation
-Reimbursement/indemnification
-Remedies of the agent
>Reasonably foreseeable damages (compensatory)
32
Termination of Agency
- By agreement (By either party unless agent is creditor)
- Operation of law (legality, death of either party, the bankruptcy of principal, destruction of subject matter, agent does not have required license)
- By attainment of the purpose of the agreement
33
Revocation
MUST occur before acceptance!
34
Child Tax Credit
2,000 for each qualifying child
CARES rules, except must be under 17
Extent that it can create a refundable credit is lesser of:
- Remaining credit
- Earned income less 2,500 * 15%
- 1,400 per qualifying child
35
Apportionment Factor
The apportionment factor is calculated by averaging the factor of sales, payroll, and property for a specific state. These factors are the ratio of (1) total sales, payroll, or property in a specific state to (2) total sales, payroll, or property everywhere.
-Property should be average not ending
36
Private Letter Ruling
The IRS issues a private letter ruling (PLR) in response to a taxpayer's request for guidance on the tax treatment of a proposed transaction, typically one with significant tax consequences. A private letter ruling can be relied on by the taxpayer to whom it is issued, but cannot be relied on as precedent by other taxpayers.
37
Base Erosion and Anti-Abuse Tax (BEAT)
The base erosion and anti-abuse tax (BEAT) may apply to corporations with average annual gross receipts of $500 million or more for the three preceding tax years.
38
Special Medicare Tax Rule
Starting in 2013, a 3.8% Medicare tax is levied on the lesser of (1) the taxpayer’s net investment income; or (2) the excess of modified AGI over a threshold amount.
39
Types of Bankruptcy
Ch 7 = Liquidation (I,P,C)
-Trustee appointed, may be voluntary or involuntary
Limitation: No RIBS (Railroads, savings institutions, insurance companies, banks, and small investment buisnesses)
-Step 1: Determine if monthly income is < state medial
-Step 2: Means Test
>(Avg MI-Allowed exp)*60 = available
>If < 8,175 = Ch 7 ok
>If > 13,650 = Ch 13 or dimissal
>If in between, presumption of abuse = amunt is atleast 25% of unsecured creditors
Ch 11 = Reorganization (I,P,C)
-Trustee is not required; voluntary or involuntary
-No BIBS (Savings institutions, insurance companies, banks, or brokers)
Ch 13 = Debt adjustment
-Trustee is appointed and 3-5 year repayment plan in developed
-Individuals only
Ch 15 = Cross-border case
40
Involuntary Petition into Bankruptcy
-May be filed if the debtor is not paying debts as they come due
-Only UNsecured creditor can file
-12 or less creditors = 1 must meet 16,750 unsecured
>12 or more, at least 3 must meet 16,750 unsecured
41
Property of the bankruptcy estate
Generally includes all debtors real and personal property at time of filing.
Estate is to include certain income received within 180 days of petition (DIII):
>Divorce
>Inheritance
>Insurance
>Interest from bonds
42
Claim priority in bankruptcy
1. Secured Creditors
2.
>Support obligations to spouse and children
>Admin expenses in proceeding
>Gap creditors
>Wages up to $13,650 per employee if earned 180 days prior to filing
>Employee benefit plan contributions up to $13,650/employee reduced by wage claims, if earned w/in 180 days prior to filing
>Grain farmers and fishermen's claims up to $6,725
>Consumer deposits for good paid for but not delivered up to $3,025
>Taxes
>Injury claims caused by intoxicated driving
3. General creditors
*Those on the same level will receive remaining estate on a pro rate basis
43
Objections to discharge
- Debtor not an individual
- Fraudulent transfers of concealment of property
- Unjustifiability failed to keep books and records
- Prior discharge w/in 8 years
- Commission of bankruptcy crime
- Failure to explain loss of assets
- Refusal to obey orders or to answer questions
44
Exceptions to Discharge (FAT WED)
F-Debts incurred by FRAUD, embezzlement, or inducement
A-Alimony, maintenance, support, and settlements
T-Taxes due w/in 3 years of filing
W-Willful and malicious injury
E-Educational loans (Unless undue hardship can be demonstrated)
D-Debts undisclosed in the bankruptcy petition
45
Methods of Formation of Contract
```
Express=Oral or written
Implied-in-fact= Formed by conduct
Implied-in-law(Quasi) = Allows a plantiff to recover a benefit unjustly conferred upon the defendant
>Remedy=To prevent unjust enrichment
>Not contract at all
```
46
Advertisements
NOT offers, only invitations
- Ad must be for specific identifiable item
- A "reward" is an offer
47
Legally Enforceable Contract
1. An agreement (Offer and acceptance)
2. Exchange of consideration (something of legal value)
>Legally sufficient
48
Defenses that render a contract VOID (AIM PE)
```
Adjudicated incompetency
Illegality
Mutual mistake
Physical duress
Execution of fraud
```
49
Fraud - Contract law (MAIDS)
```
Misrepresentation of Material fact by defrauding party
Actual and reasonable reliance
Intent to Induce reliance
Damages
Scienter (Intent to deceive)
```
- Fraud in inducement = Aware of contract, but not what for
- Fraud in the execution = unaware of a contract
50
Defenses - Voidable
- Fraud in the inducement
- Innocent misrepresentation
- Economic duress
- undue influence
- unilateral mistake
- minority
- intoxification
51
Statute of Frauds (MY LEGS)
```
*Contracts MUST be in writing
Marriage
Year - contract cannot be performed w/in a year
Land (all) and leases (> 1 year)
Executors
Goods for $500 or more (NOT SERVICES)
Surety
```
```
*Exceptions:
Specialized goods
Written confirmation (ie purchase order)
>Between merchant and merchant
>Binding if not objected in 10 days
Admitted in court
Performed to acceptable level
```
52
Other Defenses under Common Law
- Impossibility
- Accord and Satisfaction and substituted contract
- Novation
- Prevention of performance
53
Parol Evidence Rule
No = Oral or written stmts made prior to the written contract or oral stmts made contemporaneously with the contract; and that seek to contradict the terms of the contract
Admissable = oral or written modifications made AFTER the contract was entered into
54
Remedies
- Damages (compensatory)
- Consequential damages IF foreseeable
- Specific performance for land or unique items (NOT SERVICES)
- Liquidated damages = if reasonable and not penalty
- Punitive damages = Only if fraud
55
Anticipatory Repudiation
- Occurs when either the buyer or seller indicates in advance of performance that they will not perform
- Sue, wait, or cancel
56
Acceptance
-Under common law, mirror image rule applies = must assent to every term in the offer w/o change or addition
>Parties, price, time, quantity, type required
-UCC = minor change ok, major relating to price or quantity is not ok
>Quantity requried
>Promise to ship (bilateral) or prompt shipment (unilateral)
57
Common Law (RISE)
```
Contracts involving:
Real estate
Insurance
Services
Employment
```
58
Statute of Limitations
4-6 years to sue, measured from the date of breach
| -UCC typically 4 years
59
Warranties
Express (By seller)
-Arises by affirmation of fact, promise, description, model or sample
-CANNOT be disclaimes
Implied:
Warranty of title (title is good, transfer rightful, no liens or encumbrances)
-Arises by sale of goods
-May be disclaimed with specific languages or circumstances showing the seller does not claim title
Warranty of Merchantability (Fit for ordinary purpose)
-Arises by sale of goods of the kind regularly sold by the merchant
-May be disclaimed with terms "merchantability", "as if", or "with all faults"
Warranty of fitness for particular purpose
-Arises by the sale of goods where the seller has reason to know of particular purpose and buyer's reliance on seller to choose suitable goods
-May be disclaimed by "as if", "with all faults", or conspicuous disclaimer
60
Rules for Risk of Loss
-Shipment contract = ROL passes to buyer
-Destination contracts = ROL passes to buyer once it reaches the destination
W/o common carrier
-Merchant sellers: transfers once buyer takes physical possession
-Nonmerchants: seller's tender of performance (garage sale)
-Nonconforming goods: ROL always on the seller
-Sale on approval: ROL passes after the buyer approves
-Sale on return: ROL passes w/ delivery, but buyer has the right to return the goods (includes consignment)
61
Surety VS Guarantor
```
Surety = Directly liable on the contract
Guarantor = Liable to the creditor only if the debtor does not perform his or her duty to the creditor
```
62
Surety's RIghts against the Debtor
- Exoneration -> Suit to compel payment
- Subrogation -> Enforcement of creditor's right against the principal
- Reimbursement/indemnification
63
Surety's Rights against cosureties
- Exoneration -> TO pay their pro rata share of debt
| - Contribution ->Obtain contribution from solvent cosureties of their pro rata share after one surety has already paid
64
Defenses of Surety (CPRS)
Creditor bad faith
Performance has been tendered
Release of the principal by the creditor
Surety's incapacity or bankruptcy
-Lack of consideration
-Variations in risk
> ANy variation will release a gratuitous surety
>Material change increasing the surety's risk of loss must occur to release a compensated surety
65
Fair debt collection practices act (FDCPA)
Prohibits collection agencies from:
- contacting debtor at inconvenient time
- Contacting debtor directly if they have an attorney
- Using harassing or abusive language
- Making false or misleading claims
- contacting debtor at place of employment if they object
66
Garnishment
Debtor is adjudged to owe a creditor money and the debtor has property in the hands of a third party, a writ of garnishment may be sought
>Cannot go against social security
67
Duress
Occurs when a person overcomes the will of another through wrongful force or threats of imminent force. >Economic duress generally is not recognized as a defense to contract, and even where it is, it is usually required that the party taking advantage of the other party's poor financial condition must have caused the poor condition.
68
Types of Collateral
Goods
>Consumer goods: Automatic perfection
>Equipment: Temporary perfection, must file w/in 20 days
Intangibles: Must file (Including A/R unless small amount)
69
Attachment
1. The parties have an agreement creating the security interest or the creditor takes possession (a pledge) or control of the collateral
2. Value must be given by the secured party in exchange for the security
3. The debtor must have rights in the collateral
70
Perfection
1. Filing a financing statement
2. Possession (noninventory)
3. Control (Investments)
4. Automatic perfection (consumer goods)
5. Temporary perfection (Inventory and equipment)
>Moving of debtor provides previous filers 4 month grace period to file again
71
Priorities in Collecting Collateral
1. A buyer in the ordinary course of business
2. Perfected PMSI
>Exception: Garage sale rule and the expiration of temporary perfection, and inventory based on filing date
3. Perfected Non-PMSI (first to file or perfect wins)
4. Unperfected, but attached
5. The general debtor
72
Rights on Default
1. Taking possession: court (replevy action) or self-help w/o breaching peace
2. Sale
3. Proceeds, excess to debtor
4. May retain the collateral if debtor has paid less than 60% of the loan
73
Estate Tax-free amount and credit
- 11,580,000 tax free during lifetime
| - Credit = 4,577,800
74
Ultramares Rule
Ultramares limits the accountant's liability for negligence to: (i) parties in privity and (ii) intended third party beneficiaries; parties who are merely "foreseen" cannot recover.
75
§1244 Stock
a. First $1 million of the capitalized value of a qualified small business corps stock
i. Small = less than 1 million of aggregate capital when stock is issued
b. Ordinary loss limited to 50,000 per year (100k for married status)
i. Excess becomes capital loss
c. Only original shareholder qualifies
76
Fraudulent Conveyance
1. Debtor remaining in possession after conveyance
2. Secret conveyance
3. Debtor retains an equitable benefit in the property conveyed
77
Nonbusiness bad debt
Must be totally worthless to be deductible to the individual
78
Netting Procedure
Short-term Capital Gains and Losses:
1. If there are any short-term capital losses (this includes any short-term capital loss carryovers), they are first offset against any short-term gains that would be taxable at the ordinary income rates.
2. Any remaining short-term capital loss is used to offset any long-term capital gains from the 28% rate group (e.g., collectibles).
3. Any remaining short-term capital loss is then used to offset any long-term gains from the 25% group (e.g., un-recaptured Section 1250 gains).
4. Any remaining short-term capital loss is used to offset any long-term capital gains applicable at the lower (e.g., 15%) tax rate.
Long-term Capital Gains and Losses:
1. If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 28% rate group, they are first offset against any net gains from the 25% rate group and then against net gains from the 15% rate group.
2. If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 15% rate group, they are offset first against any net gains from the 28% rate group and then against net gains from the 25% rate group.
79
Securities Act of 1933 (IPO)
Purpose of act is to provide investors w/ sufficient investment info.
- SEC does not guarantee the accuracy of the information, but evaluates the offerings financial merits/ completeness
- Required:
1. Prospectus (A written or broadcast offer to sell that summarizes the info in P2)
2. Required info: audited b/s and I/S; name and addresses of officers, underwriters, and 10% SH; principal purposes for which offerings will be used
- No sales 30 days before registration or 20days after
80
Exceptions to 1933 Securities Act
Exceptions:
1. Security Exceptions:
>B - Securities issued by banks and savings and loans
>R - securities of regulated common carriers (railroads)
>Insurance policies
>N - securities issed by NFP orgs
>G - securities issed by the govt
> Short-term commercial paper (<9 mos.)
2. Transaction exceptions:
-Intrastate sales
>Rule 147 = Issuer must do 80% of its business in the state and BE resident of the state, purchaser cannot resell for 6 mos.
>Rule 147A = Solicitations can be made via the internet and the issuer NEED NOT be a resident
-Regulation D
>Rule 504 = Allows issuances of up to $5 mil w/in 12 mos; no limitations on number or type of investor
>Rule 506 = Provides an exception for any amount to any number of accredited investors and 35 or fewer unaccredited investors
-Regulation crowdfunding
>Only issuers w/ 25 million in assets can use this, and issuance is limited to no more than $1.07 million. No investor can invest more than 107,000 w/in 12 mos.
-Regulation A
>20-50 mil = F/S audited, unaccredited investors limited to 10% of income or net worth; < 20 mil = F/S reviewed
81
Liability under the 33' Act
```
§11 = Civil liability for MS
>Plantiff must only show:
Loss suffered
Acquired the stock
Material MS or omission
§12 = Civil antifraud section
§17 = Criminal antifraud section
```
82
Securities Act of 1934
Purpose: Sales, purchases, etc. of securities after they are issued
Registration requirements: companies whose shares trade on national exchange; companies w/ >10 mil in assets & >2,000 SH; companies w/ >10 mil in assets & >500 SH who are unaccredited
Reporting requirements:
5% or more owners
Tender offers must be reported to purchase 5%+
Insiders
Proxy
83
Antifraud Provisions -> Rule 10b-5 (34 Act) MAIDS
Material MS or omission
Actual reliance and interstate commerce
Induce (plaintiff bought or sold securities)
Damages
Scienter (intent to deceive or reckless disregard for truth)
84
Automatic Stay
Most creditors cannot take any steps to collect on obligations the debtor owes once the petition is filed
85
Information Return (Form 990)
```
Required by all tax-exempt orgs
Exceptions:
<5,000 gross receipts
Churches
High schools - religious
Religious orders
Internal support orgs
Societies - missionary related
Tax-exempt orgs by govt
```
86
Taxpayer Penalties
-Earned income credit penalty
>Denail of credit for a specified period
-Penalty for failure to make sufficient withholdings and est. payments
>Exceptions: liability <1,000 in cy, at least 90% of cy amount paid, at least 100% of py, annualization method, or 110% if py AGI above 150k)
-Failure to File (5% per month)
>Reduced by failure to pay penalty if applicable
-Failure to pay (1/2 of 1% per month)
-Negligance penalty for understatement of tax (not substantial) ->understatement penalty
>20% * understatement
-Penalty for substantial valuation MS (20% too)
-Fraud penalties
>at least 75% and criminal penalties
87
Negligence
- Duty of care
- breach (lack of due care)
- causality
- injury
88
S corp Basis Adj.
Stock basis is adjusted annually, as of the last day of the S corporation year, in the following order:
Increased for income items and excess depletion;
Decreased for distributions;
Decreased for non-deductible, non-capital expenses and depletion; and
Decreased for items of loss and deduction.
89
Courts of Original Jurisdiction
The courts of original jurisdiction for tax cases, i.e., the courts in which a taxpayer would first bring a lawsuit against the IRS, are the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.
90
When taxpayer and IRS cannot reach an agreement, a tax issue using the admin appeals process...
The U.S. Court of Federal Claims has jurisdiction over most claims for money damages against the United States, one type of which is tax refunds.
91
Dividends paid by a foreign corp...
to a 10% or more US shareholder are 100% DRD
92
Nexus
-The minimum level of contact a taxpayer may have with a jurisdiction to be subject to its tax.
>Delivery by a common carrier does not trigger nexus
93
Separately Stated Items
```
-Nondeductible expenses
>Reduce basis
-Capital G/L
-CC
-Guaranteed Payments (Both)
-Net rental income/loss
-interest income
-Dividend income
-Net 2131 G/L
-179 depr
-investment interest expense
Fringe Benefits:
-Partners share of health insurance premiums (Both)
-Retirement plan contributions for partners (Both)
-If over 2% SH, nondeductible, income to SH
-2% or less SH, are deductible to slow through
-Royalties
-Tax credits
```
94
Qualified Medical Expenses
- Prescription drugs
- Eye examinations and glasses
- Necessary surgery
- Medical insurance premiums
- Dental work
- Hearing devices
- drug rehab treatment
- Plastic surgery to repair injuries from an accident
- emergency room fees
- travel TO the hospital
- Dental insurance premiums
- Annual examinations
- Physical therapy
- Hearing aid batteries
- Dental implants***Reimbursements from insurance company must incur in current year
95
Entity Classification
Foreign branch: Unincorporated foreign entity that is viewed as an extension of the domestic corporation
>Federal tax now and foreign tax now
>Foreign tax credit or deduction allowed
Foreign Sub: Seperate legal entity, incorporated under the laws of the foreign host country
>Foreign tax now, federal tax later, when earnings are brought back to the US
96
Foreign Tax Credit
= Lesser of foreign tax paid OR pre-credit us tax on total taxable income * (separate category foreign income/total taxable income)
97
Controlled Foreign Corporation Rules (Subpart F)
- A foreign corp is considered a CFC if more than 50% of its stock is owned by US SH
- A US SH owning at least 10%
98
Global Intangible Low-Taxed Income Tax
-Minimum tax on certain income relocated to CFCs in low-tax jurisdictions
-Take net income less 10% of average adjusted basis of depreciable tangible property then multiply by the % ownership to get GILTI
>Deduction amount is 50% of the GILTI for 2018-2025, then it will 37.%% after
99
Tax Preparer Penalties
-Preparing or signing a tax return when the practitioner does not have a valid preparers ID
-Understating a client's tax liability due to an unreasonable position (Frivolous or arguable only) (Greater of 1,000 or 50% of income rec'd)
-Understating a client's tax liability due to willful or reckless misconduct (Greater of 5,000 or 75% income rec'd)
$50 Each, Max 26,500
-Endorsing/negotiating a client's refund check
-Failing to provide the client with copy of return
-Failing to sign a tax return or refund claim
-Failing to furnish the tax identification number of the tax return preparer
-Failing to retain records (3 years)
-Failing to correct information returns
540 each
-Failing to be diligent in determining a client's eligibility for the earned income credit (necessary wksts)
-Aiding and abetting in the understatement if a client's tax liability (1,000 each)
-Disclosing client-supplied info w/o authority (250 each, max 10,000)
100
Circular 230
GR: preparer must be compensated
- Best practices: engagement terms, conclusion supported by laws and facts, importance of conclusions to avoid penalties
- No guarantees
- Conflict of interest: official responsibility = wait 2 years, participate in rule development = wait 1 year
- referrals ok if disclosed
101
Defenses available to taxpayer
-Position not frivolous
-Reasonable basis = >20 percent to avoid negligence
-Substantial authority = >40%
-More likely than not=>50%
>tax shelters
>Avoids understatement and substantial understatement penalty
102
Liability to third party for ordinary negligence = Privity defense
-No privity to the contract (no direct relationship between the accountant and third party)
>Exception:Is liable to third parties for negligence if the accountant had the reason to know third party would rely on the work
>Third party beneficiary rule/intended user rule
>limited foreseeable class
>Ultramares rule: Accountant is liable to third party for negligence only if there is privity to the contract or the accountant knows the exact name of the third party relying on work
103
Liability for fraud
-Defense = Lack of scienter or good faith
-Liable to anyone who can prove MAIDS
-Punitive damages available
-Constructive fraud/ gross negligence: Same elements as actual fraud but no scienter
>Reckless disregard for the truth
>Best defense= failure to cooperate/ hinder
104
Qualified Stock Redemption
-Treated as sale not, div income
1. Not essentially equivalent
>Significant decrease in voting share
2. Substantially disproportionate
>After distribution, SH owns less than 80% of the interest owned in the corp before redemption AND after the distribution, the SH owns less than 50% of the total combined voting power
3. Complete termination
4. Partial Liquidation
5. To pay death taxes
105
Base Erosion and anti-abuse tax (BEAT)
- Imposes a minimum tax on large US corps with a significant amount of deductible payments to related foreign affiliates, reducing the US tax base
- Applies to corps with 500 mil or more in income over 3 years
- Not applicable to S corps
- Compare US tax to BEAT tax
106
IRAs
- <50: Annual max contri limited to lesser of 6,000 or earned income
->50: Annual max contri limited to lesser of 7,000 or EI
->72: annual max contri =0. Must start taking out min payments
-You are not allowed to take IRS deduct if in retirement plan or rich
>Exception: Spouse can take deduct if they are not also in plan
107
Self Employed Retirement Plans
- SEP IRA = Max contri = Lesser of 100% SE income after 1/2 tax or 57,000
- Simple IRA = Max Contri = Lesser of 100% or 13,500 (16,500 >50)
- Solo 401(k) = Lesser of 20% or 57,000 (63,500 >50)
108
Fundamental Corporate Changes
-Require Board and SH approval, not unanimous for corp
Dissolution
Amendments to articles of incorp
Mergers, consolidations, and share exchanges
Sale of substantially all the corps assets
109
Stock Options
Nonqualified Option
>Taxed when granted
>Employee recognized Ord inc in amount of value of option minus cost
>If no ascertainable value, taxed at exercise date
>deductible to employer, income to employee
Qualified:
Incentive stock Option
-Exercise price is > FMV, employee not own more than 10%, held 2 years
-Taxable as CG when sold (Basis = price at grant)
Not deductible to employer
Employer Stock Purchase Plans
-Employee cannot have 5% or more power, exercise price may not be less than the lesser of 85% of the FMV
-CG when sold
-If exercise price< FMV = ord inc when sold
-No employer deduction
110
Accumulated Earnings Tax
-Paid in addition to regular tax
-Flat tax of 20%
-TO avoid, must demonstrate specific , definite, and feasible plan for the use of accumulated earnings; OR a need to redeem the corporate stock included in a deceased SH estate
-Regular C Corp entitled to 250k
-Personal service Corp= 150k
>Not imposed on personal HOLDING corps
111
Kiddie Tax
- On interest and dividends
- 0-1,100 = 0%
- 1,101-2,200 = Child rate
- 2,201 + = parent's rate
112
Consolidation Requirement
-Common parent directly owns:
>80% or more of the voting power and value of all outstanding stock of each corp
-Corporations in which an individual owns 80% or more of the stock in two corps may not consolidate (brother-sister corps)
113
Personal Service Corp
-Corporations more than 50% owned by 5 or fewer individuals AND having 60% of adjusted gross income consisting of:
Net rent (if less than 50% ord inc)
Interest that is TAXABLE
Royalties
Dividends from unrelated (20% or less domestic corp)
Additional tax = 20% on income not distributed
114
S Corp Distributions
1. Reduce AAA = Nontaxable, reduce basis
2. Reduce AEP = Taxable as div inc, no basis effect
3. Reduce basis = nontaxable
4. CG for excess
