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REG > REG: Chapter 2 > Flashcards

REG: Chapter 2 Flashcards

1
Q

Authoritative Hierarchy

What is the purpose of Committee Reports?

A
  • Committee reports determines in the intent that Congress has behind certain tax laws
  • The committee reports help examiners properly apply the law
  • Can show that the taxpayer’s application of the tax law was in accordance with what is established
  • Committee reports are highly authoritative
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2
Q

Authoritative Hierarchy

Why are publications not used as a defense before the Appeals Office?

A
  • Publications are not binding
  • They explain the law in plain language for taxpayers and their advisors
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3
Q

Authoritative Hierarchy

What happens when there are conflicting sources of tax law?

A

The most recent law or rule will be followed

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4
Q

Authoritative Hierarchy

What is the difference between the U.S. Circuit Court of Appeals and the U.S. Court of Appeals for the Federal Circuit?

A
  • U.S. Circuit Court of Appeals hears cases from the U.S. Tax Court and the District Courts
  • U.S. Court of Appeals for the Federal Circuit hears cases from U.S. Court of Federal Claims
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5
Q

Authoritative Hierarchy

What are revenue rulings?

A
  • A revenue ruling is the official interpretation of the tax law
  • It provides guidance on how the tax law is applied to a set of facts
  • Revenue rulings are published to provide guidance
  • Revenue rulings do not have the force and effect of treasury regulations
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6
Q

Authoritative Hierarchy

What are revenue procedures?

A
  • A revenue procedure is an official statement that affects the taxpayers
  • Revenue procedures do not have force of law, but they can be cited in arguements
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7
Q

Authoritative Hierarchy

What are the levels of courts that can hear tax cases?

A
  • The Tax Court: The taxpayer has not yet settled a tax payment
  • U.S. District Court: The taxpayer had settled on any payments first
  • U.S. Circuit Court of Appeals: Hears cases from U.S. Tax Court and U.S. District Court
  • U.S. Court of Federal Claims: Cases are appealed to the U.S. Court of Appeals for the Federal Circuit
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8
Q

Filing Requirements, Dependents, and Filing Status

What is the unearned income thresholds for Kiddie Tax?

A
  • The first $1,250 of unearned income is exempt from kiddie tax
  • The next $1,250 is taxed at the child’s rate
  • The first $2,500 of unearned income is exempt from kiddie tax
  • The difference between unearned income and $2,500 is subject to kiddie tax
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9
Q

Filing Requirements, Dependents, and Filing Status

What if the child has earned income as well as unearned income?

A

The standard deduction is limited to the greater of
* $1,250
* Wages plus $400

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10
Q

Filing Requirements, Dependents, and Filing Status

What type of income is included when calculating Kiddie Tax?

A
  • Net Unearned Income
  • Dividend Income

Net unearned income is not included because it is taxed on the dependent at the parent’s marginal tax rate

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11
Q

Filing Requirements, Dependents, and Filing Status

What are the types of unearned income when calculating Kiddie Tax?

A
  • Interest
  • Dividends
  • Capital Gains
  • Trust Distributions
  • Gifts
  • Debt Cancellation
  • Pension/Annuities
  • Social Security
  • Royalties
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12
Q

Filing Requirements, Dependents, and Filing Status

What does a surviving spouse, who has no children, file the year of death and after?

A
  • Married, filing jointly in the first year
  • Single all subsequent years
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13
Q

Filing Requirements, Dependents, and Filing Status

What is the filing date for a Corporation to file Form 7004?

A
  • 15th day of 4th month after the closing of the tax year
  • An extension may be filed for an automatic 6-month extension
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14
Q

Filing Requirements, Dependents, and Filing Status

What are the requirements for filing as Qualifying Surviving Spouse?

A
  • The surviving spouse can file as Qualifying Surviving Spouse for 2 years after the year of death
  • The individual’s spouse must have died during one of the 2 previous tax years
  • The taxpayer’s residence must be the principal residence for the dependents during the entire year
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15
Q

Filing Requirements, Dependents, and Filing Status

What are considered costs for maintaining a household?

A
  • Food
  • Rent
  • Real Estate Taxes
  • Utilities
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16
Q

Filing Requirements, Dependents, and Filing Status

What are the qualifications to file as Head of Household?

A
  • Taxpayer files a separate return
  • Taxpayer does not file as qualifying surviving spouse
  • Taxpayer paid for more than half of the costs of maintaining a home
  • Spouse did not live in the home during the last 6 months of the year
  • For more than a year, the home was the main home to the taxpayer, their children, step children, adopted children or where the taxpayer is a noncustodial parent
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17
Q

Filing Requirements, Dependents, and Filing Status

What are the qualifications to file as Qualifying Surviving Spouse?

A
  • The taxpayer did not remarry during the year
  • Taxpayer was able to file married, filing jointly at the tax year of the spouse’s death
  • Taxpayer paid for more than half of the costs of maintaining a home
  • For more than a year, the home was the main home to the taxpayer, their children, step children, adopted children (Foster children do not qualify)
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18
Q

Filing Requirements, Dependents, and Filing Status

Who are considered qualified dependents

A

The person cannot have gross income more than $4,700
* Children, including step children, adopted, foster child
* Parent
* Sibling, including step siblings, half siblings, adopted siblings
* Grandparents
* Grandchildren
* Aunt and Uncles
* Nephews and Nieces

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19
Q

Filing Requirements, Dependents, and Filing Status

What type of filing is done when the a surviving spouse dies in the same year in the death of the spouse?

A

The filing for the deceased spouse will be Married, filing separately

20
Q

Filing Requirements, Dependents, and Filing Status

What type of return does a taxpayer file when they are legally separated and living in different households?

A

Single

21
Q

Filing Requirements, Dependents, and Filing Status

What are the requirements for reporting on foreign bank accounts?

A

If the aggregate value of a foreign accounts is $10,000 during the tax year
* Taxpayer must file a form FinCEN Report 114 (FBAR)
* Filing must be done by April 15th, extension October 15th
* The report is filed electronically through the bank’s e-file system

If the aggregate value at the end of the year is $50,000 or was $75,000 at any time during the tax year
* Taxpayer must file a form 8938, in addition to Report 114

22
Q

Payments, Penalties, and Refunds

What are the ways to make estimated tax payments in order to prevent paying a penalty?

A

Lesser of:
* 90% of the current year’s tax liability
* 100% of the prior year’s tax liability if AGI is less than $150,000
* 110% of the prior tax liability if AGI is equal or more than $150,000
* Quarterly installments of 25% of the previous year’s tax liability

23
Q

Payments, Penalties, and Refunds

What is the penalty fee for failure to pay by the due date?

A
  • 0.5% of the tax amount due for each month unpaid
  • The maximum penalty is 25% of unpaid taxes
24
Q

Payments, Penalties, and Refunds

What is the penalty when a taxpayer files a fraudulent tax return?

A

Lesser of:
* 15% of the unpaid taxes per month
* 75% of the tax owed

25
Q

Payments, Penalties, and Refunds

What is the penalty fee for failure to file by the due date?

A
  • 5% of the tax amount due for each month unpaid
  • The maximum penalty is 25% of unpaid taxes

If the return is filed more than 60 days late, the penalty is the lesser of:
* $485, or
* 100% of the tax due

26
Q

Payments, Penalties, and Refunds

What is the penalty for the taxpayer when they are late paying their taxes?

A

Lesser of:
* 0.5% of the unpaid taxes for each month
* 25% of the unpaid tax

27
Q

Payments, Penalties, and Refunds

What is the penalty for inaccruate reporting?

A
  • The penalty is 20% of the underpayment

If there is a substantial understatement of income, the tax penalty is the greater of
* 10% of tax required to be shown on the return, or
* $5,000/$10,000,000 for corporations

28
Q

Payments, Penalties, and Refunds

What is the penalty if a deduction is incorrectly filed as a Sec. 199A business deduction?

A

The greater of:
* 5% of the tax to be shown on the tax return, or
* $5,000

29
Q

Payments, Penalties, and Refunds

What is the statute of limitations for taxpayer penalties?

A
  • 3 years from the date the return was filed
  • If the date of the return is April 15, 2024, the statute will expire on April 15, 2027
  • If the penalty is more than 25% of gross income reported on the return, then the statute of limitations is 6 years
30
Q

Payments, Penalties, and Refunds

What are the statute of limitations for taxes?

A

Paying taxes
* 3 years from the date the return was filed
* If omission is 25% or more, then 6 years
* Use the date due if the date was filed was before the due date

Claim a refund
* The later of 3 years from the return due date or two years from when the tax was paid
* If a return was not filed, 2 years from when the tax was paid

31
Q

Payments, Penalties, and Refunds

What is the statute of limitations for refunds?

A

A claim must be filed based on a filed return by the later of:
* 3 years from the due date of the return, or 3 years, 3 months and 15 days after the end of the calendar year
* 2 years after the taxes are paid

If a return has not been filed, a claim for a refund may be filed within 2 years after filing and paying a tax

32
Q

Payments, Penalties, and Refunds

What does the statute of limitations for S Corp begin?

A
  • Returns for S corp are due on March 15th
  • The statute of limitations will begin the day after the last day of filing, which is March 16th
33
Q

Payments, Penalties, and Refunds

What would cause too much social security tax to be withheld?

A
  • The overpayment occurs when withholding is done by two or more employers
  • The extra social security tax can be applied as a credit to reduce income taxes
34
Q

Payments, Penalties, and Refunds

What is considered a substantial understatement?

A

The understatement is more than the larger of:
* 10% of the correct tax
* $5,000

35
Q

Payments, Penalties, and Refunds

What is the taxpayer’s response time after receiving a notice from the IRS?

A
  • Taxpayer’s address is in the U.S.: 90 days
  • Taxpayer’s address is outside of the US: 150 days
36
Q

Payments, Penalties, and Refunds

What option does a taxpayer have if they do not want to pay the deficiency to the IRS?

A

The taxpayer may petition the U.S. Tax Court

37
Q

Accounting Periods and Methods

How is gain recognized using the installment method (Sec. 453)?

A

The gain recognized equals

Proceeds received in the current year
x Gross Percentage Profit

38
Q

Accounting Periods and Methods

When is the accrual method of tax reporting mandatory?

A
  • When the taxpayer maintains inventory
  • A non-small business manufacturer
  • The accrual method must be used in regarding to purchases and sales
  • The accrual method is not mandatory for accounts receivable
39
Q

Accounting Periods and Methods

What companies are required to use the accrual method?

A
  • C Corporations
  • Partnerships that have a C Corp partner
  • Trust that may be taxed on unrelated income
  • Tax shelters
40
Q

Accounting Periods and Methods

What is included in Gross Income in the cash basis of accounting?

A
  • Bank Deposits
  • FMV of promissory notes
  • Monies received by the agent (even if it was deposited at a later date)
41
Q

Accounting Periods and Methods

How are prepaid rent and security deposits reported in gross income?

A
  • For prepaid rent, if there are no restrictions, then the amount is included in gross income
  • For the security deposit, if the security deposit is refundable, the amount is not included in gross income
42
Q

Tax-Exempt Organizations

What organizations are not considered 501(c)(3) exempt?

A
  • Privately owned nursing homes
  • Individuals
  • Partnership
  • S-Corp shareholders
  • Community Savings and Loan Associations
43
Q

Tax-Exempt Organizations

When does a private foundation lose it’s exempt status?

A
  • A private foundation has annual gross receipts over $5,000
  • When it becomes a public charity
  • The foundation will become a public charity if it receives more than 1/3 support annually from its members and the general public
44
Q

Tax-Exempt Organizations

What is a feeder organization?

A
  • An organization that feeds its profits to another organization
  • It is not considered an exempt organization because all of the profits go to the exempt organization
45
Q

Tax-Exempt Organizations

When an exempt organization exceeds the lobbying spending limit, how is the expenditure calculated?

A

A 25% excise tax will be incurred based on the overspent amount

REG (15 decks)

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