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CPA - Final Review > REG - Final Review > Flashcards

REG - Final Review Flashcards

1
Q

What is a CFC?

A

Controlled foreign coporation

U.S. shareholders owns 50% or more of it’s stock, in aggregate

and

U.S. person owns at least 10%, individually

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2
Q

What is PFIC?

A

Passive Foreign Investment Company

75% or more of gross income is passive

or

50% or more of total assets are passive

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3
Q

What is the GILTI tax?

A

Global Intangible Low-Taxed Income

It’s a minimum tax that must be paid by CFCs on Subpart F income.

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4
Q

How is the GILTI tax calculated?

A
  1. Calculate GILTI income
    • CFC net income minus 10% avg. adjusted basis in tangible property
    • Multiply the amount above by % owned by U.S. person
  2. Subtract GILTI deduction if U.S. corporation
    • GILTI income times 50%
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5
Q

What is a large U.S. corporation under BEAT (Base Erosion and Anti-Abuse Tax)?

A

Annual gross receipts $500 million or more

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6
Q

What is the BEAT tax?

A

A miminum tax on large U.S. corporations with significant deductible payments to related foreign affiliates.

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7
Q

What is considered significant deductible payments to related foreign affliliates according to the BEAT tax?

A

3% or higher of total deductions

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8
Q

What is the substantial presence test?

A

A foreign person is considered a U.S. resident if:

  • Present at least 31 days in the current year; and
  • Present at least 183 days for a 3-year period, applying a weighted average:
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9
Q

What is the criteria for an individual to qualify for the mark-to-market regime?

A
  • Renounce U.S. citizenship; and
  • Meet 1 of the tests below:
    • Tax liability Test
    • Net worth Test
    • Compliance Test
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10
Q

What is the tax liability test?

A
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11
Q

What is the net worth test?

A
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12
Q

What is the compliance test?

A
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13
Q

What is foreign-derived intangible income?

A

Sales to non-U.S. person of property for use outside the U.S.

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14
Q

What is FDAP?

A

Fixed, Determinable, Annual or Periodic Income

It’s a withholding on a foreign persons’ investment income.

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15
Q

What is FATCA?

A

Foreign Account Tax Compliance Act

Withholds tax for foreign entities that do not provide info to U.S. receipients

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16
Q

Who is eligible for the 100% dividends received deduction?

A

Dividends paid by a foreign corporation to U.S. corporation owning 10% or more of stock

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17
Q

How is the increase in earnings invested in U.S. property calculated?

A

The average adjusted basis of CFC property (use quarterly figures)

minus

The adjusted basis at the end of the preceding year

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18
Q

What are the requirements to qualify as a S corp?

A
  • Qualified corporation
  • Eligible shareholder
    • Individual, estate, or trust
    • U.S. citizen (resident)
  • 100 shareholders limit
  • 1 class of stock
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19
Q

What are the requirements for an S corp contribution to be tax-free?

A
  • Must be property;
  • Soley in exchange for stock; and
  • Shareholder(s) control 80% or more of stock
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20
Q

What taxes may a S corp be required to pay?

A

If S corp transitions from a C corp:

  • LIFO recapture tax
  • Built-in gains tax
  • Tax on passive investment income
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21
Q

How does an S corp become exempt from the built-in gain tax?

A
  • Never was a C corp
  • Sale or transfer of property happens 5 years after S election
  • Appreciation of asset happen after S election
  • Assets acquired after S election
  • Gain recognized in prior years
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22
Q

When is an S corp taxed on passive investment income?

A
  • Has prior accumulated C corp earnings
  • Passive income exceeds 25% of gross receipts
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23
Q

What is the ordering rule for calculating the stock basis in an S corp?

A
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24
Q

When does the S election take effect?

A

If elected by March 15 then the election would take effect January 1 of the current year.

If not, then the election would take effect January 1 of the next year.

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25
Q

What actions would terminate the status of an S corporation?

A
  • Greater than 50% of holders of stock (voting and nonvoting) consent to revocate status
  • Violate eligibility requirements
  • 25% of gross receipts come from passive income 3 consecutive years and the corporation also has accumulated earnings and profits from when it was a C corp at the end of each year
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26
Q

How is the built-in gain calculated for a S corp?

A

Fair market value of property @ S election

minus

Adjusted basis of property @ S election

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27
Q

What items are considered separately stated item for an S corp?

A
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28
Q

What is the loss limitation for S corp?

A
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29
Q

What is the accumulated adjustment account?

A

It is used to compute the tax effects of distributions paid to shareholders of a S corporation that has accumulated earnings and profit at inception or election.

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30
Q

What increases the accumulated adjustment account?

A

Separately and non-separately stated income and gains.

Except, tax-exempt income and certain life insurance proceeds.

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31
Q

What decreases the accumulated adjustment account?

A
  • Distributions
  • Separately and non-separately stated expense items and losses
  • Non-deductible expenses related to income other than tax-exempt income
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32
Q

What is subrogration?

A

The surety gets the rights of the creditor if they pay the debtor’s debt obligation.

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33
Q

What is exoneration?

A

Gives the surety the right to force a solvent debtor to pay their debt.

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34
Q

What is contribution?

A

The right of a surety to make other co-sureties pay their share of the debt.

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35
Q

What is a creditor’s composition?

A

An agreement that the debtor makes with at least 2 creditors that the debtor will pay less than the full debt.

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36
Q

What is assignment for the benefit of creditors?

A

The debtor transfers property to a trustee to dispose of and satisfy some of the debtors debt.

It’s not discharged though.

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37
Q

How is a child’s net unearned income calculated?

A

Total unearned income

minus

Child’s allowable standard deduction

minus

Additional range for income tax @ child’s rate

(This range will equal the allowable standard deduction or income range of child’s rate)

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38
Q

What are the common adjustments under the AMT?

A
  • State and local taxes (added back)
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39
Q

What are the common tax preferences under the AMT?

A
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40
Q

What deductions are allowed under the AMT?

A
  • Medical expenses
  • Qualified housing and residence interest
  • Charitable contributions
  • 1/2 of self-employment tax
  • Traditional IRA account contributions
  • Casualty losses
  • Gambling losses
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41
Q

How is the AMT calculated?

A
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42
Q

What are the carryback/forward rules for the AMT credit?

A

They can be carried forward indefinitely.

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43
Q

How is the new Medicare tax levied?

A

It is 3.8% on the lesser of:

  • Net investment income; or
  • Excess MAGI over a threshold
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44
Q

How is the child tax credit phase-out calculated?

A
  1. Determine the excess over the appropriate threshold
    • MAGI minus Threshold
  2. Divide that figure by $1,000
  3. Round down to the nearest whole number
  4. Multiply that figure by $50
  5. Reduce the $2,000 credit by this amount
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45
Q

To get the child tax credit, how old does the qualifying child have to be?

A

17

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46
Q

What is the refundable limit for the child tax credit?

A
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47
Q

What is the deduction for being 65 or older and/or blind?

A
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48
Q

What is considered investment income?

A
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49
Q

What is the carry forward/back rule for charitable contributions?

A

Carry forward 5 years

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50
Q

What is the tax treatment for worthless stock: Section 1244 stock (small business stock)?

A

Any loss up to the maximum amount is treated as an ordinary loss. Any excess is treated as a capital loss.

Only available to the original owners.

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51
Q

What is a Type B reograniztion?

A

When another corporations acquires the stock of another corporation.

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52
Q

What is a Type A reorganization?

A

Merging or consolidation of two corporations to form a new corporation.

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53
Q

How is distributable net income (DNI) calculated?

A
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54
Q

What part of a distribution to an estate beneficiary will be taxable to the beneficiary?

A

The part that is taxable is limited to the DNI of the estate.

Any excess is considered a nontaxable distribution of principal.

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55
Q

When does a fiduciary have to file a Form 1041 return?

A
  • the estate has gross income of $600 or more; and
  • all beneficiaries are U.S. citizens or residents
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56
Q

What is a personal holding company?

A

Corporations more than 50% owned by 5 or fewer individuals

and

60% or more of adjusted ordinary gross income consisting of:

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57
Q

How are tax preparation expenses handled on an individual tax return?

A

Miscellaneous itemized deduction (from AGI).

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58
Q

What is CFC subpart F income?

A

Taxable income includable by U.S. taxpayer from a CFC.

Income has no economic connection to country of origin.

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59
Q

What qualifies as 1231 property?

A

Depreciable personal and real property used in the taxpayer’s trade or business

and

held over 12 months.

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60
Q

What is the civil penalty for fraud?

A

@ least 75% of understatement of tax

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61
Q

What is privity as it relates to CPAs?

A

Only parties to a contract and limited forseeable class of person who the CPA knows is relying on the CPA’s work can sue for damages.

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62
Q

What does a persn have to prove to sue under Section 11 of the 1933 Securities Act?

A

The person must prove L.A.M.:

  • suffered a loss
  • the person acquired the stock;
  • there was a material mistatement or omission of fact
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63
Q

How is the taxable amount of a gift calculated when a married couple elects to treat the gift as made one-half by each spouse?

A
  1. Divide the amount of the gift by 2
  2. Subtract the $15,000 exclusion amount from each gift
  3. Multiply the excess amounts by 2
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64
Q

How is a capital gain or loss calculated upon the sale of a partnership interest?

A

Remember: Capital gain or loss is different from amount realized.

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65
Q

When are non-qualified stock options taxed?

A

If there is ascertainable value:

@ grant date

If there is not ascertainable value:

@ exercise date

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66
Q

How is the basis calculated for a non-qualified stock option?

A

If readily ascertainable value:

exercise price + Value of option @ grant date

If not readily ascertainable value:

FMV of stock @ exercise date

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67
Q

How is ordinary income calculated for non-qualified stock options?

A

If readily ascertainable value:

Value of option * # of shares

If not readily ascertainable value:

FMV of stock - Exercise price of option

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68
Q

What does with reserve mean in regard to auctions?

A

Seller does not have to sale goods unless an adequate bid is made.

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69
Q

What does “without reserve” mean in regard to auctions?

A

The goods must be sold to the highest bidder.

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70
Q

What is the Social Security tax based on?

A

Net profit, for a self-employed person

Gross wages, for an employee

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71
Q

When are revocations of an offer effective?

A

When received.

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72
Q

What is a firm offer?

A

Offers made by merchants that are irrevocable without consideration.

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73
Q

How can an offer qualify as a firm offer?

A
  • must be a seller of personal property;
  • must be in writing and signed by the seller; and
  • assurance is given that offer will remain open
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74
Q

How is a gain on the sale of property contributed by a partner calculated?

A
  1. Calculate the contributing partner’s built-in gain
    • Fair market value of property minus adjusted basis of property–at date of contribution
  2. Calculate the gain after contribution
    • FMV of property @ date of sale minus FMV of property @ date of contribution
  3. ​Divide that amount by the partner’s interest %
  4. Add the built-in gain and gain after contribution
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75
Q

What are the 5 elements of fraud?

A

M.A.I.D.S.

  • ​misrepresentation of a material fact;
  • actual and justifiable reliance;
  • intent to induce reliance;
  • damages; and
  • scienter
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76
Q

How is the “mom and pop” exception to passive activity loss rules calculated?

A

Taxpayer can deduct $25,000 if AGI is under $100,000

Phase-out

  1. Determine the excess AGI over $100,000
    • AGI minus $100,000
  2. ​Multiply this figure by 50%
  3. Subtract this figure from $25,000 deduction
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77
Q

What is the “mom and pop” exception?

A

An individual can deduct up to $25,000 of net passive losses from rentals if:

  • actively managing rental; and
  • own at least 10% of rental activity
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78
Q

What is the accumulated earnings tax?

A

A penalty tax on regular C corporations who have accumulated earnings in excess of $250,000

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79
Q

How is the limitation on the Section 179 deduction calculated?

A

The limit is $1,020,000

Phase-out

  1. Determine the amount to reduce the maximum deduction by
    • Amount of property placed in service minus $2,550,000
  2. ​Subtract excess amount from deduction
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80
Q

What is the order of priority for priority creditors?

A

S.A.G. W.E.G. C.T.I.

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81
Q

What is accord and satisfaction?

A

Parties agree to new terms–discharging the old terms (accord) and fulfilling the new terms (satisfaction).

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82
Q

Is MACRS depreciation reported separately?

A

No.

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83
Q

Is taxable interest income reported separately?

A

Yes.

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84
Q

Is interest expense reported separately?

A

No, if related to operations.

Yes, if related to investment income.

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85
Q

How much of the Section 179 deduction is personally deductible on a S corp shareholders Schedule E?

A

Interest % * Section 179 deduction

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86
Q

Are health insurance premiums paid by an individual a qualified medical expense?

A

Yes.

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87
Q

Are over-the-counter medications a qualified medical expense?

A

No.

88
Q

What is the tax benefit rule?

A

The amount of a deduction that is recovered should be recognize to the extent of the deduction.

89
Q

What is the charitable contribution limitation for corporations?

A

10% of adjusted taxable income before:

90
Q

What are the requirements for incentive stock options (ISO)?

A
  • granted under a plan and approved
  • granted within 10 years of the earlier of when adopted or approved
  • exercisable within 10 years of grant date
  • exercise price may not be less than FMV of stock on grant date
  • must not own more than 10% of combined voting power at grant date
  • once exercised, must be held at least 2 years after grant date and at least one year after exercise date
  • must remain an employee from grant date until 3 months before exercise date
91
Q

What are the requirements for an employee stock purchase plan?

A
  • written and approved by shareholders
  • cannot grant options to employee with more than 5% voting power
  • must include all full-time employees and those with less than 2 years employment
  • option price cannot be less than the lesser of:
    • 85% of fair market value of stock when granted; or
    • exercise price
  • cannot be exercised less than 27 months after the grant date
  • cannot acquire more than $25,000 stock per year
  • must be held 2 years after grant date and 1 year after exercise
  • must remain an employee from date option is granted until 3 months before exercise
92
Q

Are guaranteed payments subject to self-employment tax?

A

Yes.

93
Q

What are the 3 hurdles an individuals has to cover in order to deduct ordinary business losses?

A
  • tax basis
  • at-risk amount; and
  • passive activity loss
94
Q

What is the normal deprecation convention for 7-year MACRS property?

A

Half-year

exception

40% of all tangible property acquired happen in the 4th quarter

95
Q

How much is excludable from taxable income for payments made by an employer on behalf of an employee for an employee’s educational expenses?

A

Up to $5,250

96
Q

Is cash or property received as a gift taxable?

A

No.

97
Q

If you use the standard deduction and then receive a state refund later, is this amount taxable?

A

No.

98
Q

How are payments received from accident insurance policy treated for tax purpose?

A

They are excludable if the taxpayer paid all the premiums.

99
Q

When borrowing money, is that a taxable event?

A

No.

100
Q

Is a 1231 gain considered self-employment income?

A

No.

101
Q

How is the self-employment tax calculated?

A

Net earnings from self-employment

times

15.3% (Social Security and Medicare tax)

102
Q

How is the basis in an ISO calculated?

A

Exercise price

plus

Any amount paid for the option

103
Q

What happens if an employee lets an ISO lapse?

A

There is no taxable event.

104
Q

How is a penalty for early withdrawal from a certificate of deposit treated for tax purposes?

A

Treated as a deduction for AGI.

105
Q

What is the American Opportunity credit?

A

Credit for qualified educational expenses for an undergraduate student.

Entitled up to $2,500 per qualifying child.

106
Q

How is the American Opportunity credit calculated?

A
  • 100% of 1st $2,000 worth of qualified educational expenses
  • 25% of the next $2,000 worth of qualified educational expenses
107
Q

What is the Lifetime Learning credit?

A

For qualified tuition and related expenses, not books.

Can be used an unlimited amount of years, undergraduate and graduate school.

Can only be used once per family.

Cannot be used in conjunction with the American Opportunity credit with the same child.

108
Q

How is the Lifetime Learning credit calculated?

A

Maximum $2,000 per family

20% of first $10,000 of qualified expenses

109
Q

What does the $100 casualty floor apply to?

A

Each casualty event.

For example, each storm.

110
Q

Which situations are gains excluded or deferred?

A
111
Q

What is the criteria for a married couple that wants to claim the primary residence gain exclusion?

A

Each individual has to meet the requirements:

Within a five-year period before the sale of the property:

  • Either spouse had own the property for 2 years; and
  • Both spouses used the property for 2 years–if not both then one spouse qualifies for $250K exclusion
112
Q

What is Section 1250 unrecaptured gain?

A

This is part of the gain that is attributable to depreciation taking on a real estate property.

113
Q

What is the hardship provisions, as it relates to homeowner exclusions?

A

Taxpayer can prorate gain exclusion due to unforeseen circumstances that causes the taxpayer to violate the ownership and use criteria.

New job must be at least 50 miles farther from old home.

114
Q

How is the prorated exclusion calculated for the homeownership exclusion due to the hardship provision?

A
  • Months of qualifying ownership divided by 24 months
  • Multiply this figure by maximum exclusion allowable for individual/couple
115
Q

How is the gain exclusion calculated when the taxpayer qualifies for the nonqualified use provision?

A

Multiply the maximum gain amount by the ratio:

Period of qualifed use

÷

Total period property is owned

116
Q

What is depreciation recapture?

A

The excess over net book value up to the original cost of the personal property.

This is taxed at ordinary income.

There is no depreciation recapture for real property sold by individuals.

117
Q

What is a 1231 gain?

A

The excess over the original cost of depreciable personal or real property.

118
Q

What does it mean if you don’t have any depreciation recapture and you sold 1231 property at a loss?

A

It means that you sold below NBV by the amount of the 1231 loss.

Sale - NBV = 1231 Loss

119
Q

How are gains treated for the sale of C corporation real property?

A

Use Section 291:

Recapture as ordinary income is 20% of the lesser:

  • recognized gain; or
  • accumulated straight-line depreciation
120
Q

What is a wash sale?

A

A stock that is sold and repurchased within a 30-day period.

Purchase-Sold-Puchase

121
Q

Can the bonus method be used if converting an asset from personal use to business use?

A

No.

122
Q

What is the character of a capital loss for a C corporation?

A

Short-term capital loss

123
Q

What is a qualifying small taxpayer?

A

Average annual gross receipts the preceding 3 years are $10 million or less.

124
Q

How is the deduction for qualifying repairs and improvements calculated?

A

Deduct improvements that don’t exceed the lesser of:

  • $10,000; or
  • 2% of unadjusted basis
125
Q

What is an exception to the Statute of Frauds requirement that an enforceable contract be in writing?

A

If one party has fully performed their part of the contract.

126
Q

What are the requirements of a legally enforceable contract?

A
  • agreement (offer and acceptance)
  • exchange of consideration
  • lack of defenses
127
Q

What are the six types of contracts that are required to be in writing and signed by the party that will be held liable?

A

M.Y. L.E.G.S

  • consideration is marriage
  • terms cannot be performed in a year–unless already performed
  • involving land or real estate
  • involving executor
  • goods for more than $500
  • surety agreements
128
Q

What is chapter 13 bankruptcy?

A

Debtor repays all or a portion of their debts (through a trustee) over a 3-5 year period.

Only available to individuals and it is voluntary.

129
Q

What is chapter 11 bankruptcy?

A

Debtor reogranizes debt and repays at different times or terms, but business continues.

Trustee is not usually required.

130
Q

What is novation?

A

A new contract substitutes a new party for an old party in an existing contract on the agreement of all parties.

131
Q

What is anticipatory repudiation?

A

Someone in the contract states in advance they will not perform the their terms of the contract.

132
Q

When can a practitioner charge a contingent fee?

A
  • an IRS examination or audit
  • a claim solely for a refund of interest and/or penalties
  • a judicial proceeding under IRC
133
Q

What debts cannot be discharged?

A

F.A.T. W.E.D.

  • Debts due to fraud
  • Alimony or child support payments
  • Taxes within 3 years of filing
  • Willful and malicious injury
  • Educational loans
  • Debt undisclosed
134
Q

Would payments of a mortgage by an ex-spouse be considered alimony if the payments continue after the other spouse’s death?

A

No.

These amounts would be considered a part of a property settlement.

135
Q

What are the 3 requirements to attach a security interest?

A
  1. agreement between the debtor and creditor
    • by creditor taking possessor; or
    • written agreement signed by debtor
  2. must lend money or sell on creditor
  3. debtor has to have rights to the collateral
136
Q

Can a tax payer use the 100% of prior year rule to avoid underpayment penalty, even if they didn’t pay taxes in the prior year?

A

Yes.

137
Q

What is the penalty for failure to file an information return?

A

$50 for each failure, with a maximum $25,000 for each return period.

138
Q

How are gift taxes paid on gifts made after 1976 treated for tax purposes?

A

It is a credit against the gross estate tax.

139
Q

What is the time period medical expenses can be deducted from the gross estate?

A

13 months after death.

140
Q

What is the time period medical expenses can be deducted from the decedent’s final tax return?

A

1 year after death.

141
Q

When would the sale of a partnership interest not result in a capital gain (loss), but an oridinary gain or loss?

A

Any gain or loss related to hot assets:

  • unrealized receivables
  • appreciated inventory; and
  • recapture income
142
Q

What is an estate’s income distribution deduction?

A

The lesser of:

  • actual distributions minus tax-exempt income included; or
  • distributable net income minus adjusted tax-exempt income
143
Q

How is Section 1245 ordinary income determined?

A

Recognized on a gain to the extent of accumulated depreciation.

144
Q

What is apparant authority?

A

The agent has power because:

  • principal’s conduct gives third parties to believe that the agent has power; or
  • principal was negligent

Remember: Just being an agent doesn’t give them apparant authority

145
Q

What damages are taxable?

A

Compensatory and punitive damages

146
Q

Who is a holder?

A

A person rightfully gains possession of commerical paper and can enforce the paper.

147
Q

Who is a holder in due course?

A

A holder who takes an instrument for value, in good faith, and without notice of any claims on the instrument.

148
Q

What are the dependency requirements for medical expenses?

A

All the requirements under the S.P.O.R.T.

except for

the gross income test

149
Q

When will an oral contract be enforceable when there is sale of goods over $500?

A
  • specifically manufactured goods
  • written confirmation
  • admitted in court; or
  • performed
150
Q

How are rental property expenses treated for tax purposes?

A

A deduction to arrive at AGI.

151
Q

Who is considered a tax preparer?

A

Someone who is compensated or employs others to prepare returns for compensation.

152
Q

When is compliance with the Securities Exchange Act of 1934 required?

A
  • securities listed on a national exchange;
  • there @ least 500 shareholders in any class of securities; or
  • issuer has at least $10 million in assets
153
Q

What is the mid-quarter exception?

A

Applies to all property, except for real property, if more than 40% of the total basis of that property is placed in service the last quarter of the year.

154
Q

What is taxable income under a trust?

A

Income after income distribution deduction and the exemption deduction.

155
Q

What is the exemption for simple and complex trusts?

A

Simple = $300

Complex = $100

156
Q

What is a defense for a CPA?

A

Due diligence.

Liability can be avoided by proving reasonable grounds to believe statements made by the CPA are true.

157
Q

Is there a penalty for conflict of interest for tax preparers?

A

No.

158
Q

What is the penalty for:

failure to keep record of returns

failure to provide a client a copy of return

failure to sign tax return prepared?

A

$50 per failure

maximum $25,000 per calendar year

159
Q

How can a security interest in accounts be perfected?

A

Filing a financial statement

160
Q

When would a penalty for an understatement of tax liability not be applied to a tax preparer for tax shelter?

A

When it is more likely than not to be upheld.

161
Q

When does the divident received deduction not apply?

A
  • personal service corporations
  • personal holding companies
  • S corporations
162
Q

How many days do you have to file paperwork after petition for bankruptcy?

A

45 days

163
Q

How does UCC Article 9 prioritize conflicting priorities between interest in collateral?

A
  • a buyer in ordinary course of business of inventory
  • properly perfected inventoy PMSI–notice required for priority
    • noninventory priority dates to possession if filed within 20-days after debtor takes possession
  • a perfected security interest (non-PMSI)
  • unperfected security (attachment only)
  • the debtor
164
Q

How is the business interest expense deduction calculated for C corporations?

A

The deduction is limited to 30% of business income excluding:

  • interest income
  • depreciation; and
  • interest expense deduction

There is no limit if avg. annual gross recepts are less than $25 million for the prior 3 taxable years.

165
Q

What is the carry forward/back rule for disallowed business interest expense?

A

Carried forward indefinitely

166
Q

What is the business loss deduction limitation?

A

Combined excess loss is limted to (add only business items):

  • $510,000 MFJ
  • $255,000 Other

Any excess is carried forward indefinitely

and

can offset up to 80% of taxable income

167
Q

Is income earned as an independent contractor considered business income?

A

Yes.

168
Q

When is a gain or loss recognized on the sale of listed stock?

A

On the trade date

169
Q

What is the tax consequence if a taxpayer withdraws early from a traditional IRA?

A

10% tax penalty

plus

Marginal tax rate

170
Q

What are the exceptions to the 10% penalty tax for early withdrawal from a traditional IRA?

A

H.I.M. D.E.A.D.

Note that these items would also be taxed and thus included in gross income

171
Q

What qualifies a property as a rental property if it also is used for personal reasons?

A

Residence is rented for 15 or more days

and

Used for personal purposes for the greater of:

  • more than 14 days; or
  • more than 10% of the rental days

Expenses must be prorated

172
Q

How many days can you rent your residence and not include the rental income in your income?

A

Fewer than 15 days per year

173
Q

What is a passive activity?

A
  • taxpayer does not materially participate
  • rental activity, no matter extent of participation
174
Q

What is the exception for passive activity losses being used against ordinary income?

A

If disposed of in the current year the PAL can be offset by ordinary income.

175
Q

What is a constructive trust?

A

It’s a means to recover secret profit from an agent by a principal.

176
Q

Actual authority is terminated automatically, by operation of law by which events (with no notice)?

A
  • death of either the principal or agent
  • incapacity of the principal
  • discharge in bankruptcy of the principal
  • failure to acquire a necessary license
  • destruction of the subject matter
  • subsequent illegality
177
Q

When is a principal bound when an agent enters into a contract on their behalf?

A

If the agent had authority.

Does not matter if principal is disclosed, partially disclosed, or undisclosed.

178
Q

If an agent does not have authority and enters into a contract on behalf of a principal, what are the consequences?

A

The principal is only bound if they ratify the contract.

179
Q

When can an agent be liable for a contract they enter on behalf of a principal?

A
  • principal is partially disclosed (identity is not disclosed)
  • principal is undisclosed (neither identity or existence is disclosed)
180
Q

Will the agent’s acts bind the principal?

A
181
Q

When is ratification of a contract needed?

A

When an agent lack the authority to bind a principal into a contract.

182
Q

What are the characteristics of a power of attorney agreement?

A
  • it is written
  • signed by the principal
  • normally limited to specific transactions
183
Q

What are the requirements of ratification?

A
  • agent must have indicated they were acting on behalf of the principal
  • all material facts must be disclosed to the principal
  • principal must ratify entire transaction
  • consideration not required and no need to notify third party of ratification
184
Q

What is ultra vires?

A

Doctrine limiting a corporation’s power to act outside is purpose or statutory power

185
Q

If agency is not contractually what remedy is the agent not entitled to?

A

specific performance

186
Q

What is the basic order of priority for claimants of a debtor’s estate?

A
187
Q

If a creditor does not file a claim are they entitled to a part of the debtor’s estate?

A

Yes, if there is money leftover after the general unsecured creditors who filed a timely claim are paid.

188
Q

How is the proportion calculated for the distribution of a debtor’s estate between general unsecured creditors?

A

Unsecured claim

÷

Total unsecured claims remaining

189
Q

Who confirms a reorganization plan in a Chapter 11 bankruptcy?

A

The court.

Creditors and security interest holders vote whether to accept the plan.

190
Q

What effect does the court’s final decree in a chapter 11 bankruptcy have?

A

Discharge of all debts and liabilities that happen before the confirmation of the reorganization plan, exceptions must be stated.

191
Q

What is a chapter 15 bankruptcy?

A

When a multinational becomes bankrupt and a foreign representive files a petition for a foreign proceeding.

This may be in addition to Chapter 7 or 11.

192
Q

What is the exception to discrimination of foreign interest in bankruptcy cases?

A

Certain foreign governments and tax claims that are governed by treaty.

193
Q

What would cause a reorganization plan under Chapter 11 bankruptcy to not be confirmed?

A

If the plan doesn’t have a plan to fully repay administrative expenses and certain classes of creditors.

194
Q

What is the difference between discharged and dissovled in a bankruptcy?

A

Individuals are discharged.

Corporations and partnerships are dissolved.

195
Q

What will prevent a party from getting a discharge of debt?

A
  • debtor not individual
  • fraudulent transfers or concealment of property
  • failed to keep books and records
  • prior discharge within 8 years
  • commission of a bankruptcy crime
  • failure to explain loss of assets
  • refusal to obey orders or answer questions
196
Q

What are the rules under Regulation D for Rule 504 and Rule 506?

A

5 million in a 12-month period

197
Q

For a CPA to be liable under Section 10(b) of the 1934 Act, the plaintiff must prove what?

A
198
Q

What are tender offers?

A

An offer for existing shareholder to purchase stock at a specified price for a specific period of time.

199
Q

What is a proxy?

A

A written request to vote a shareholder’s shares at shareholder’s meeting.

200
Q

Which securities are exempt from being registered?

A

B.R.I.N.G.S.

201
Q

What is Regulation D?

A

It exempts private offerings from registrations

202
Q

What is a shelf registration?

A

One registration statement for all securities they will offer in the future.

203
Q

What is Regulation A?

A

A simplified form of registration for smaller companies

204
Q

What are the two tiers of offerings under Regulation A?

A
205
Q

What type of filing is required under Regulation A?

A

May file a preliminary offering circular.

Required to file an offering circular.

206
Q

What are the differences between the antifraud provisions of the 1933 and 1934 Acts?

A
207
Q

What is Section 18 Liability?

A

States a person can be held liable for intentionally making false statements in a registration statement or any report under 1934 Act.

208
Q

What type of advertising is permitted under the 1933 Act?

A
  • red herring prospectus
  • tombstone ads
  • oral offers
209
Q

What are the requirements for a company to be registered with the SEC?

A
210
Q

Can you rescind a transaction under the 1933 Act?

A

No.

But you can under the 1934 Act.

211
Q

What is Rule 147?

A
  • entire issue must be offered and sold only to residents of that state
  • issuer must do @ least 80% of business in the state
  • purchasers cannot resell securities to nonresidents for 6-months
  • general solicitation is not allowed
212
Q

What is the $1000 specific deduction?

A

Non-profits are allowed a $1000 deduction for unrelated business income

213
Q

When should estimated tax payments be made in regards to tax-exempt corporations?

A

If tax is $500 or more

214
Q

What type of organizations are excluded from Section 509 private foundations?

A
215
Q

What is unrelated business income?

A
216
Q

Which organizations are exempt for filing information returns?

A

CPA - Final Review (4 decks)

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