REG FLASHCARDS

Question 1

Itemized deductions (decreases in taxable income)

Answer 1

Qualified Charitable contributions (60% of AGI)
Natural disasters (10% AGI)
Mortgage interest

Question 2

Dividends received deductions for corporate tax

Answer 2

Net dividend income (any current losses netted with the dividend income) 50% of the net dividend income to get the amount of dividends received deductions

Question 3

Courts for Tax

Answer 3

the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.

Question 4

stock basis is calculated as follows

Answer 4

Beginning Basis
(ADD)
additional contributions
ordinary business income
capital gains
(subtract)
distributions
nondeductible expenses
separate stated loss/expense items

Question 5

relationship between creditor and debtor
Attachment is established by…

Answer 5

Agreement of the parties (either an authenticated record of the agreement or the creditor’s having either possession or control of the collateral).
Value is given by creditor.
Debtor has rights in the collateral.

Question 6

30 day letter

Answer 6

If an individual taxpayer rejects the IRS examiner’s findings in an audit of the taxpayer’s tax return, the IRS will issue the taxpayer a 30-day letter (preliminary notice) notifying the taxpayer of the right to appeal. The taxpayer has 30 days to request an administrative appeals conference with the IRS Office of Appeals.

Question 7

The business judgment rule

Answer 7

The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation

Question 8

When does the IRS not impose a pennalty

Answer 8

The IRS does not impose a penalty on a CPA for making an error in calculating a tax return.

Question 9

Under the Sales Article of the UCC, which of the following statements is correct regarding the creation of express warranties?

Answer 9

To be an express warranty, the language must be part of the basis of the bargain.

Question 10

the courts in which a taxpayer would first bring a lawsuit against the IRS,

Answer 10

are the Tax Court, the U.S. District Court, and the U.S. Court of Federal Claims.

Question 11

The principle that protects corporate directors from personal liability for acts performed in good faith on behalf of the corporation is known as:

Answer 11

The business Judgement rule

Question 12

What is an employer in a workers comp claim?

Answer 12

Generally, an employer is strictly liable for an employee’s injuries under a workers’ compensation statute.

Question 13

What will not cause the IRS to impose a penalty on a CPA?

Answer 13

he IRS does not impose a penalty on a CPA for making an error in calculating a tax return.

Question 14

What is an express waranty?

Answer 14

Express warranties must be part of the basis of the bargain between buyer and seller.

Question 15

For Frank to be liable under common law negligence, Sun at a minimum must prove that Frank:

Answer 15

Failed to exercise due care.

Question 16

An employee who has had Social Security tax withheld in an amount greater than the maximum for a particular year may claim:

Answer 16

The excess as a credit against income tax, if that excess resulted from correct withholding by two or more employers.

Question 17

What is the amount of expenses the doctor can deduct as business expenses on Schedule C, Profit or Loss from Business?

Answer 17

Business expenses include work uniforms for the taxpayer and taxpayer’s employees, subscriptions for periodicals for patient use, and continuing education expenses.

Question 18

with respect to the reorganization provisions of Chapter 11 of the federal Bankruptcy Code what is true?

Answer 18

Under Bankruptcy Code Section 303, creditors may petition a debtor involuntarily into a Chapter 11 bankruptcy reorganization proceeding.

Question 19

A limited liability company (LLC)

Answer 19

is taxed as a flow-through to the owners (members). All the owners have limited personal liability and are allowed to actively participate in the management of the business. Owners are not required to be U.S. citizens or residents.

Question 20

What is true in both an S and C corp?

Answer 20

Either entity’s shareholders may contribute property to the corporations without being taxed and may contribute such property as an exchange for stock as appraised by the directors.

Question 21

Under the Secured Transactions Article of the UCC, what secured transaction document must be signed by the debtor?

Answer 21

Security agreement.

Question 22

Under the Revised Model Business Corporation Act, which of the following statements is correct regarding corporate officers of a public corporation?

Answer 22

A corporation may indemnify its officers for liabilities incurred in a suit by stockholders, especially if the officer prevails.

Question 23

what is a general requirement for the merger of two corporations?

Answer 23

Both corporations must give shareholders notice and a summary of the merger plan.

Question 24

Under which of the following circumstances would a promoter be relieved of personal liability on contracts entered into while engaged in forming a corporation?

Answer 24

When the third party, the corporation, and the promoter enter into an agreement to substitute the corporation for the promoter.

Question 25

what is a joint venture

Answer 25

A joint venture is an association of persons engaged as co-owners in a single (special transaction) undertaking for profit. A joint venture is treated as a partnership for most important legal respects.

Question 26

Entity Taxation of C corps

Question 27

S corp

Question 28

Partnership

Question 29

Sole proprietor

Question 30

90 day letter

Answer 30

an IRS notice stating that there was a discrepancy or error within an individual’s taxes and they will be assessed unless petitioned. The taxpayer has 90 days to respond, otherwise the audit deficiencies will result in reassessment. Also known as a Notice of Deficiency.

Question 31

What is a true representation of a principal’s duty to an agent who works on a commission basis?

I.

Answer 31

A principal is required to pay its commissioned agent as agreed and thus must maintain sufficient records in order to do so. Therefore, statement I is true. Statement II is also true. Generally, a principal must indemnify an agent for all expenses the agent reasonably incurs on the principal’s behalf unless the parties have agreed otherwise.

Question 32

In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be:

Answer 32

Legally sufficient.

Question 33

Under the Federal Insurance Contributions Act (FICA), all of the following are considered wages, except:

Answer 33

Under FICA, wages are compensation for labor. Reimbursed travel expenses are not considered wages and are not in gross income; therefore they are not subject to FICA.

Question 34

Under the Sales Article of the UCC, which of the following statements is correct regarding a good faith requirement that must be met by a merchant?

Answer 34

The merchant must observe the reasonable commercial standards of fair dealing in the trade.

Question 35

Who pays the unemployment tax?

Answer 35

Unemployment compensation insurance and workers’ compensation insurance both are paid by the employer. They are not deducted from the employee’s wages.

Question 36

The 5 elements of actual fraud

Answer 36

Mirsrepresentaion
intent to deceive
actual and justifiable reliance
intent to convince plantiff
daamages
Knows statement is false

Question 37

elements of constructive fruad

Answer 37

Mirsrepresentaion
intent to deceive
actual and justifiable reliance
intent to convince plantiff
daamages
Reckless doesn’t know if true or false

Question 38

The UCC imposes an obligation of good faith on both parties to a contract.

Answer 38

For merchants, this includes the duty to observe reasonable commercial standards

Question 39

MARCS depreciation

Answer 39

5 years- vehicles, computers, copiers
7 years- furniture, machinery, equipment
15 years- improvements to interior/ exterior of the building
27.5 years- residential property

Question 40

Under the Sales Article of the UCC, what is correct regarding a seller’s obligation under a F.O.B.

Answer 40

Under an F.O.B. destination contract, the seller has the risk of loss until he places conforming goods into the buyer’s hands at the named destination, not necessarily the buyer’s place of business.

Question 41

Tax depreciation vs book

Answer 41

Book depreciation is treated as a company’s expense and is recorded as a depreciation expense on the income statement. This results in savings as it reduces the net income reported by a company. Tax depreciation, however, is a tax deduction listed on the tax return that reduces the business client’s taxable income.

Question 42

Lack on inquery into clients expenses can result in what for a CPA?

Answer 42

The CPA may be assessed a tax return preparer penalty.

Question 43

A C corporation’s net capital losses are:

Answer 43

A C corporation’s net capital losses are carried back 3 years and forward 5 years; they expire after 5 years. In addition, a C corporation cannot deduct net capital losses from ordinary income.

Question 44

section 179 deduction

Answer 44

Section 179 of the IRC allows businesses to take an immediate deduction for business expenses related to depreciable assets such as equipment, vehicles, and software. This allows businesses to lower their current-year tax liability rather than capitalizing an asset and depreciating it over time in future tax years.

Question 45

Recourse debt

Answer 45

The client letter states that the loan from Midland Bank is recourse debt. Partnership recourse debt is allocated to general partners because they have personal liability for the debts of the partnership and bear the economic risk of loss. Green is the only general partner so all of the bank debt is allocated to Green
Accounts payable is recourse debt. Partnership recourse debt is allocated to general partners because they have personal liability for the debts of the partnership and bear the economic risk of loss. Green is the only general partner so all of the partnership’s accounts payable is allocated to Green

Question 46

Tax penalties when to pay taxes

Answer 46

The required annual payment is the lesser of: (1) 100 percent of the current year tax or (2) 100 percent of the prior year tax (as long as the prior year tax is not zero). If a taxpayer is a large corporation, it is required to pay 100 percent of current year tax. IRC Section 6655(d). A large corporation is defined as one with taxable income of $1,000,000 or more in any of the three preceding tax years [IRC Section 6655(d)(1)].

Question 47

Extensions on taxes

Answer 47

Extensions filed are for an extension of time to file, not time to pay.

Question 48

Which of the following is a correct statement about the Small Cases Division of the U.S. Tax Court?

Answer 48

he decision of the Small Cases Division cannot be relied on as precedent in other courts.

Question 49

How long into the year can a company apply for S corp status and it be applied to the same year?

Question 50

Clark bought Series EE U.S. Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Clark’s dependent child. One of the conditions that must be met for tax exemption of accumulated interest on these bonds is that the:

Answer 50

One of the conditions that must be met for tax exemption of accumulated interest on the bonds is that the purchaser of the bonds must be the sole owner of the bonds (or joint owner with his or her spouse). Other conditions include, for post-1989 bonds, the taxpayer is over age 24 when issued and is used to pay for higher education, reduced by tax-free scholarships, of the taxpayer, spouse, or dependents.

Question 51

The basis of S corporation stock is computed as follows:

Answer 51

Initial basis (amount paid for the stock)
10,000

+

Shareholder’s 20% share of $12,000 of total S corporation income (taxable + tax-exempt)

2,400

–

Shareholder’s 20% share of $1,000 of S corporation distributions
(200)

=

Ending basis
12,200

Question 52

Under the de minimis safe harbor rule,

Answer 52

The de minimis safe harbor rule will apply, because Wolf has a written policy to expense certain property as of the beginning of the year. Because it has an applicable financial statement (AFS), the de minimis rule allows the company to expense items costing up to $5,000 each. These three items cost $4,000 each, so all $12,000 ($4,000 × 3) can be expensed and deducted.