Reg Master Flashcards
1
Q
To be a TRP requires? (3)
A
A TRP, generally speaking, is 1) a person who prepares for compensation, or who employs one or more persons to prepare for compensation, 2) a substantial portion of any return of tax 3) claims for refund of tax” under the IRC.
2
Q
National Ethics issues are handled by
A
AICPA
3
Q
What % is Substantial authority & what % is Reasonable…
A
Substantial authority = 40% & A reasonable basis is 20%.
4
Q
Which courts is not a court of original jurisdiction?
A
United States Court of Appeals
5
Q
Types of Audit reports from the IRS (3)
A
1)No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.2)Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.3)Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes.
6
Q
Tax preparers who disclose or convert confidential tax information face: (2)
A
Both civil and criminal penalties under the I.R.C.
7
Q
Contingent Fees may be charged for (3)
A
1)For services rendered in connection with an IRS examination.2)Where a claim for refund is filed solely in connection with determination of statutory interest or penalties3) When the accountant is representing the client in judicial proceedings
8
Q
Conflicts of interest and client representation,
A
A practitioner may not represent a client in-front of the IRS if doing so will result in a conflict of interest to the client or another client or result in an adverse material impact to another client. Except where permitted.
9
Q
Conflicts of interest and client representation, when is it allowed, (3)
A
1) Required by Law2) Client gives consent in writing (hold evidence for 3 years)3) Reasonable belief that it can be done in a competent and diligent manner.
10
Q
Disciplinary Actions that can be taken under Cirr 230
A
The government may censure, fine, suspend, or disbar tax advisors from practice before the IRS if they violate Circular 230’s standards of conduct.
11
Q
Best Practices by a tax practitioner (5)
A
1) Communicating terms of the engagement, purpose, use, scope, and form of the advice2) Establishing the facts,are relevant, evaluating the reasonableness of assumptions or representations, relating the applicable law to the relevant facts, and arriving at a conclusion3)Advising the client regarding the import of the conclusions whether taxpayers may avoid accuracy-related penalties if they rely on the advice;4)Acting fairly and with integrity5)Exercising any firm supervisory powers to ensure that firm employees act in accordance with best practices
12
Q
Representing a client in-front of the IRS is generally limited to (3)
A
CPAs, attorneys, and enrolled agents.
13
Q
Representing a client in-front of the IRS includes
A
Preparing and filing documents, communicating with the IRS, Representing a client at an IRS office for during an examination
14
Q
Endorsing and cashing a clients check
A
Not allowed under IRS may face a fine or penalty
15
Q
Your are not a TRP if (3)
A
1) employer ask you to file taxes2) do mechanical task associated with filing taxes3) Prepare as part of a VITA or LITA program
16
Q
Charitable Contributions Benchmarks
A
greater than $250 must have receipt. Greater than $5k must be independently appraised.
17
Q
Penalties for Late filingFraudPaying Late
A
Late Filing 5% per month up to 25%Fraud 15% per month up to 75%Late payment of Taxes 0.5% per month up to 25%
18
Q
Personal substantial Understatement ranges & fees
A
a “substantial understatement” is one that exceeds the greater of: 10% of the tax owed, or $5k. Fee is understatement amount and 20% fee in addition of amounts owed
19
Q
Corp substantial Understatement ranges & fees
A
a “substantial understatement” is one that exceeds the lesser of: 10% of the tax (or, if greater, $10,000), or $10 million. Fee is understatement amount and 20% fee in addition of amounts owed
20
Q
Sources of Primary authority (3)
A
1) Legislative, Congress2) Administrative, IRS, President, Secretary of treasury3) Judicial, Courts
21
Q
Legislative Authority (3-4)
A
1)The Constitution2)Internal Revenue Code Statutes (cited as IRC §351)3)Committee Reports of the House Ways and Means Committee, Senate Finance Committee, and the Joint Conference Committee4)Treaties
22
Q
Administrative sources for tax info (5)
A
1)Treasury regulations2) Revenue Rulings3) Private Letter rulings4)Revenue Procedures5)Technical Advice
23
Q
Proposed regulation
A
Do not hold any weight in legal terms, but indicates the IRS view on the situation
24
Q
IRS publications Hierarchy with authoritative
A
IRS publications is on the secondary level
25
Discriminate Function System (DIF)
Is used to help IRS determine which returns to evaluate
26
Agent reports and appeals process
If a taxpayer is arguing in the appeals court the IRS cannot raise any other issue than those that are present on the original report
27
30 & 90 letter responses
Taxpayer does not have to respond to a 30 day letter, they however have to respond to a withing 90 days if they wish to appeal a ruling.
28
Who can represent a taxpayer in-front of the IRS
Lawyer, CPA, enrolled agent
29
Requirements for enrolled agent? (..)
1) Pass test issued by the IRS,
30
Individual Tax payment Dates
April Jun Sep Jan 15
31
How can an individual avoid late payment fees
90% of current year or 100% of prior year if income exceeds 150k then 110 of prior year can be used
32
How can a company avoid late payment fee
100% of prior or current period payment due
33
Tax preparerer level of confidence (4)
1) not Frivalous2) reasonable basis ; at least 1 primary source3) Sustaibble autority4) More likely than not; better than 50% of being sustained
34
Preparerer monitory penalties (2 levels)
1)$1k of 50% of income from return filed greater of either 2) if positon was not reasonable, $5k or 75% of fees earned greater of eiher
35
Liability to client common law theories (3)
1) Breach of contract2) Negligence3) Fraud
36
Breach of contract elements
1) Statue of limitations 4 0r 62) Contract Existed3) Plaintiff complied with their requirements4) Damages were caused by the breach5) Defendant did not uphold their end of the agreement(breach does not have to be intentional, burden of proof is greater than 50%)
37
Negligence Elements
1) Defendant did not act with due care2) D breached standard care,3) Plaintiff suffers damages4) Proximate effects, it was reasonable foreseen the effect were possible
38
Fraud Elements
1) Defendant false made representations2)Misrepresentation or omission was material3)D knew they were acting recklessly4)D intended client to use misrepresented or omitted information
39
Burden of Proof; Breach of contract; Negligence; Fraud
1)2)3) For fraud the burden of proof is heavily weighted, (clear and convincing evidence is needed)
40
Third Party Right To Sue Contract Breach; Negligence; Fraud
Breach: Allowed to donor or CreditorNegligence; allowed for party who can be deemed to be a likely user of the informationFraud:
41
Who can take action for Confidentiality breach and hoq (3 on )
1) DOJ; Bring criminal charges2) IRS; Can sue in civil court3) CPA Lic; Maybe taken away from accountant
42
What is Scienter:
involves whether or not a person or company has a "guilty mind." or the intent to deceive
43
What is Privity:
Has to be proven in order for a third party to sue a CPA, meaning the CPA had knowledge that the information would be used by the party.
44
The "Ultramares" rule and negligence
The Ultramares rule requires privity in order for a third party to sue
45
Cirr 230 speaks about...?
TRP It provides regulations regarding practice before the Internal Revenue Service.
46
TRP should not sign a return that lacks....
A reasonable basis
47
Which Senate committee considers new tax legislation
Senate Finance Committee
48
constructive fraud requires (4)
constructive fraud requires: (1) misrepresentation of a material fact, (2) reckless disregard for the truth, (3) reasonable reliance by the injured party(4) injury. Therefore, if reckless disregard is present, it would support a finding of constructive fraud on the part of a CPA.
49
In order for a client to prove negligencey
The elements needed by a plaintiff to prove negligence against a defendant (including a CPA) are proof of the standard of due care, breach of that standard of due care, injury, and cause including both cause-in-fact and proximate cause.
50
Reason to follow AICPA rules even tho they cannot revoke Lic
Most state rules mirror AICPA rules
51
Breach of contract and negligence link
Most contract carry an under tone for breach of contract due to negligence... If negligence is present, it can be implied that the full duties or due care of the contract was not carried out.
52
Legally separated and filing status
Cannot file joint return
53
Married/Divorce at end of year
Must be married at end of year or divorced at end of year for status to apply for entire year
54
Widow/widower qualifications
1. Spouse died in prior 2 years2. a child can be claimed as a dependent3. Pays more than 50% of child care and house expense4. Can file a joint return the year of spouses death
55
Scholarships & Support
Scholar Ships do not count as support for a person
56
Itemized Deductions include:(5)
1) Medical >7.5 of agi2) Charity up 60% of agi3)Casualty/Theft >10% of agi4)Interest expense (home and investments)5) Taxes local & State limited to 10k
57
Gift and inheritance who pays
Taxes are often paid by the giver for both categories
58
Alimony before and after 2019
Before 2019 the payee it counted as income post 2019 it does not count as income
59
T EE bonds require that... (4)
1.it is used to pay for higher education (reduced by tax-free scholarships) of the taxpayer,spouse, or dependents;2.the taxpayer is over age 24 when bond is issued;3.a married taxpayer files a joint return; and4.the taxpayer meets certain income requirements.
60
State & Municipal Bonds/ Obligations
State bonds are not taxable by the federal government
61
Maximum Loss deductible in a year
3k
62
Divorce, Property Settlement
Not Taxable, and is not included in gross income
63
Gain or loss on the sale of stock is recog.
on the date the trade was made.
64
IRA early withdrawal and tax rates use...
The original withdrawal amount for both calculations
65
Non Accountable plan:
(i.e., expenses are not reported to the employer), any amounts received by an employee from the employer must be reported by the employer as part of wages on the employee‘s W-2 for the year (and subject to income tax withholding requirements). The gross amount received is reported as income.
66
Gift Basis to Recognize
In general the rollover cost, or book value of the original purchaser is used, unless being sold for a loss, then the lower of FMV or roll over cost is used.
67
Estate tax, alternative valuation date;
Uses the later of FMV at time of death or 6 months after time of death as the value of item.
68
De minimis rule;
Companies can make a de minimis annual expense election regarding expenditures to acquire or produce property if they have a capitalization policy in effect as of the beginning of the year. must be written and have applicable financial statement, limited to $4k or else limited to 2.5k
69
Exchanged Items, Gain or loss realized
(FMV of item rec(-boot paidor + boot rec)) - adj value of item given up
70
Capital gain individual vs Corp
Individual, lower tax rate, Corp no lowered rates
71
1231 Capital Loss Corp
Treated as an ordinary loss for for Corp
72
Safe Harbor Rules
Qualifying tax-ayers can expense costs related to an eligible building if the costs do notexceed 2% of unadiusted basis of the building1. A qualifying taxpayer with average annual gross receipts of $10 million or less in prior 3 yearsAn eligible building is any building with an unadjusted basis that does not exceed $1 million.
73
Like kind exchanges and recognized loss
Losses are never recognized, thus in that scenario answer will be 0
74
Start up cost deduction
5000 deducted immediately, the balance is amortized over 180 months
75
Capital Losses & NOL for Corp, carry back and carry forwards
Capital Losses can only offset capital gains and have have 3 back and 5 forwardsNOL, 2 Back and 20 Forwards
76
Capital Losses treatment
All Capital losses are treated as short term
77
EventTaxableNontaxable
Income BasisFMV FMVNonce NBV
78
Distributions and Dividends
Current E&P Accumulated E&P+1st +2nd+1st -- - Net
79
Charitable contributions calculation
10% of taxable income after adding back dividends deduction
80
Passive income loss deduction exception (3)
1. Must be active participation2. Limited to 25k3.0.5 phase out starting at 100k so at 150k no deduction is allowed.
81
Material breachs make a party liable to (2)
1. Cancel contract2. Sue for damages
82
Like kind exchanges, recognized gain or loss
the lesser of realized gain or in liabilitiesrelieved (boot received)]
83
Tax prepayment for individual (4)
1. $1,000 or more in liability, quarterly payments are needed2. 90 percent of the current year's tax or 100 percent of last year's tax.3. Exception: If a taxpayer had adjusted gross income in excess of $150k 75k for MFS) in the prior year %110
84
Widow requirements
Spouse died in prior 2years, 2 could file a joint return at the year of death, pays for over 50% of the householdupkeep.
85
Foreign person being treated like a US resident, AKA taxed on foreign income
Green card holder, presences in the USA, over 31 days of current year, or with a total of over 183 days. Current year x 1 prior year x 1/3 next proceeding year 1/6
86
NOL carry back carry forward, post 2017
No carry backs are allowed only carry forwards ∞. Usage is limited to 80% of net income. Old rule back 2 forward 20
87
Calculation of Basis like kind excahnges
Basis of new property = FMV of property rec. — Deferred gain + Deferred loss
88
Causality Loss deduction Limitations
1. Must be in a presidential declared disaster areas.2. Must be over $1003. Limited to over Loss -$100-(0.1xAGI)
89
Types of bankruptcy (6)
Chapter 7 - Liquidation (IPC)Chapter 9 - Municipal debt adjChapter 11 - Re organization (IPC)Chapter 12 - Family farmersChapter 13 - discharge of some $Chapter 15 - ancillary cross border
90
Liquidation of a partner ship
Rule: In a complete liquidation of apartnership, the partner's basis in thedistributed property is the same as theadjusted basis of his partnership interest (thepartner is essentially exchanging hispartnership interest for assets of thepartnership), reduced by any monies received.The partner recognizes gain only to the extentthat money received exceeds the partner'sbasis in the partnership.
91
Section 1231, what is it
1231 assets are personal or realestate items held for more than a period of 12 months, and used in the trade or business
92
Section 1231 gain or loss treatment
Gains - Individuals, lower tax rate, Corp regular rateLoss - Individuals up to 3k deduction per year is allowed Corp; deducted from ordinary income.
93
Non liquidating payments to partner
Non Liquidating aka Drawings, are limited to a partners is base do adjusted book value and is limited to partner's basis.
94
Intangible Income deduction requirements (3)
1. Sale is to any person who is not a US. person and is for foreign use;2. Services provided is to any person or with respect to property, not located within the US; and3. property sold to a related party who is not a US. person, provided the property is ultimately sold by the related party to an unrelated party who is not a US. person, and the property is used outside the US.
95
Partners Deductible Loss limitationa
A partner‘s deductible loss is limited to his basis plus any amounts that he is personally liable for ("at risk"provision).
96
Marcs Half Year Convention
The half-year convention provides that 50% of thefirst year's depreciation is allowed in the year in which the property is placed in service and sold, regardless of when the property is placed in service during the year, and a half—year's depreciation is allowed for the year in which the property is disposed of.
97
Competent Authority
In certain circumstances, the taxpayer can request that the IRS and the taxing officials in the other country or countries together ascertain the appropriate transfer price so that the taxpayer group is not taxed twice on the same income.
98
Personal Charitable Contribution Deduction limits
Cash is limited to 60% of AGIFMV property or Long term Cap, Lim to 30% of AGI 30/20 Public/non-public
99
Accrued Expense
Work done, but entity has not paid or has not been invoiced as yet.
100
Involuntary Conversion
Basis= old Prop. NBV, Taxable gain limited to additional proceeds not used to replace old Prop.
101
Partner Basis
Basis = Capital account + Partner's share of liabilities
102
Kiddie Tax, U18 less than 50% supp, Unearned income
1st $1,050 at 0% second $1,050 at child's rate, amount above $2,100 at estate rates.
103
LLP Partner liability to negligence
Liability is limited to those under direct control of the partner and those under his control.
104
Coverdell Saving account iinterest treatment
1. Grows tax free2. Does not prevent the use of life time credit or American opportunity Credit
105
Investment interest expense income
Investment interest expense deduction is an itemized deduction limited to net taxable investment income
106
MARC Rea-estate Sched.
Residential, Building only 27.5, Salvage Value is ignoredCommercial 39 years Salvage value is ignored(Land not included)
107
Ratification of unauthorized actions of an agent 4
1. The agent must have indicated that she was acting on behalf of the principal 2.All material facts must be disclosed to the principal.3.The principal must ratify the entire transaction4.Ratification does not require consideration
108
Dividends Received Deduction Tiers
0-20%—5020-80%—6580-100%—100
109
Bankruptcy to remember
Chp7 Liquidate IPC, trustee neededChp11 Reorganize IPC trustee may be neededChp13 adjustment of debt I only, repayment play over 3-5 year period
110
Accumulated Tax is
Tax that is assessed on some businesses for not properly distributing the income of the corporation
111
Accumulated tax is not imposed on
Personal holding companies, Tax exempt Corp, Passive foreign income Corps
112
Allocate and Apportionment ..What type of..?
Allocate non business, Apportionment business
113
2% or> stock holders employees and fringe benefits
Gets added to gross income
114
Non liquidating land distribution greater than basis in partner ship
Cash distribution over basis is taxable income, property cannot be used to make up this difference.
115
Foreign paid taxes affect a tax payers liability how?
A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid. There is a limitation on the amount of the credit an individual can obtain. In lieu of this credit, an individual might find it better to deduct the taxes as an itemized deduction instead.
116
Accrual Basis for tax purposes must be used when (4)
1.The accounting for purchases and sales of inventory, provided the business has greater than $25 (M) of avg. annual gross receipts for the 3-year period ending with the prior tax year;2.Tax shelters;3.Certain farming corporations, provided the business has greater than $25 (M) of avg. annual gross receipts for the 3-year period ending with the prior tax year; and4.C corporations, trusts with unrelated trade or business income, and partnerships having a C corporation as a partner provided the business has greater than $25 (M) avg annual gross receipts for the 3-year period ending with the tax year
117
What is Constructive fraud?
Constructive fraud does not require intent. Constructive fraud only requires reckless disregard for truth or falsity. Actual fraud, on the other hand, requires intent in making a material misstatement, upon which the plaintiff justifiably relies (and that the plaintiff suffers damages)
118
Property Included in Bankruptcy settlements (3)
1.The debtor's estate generally includes all of thedebtor's real and personal property at the time of filing.2.Income generated from estate property (interest from bonds that are part of the estate) received within 180 days after the filing of the petition for relief.3.Includes property the debtor receives from divorce, inheritance, or insurance within 780 days after the filing of the petition.4. Leases of property may be assumed and retained by the trustee, assumed and assigned toanother, or rejected by the trustee.
119
Estate Deductions (4)
1.Medical Expenses2.Admin Expenses3.Charitable deductions (unlimited)4.Martial deductions
120
The self-employment tax is:
One-half deductible from gross income in arriving at adjusted gross income.
121
Passive activity losses vs Passive income
Passive losses from retail maybe deductible from other passive activity income.
122
The base erosion and anti-abuse tax (BEAT) may apply to corporations:
Prevents US corps from deducting excessive amounts for amounts paid to foreign investments, in order to reduce taxable income, applies to corps, earning more than $500 mil a year starts at 3%.
123
Built in Gain Tax
When and S corp converts to a C corp, and the assets NBV is less than the FMV of the asset and is sold.
124
S corp Share holder requirements (5)
1.Eligible shareholders must be an individual, estate, or certain types of trust2.An individual shareholder may-be a nonresident alien.3.Qualified retirement plans, trusts, and 501(c)(3) charitable organizations maybe shareholders.4.Neither corporations nor partnerships are eligible shareholders.5.Grantor and voting trusts are permissible shareholders.
125
Serving as a Tax preparer and a Trustee for the same trust
A court appointed trustee may serve as both a trustee of an estate and also be its tax return preparer if authorized by the court. The CPA may receive a separate fee for services rendered in each capacity.
126
Disability insurance premium and health tax deduction
Are not tax deductible as it is not a medical expense but a financial insurance to replace income.
127
Rental, passive activity loss affects AGI how,
Offsets AGI, and is not an itemized deduction
128
C Corp formation, Shareholder gain realized,
Diff between FMV-NBV
129
C Corp formation, Shareholder gain recognized,
Boot or loot received, If C corp accepts Liab greater than NBV, the diff is used. * Revision may be needed
130
S.E. Tax deduction occurs when
S.E. is a for AGI deduction/ above the line deduction.
131
Adoption expense that qualify for deduction and amount
Up to $ can be deducted for expense related to legal fees, room and board, food, travel, and other like expense may be deducted as part of schedule A, Medical expense are not allowed
132
Refundable tax credits include (5)
1. Child tax credit
2. Earned income credit
3. With-holding taxes from w-2
4. Excess SS taxes paid
5. AOC is up to 40% refundable
