REG R1-R3

Question 1

How much of a partnership ST capital loss is allowed for an Individual tax payer

Answer 1

STCL from a partnership can flow through for deduction on a partner’s 1040 to the extent of the partner’s tax basis in the partnership interest.

AND can only deduct up to $3,000 of NET capital losses each year, after netting all CG/L for the year together.

Question 2

Is partnership capital gain income taxed at ordinary or preferred rates?

Answer 2

preferred

Question 3

Investment interest expense deduction

Answer 3

limited to net taxable investment income. Non interest investment expenses are not deductible.

Question 4

Taxable investment income includes:

Answer 4

1. interest and dividends (if taxed at ordinary rates)
2. rents (if activity is not a passive activity)
3. royalties (in excess of related expenses)
4. net short-term cap gains
5. net LT cap gains if the taxpayer elects not to claim the net capital gains reduced tax rate

Question 5

Are damages received for slander taxable income?

Answer 5

Yes

Question 6

Is interested received from U.S. Treasury bonds taxable?

Answer 6

Yes

Question 7

What is the computation for allowable casualty loss?

Answer 7

Lesser of: Decrease in FMV or adjusted basis
Less: insurance proceeds
Less: $100 floor (applied to each casualty loss)
Less: AGI threshold (applied to all casualty losses in aggregate) which is 10% of AGI
=loss after consideration of all threshold limits

Question 8

Corporate NOL treatment for losses 2018-2020

Answer 8

5 yr carryback and indefinite carryforward

Question 9

Corporate Max Charitable Contributions Deduction

Answer 9

10% of taxable income before:
* any charitable contribution
* Dividends Received Deduction
* Any NOL or Net Capital Loss carrybacks

Question 10

Dividends Received Deduction calculation

Answer 10

LESSER of:
applicable % x domestic div received
applicable % x taxable net income BEFORE the following:
* DRD
* any capital loss carryback
* any NOL carryforward. Any capital loss carryovers are still deducted when calculating DRD taxable income limitation
*EXCEPTION: the DRD modified taxable income does not apply if, after taking into account the full DRD, the result is a net operation LOSS

Question 11

Personal Service Corps and Personal Holding Companies must include in gross income 100% of dividends received from unrelated taxable domestic corps in computing regular taxable income

Answer 11

YES to Both

Question 12

SCorps AAA account is increased by Tax-Exempt Interest Income or Taxable Interest Income?

Answer 12

Taxable Interest income. Other Adjustments Account (OAA) is increased by tax-exempt interest income.

Question 13

S Corps that were former C Corps with undistributed C Corp earnings and profits are restricted in the amount of passive income they can realize without terminating their S election. What is the restriction?

Answer 13

25% of total gross receipts from passive investment income for 3 consecutive years

Question 14

Corporate capital losses treatment

Answer 14

carry back 3 years, carry forward 5

Question 15

What source of income is included to determine Personal Holding Company income requirements

Answer 15

NOT tax-exempt interest
Dividends received from unrelated domestic corp

Personal holding company status applies if a corp is owned more than 50% by 5 or fewer individuals during last half of tax year and if 60% of adjusted ordinary gross income for that year is personal holding company income (income from investments in stock and securities)

Income is subject to regular corp tax on taxable income, and an additional 20% tax on personal holding company income not distributed.

Question 16

Regulated Investment Company

Answer 16

a corp that is registered under the Investment Company Act of 1940 and some venture capital companies. To qualify at least 90% of gross income must be qualified investment source income and distribute at least 90% of dividends and interest income.

Benefit of this corp is they are not taxed on amounts distributed to shareholders.

Question 17

Charitable contribution limits for individual

Answer 17

60% for cash contributions
50% for property contributions - Ordinary income property (personal use assets and ST publicly traded stock) is valued at LESSER of adj basis or FMV.
30% - LT capital gain property at the HIGHER of FMV or cost.

Question 18

Kiddie Tax

Answer 18

the net unearned income of a dependent child under 18 yrs old (or 18-24, over half supported by parent and FT student) is taxed at parents’ marginal rate.

net unearned income = net unearned income - standard deduction $1,250 +$1,250 taxed at child’s marginal rate ($2,500 total)

When kid has both earned and unearned income the standard deduction is the GREATER of: $1,250; or earned income + $400

all income is reported on the child’s tax return.

Question 19

S Corp Stock Basis calculation order of operations

Answer 19

First increase by: ordinary business income, separately stated income/gain items, and tax-exempt income
Then decreased by: distributions from S corporation earnings

Question 20

Non-business bad debt losses treatment

Answer 20

ST capital loss in the year that debt becomes totally worthless

Question 21

noncash income treatment (even in an exchange)

Answer 21

report FMV of property or services received (in full). The FMV of services rendered is irrelevant.

Question 22

Traditional IRA deduction

Answer 22

$6,500 per year per person. Additional $1,000 for taxpayers age 50 and older is allowed.

For MFJ where at least one spouse is an active participant in a retirement plan, the phase out is $116,000-$136K. The spouse phase out (who is not an active participant) is $218k-$228K

Question 23

Statutory notice of deficiency

Answer 23

taxpayer has 90 days to either pay the deficiency or file a petition with the U.S. Tax Court

Question 24

30-day letter from IRS

Answer 24

taxpayer has 30 days to either request an administrative appeals conference, or agree to the IRS proposed adjustment

Question 25

Small Cases Division of U.S. Tax Court

Answer 25

Decisions cannot be relied on as precedent in any other court, neither party can appeal a decision, and a taxpayer can file a petition if w/SCD of U.S. Tax Court if amount in dispute does not exceed $50,000 for any one tax year.

Question 26

scienter

Answer 26

intent (knew that a statement was wrong) or recklessly disregarded the truth

Question 28

Partnership losses and Partner’s Tax Basis

Answer 28

Tax basis in a partnership interest cannot be reduced below zero. Amount of any loss in excess of basis in the partnership interest is suspended until basis is reinstated in future years.