REG15

Question 1

Is a distribution of taxable stock rights or dividends generally treated the same as any other property distribution and the holding period begins on the day after the distribution date?

Answer 1

Yes, the basis is the FMV on the date of distribution. When the dividend is taxable, there is no tacking of the holding period for the underlying stock. The holding period begins the day following the acquisition date.

Question 2

If an individual is assessed a deficiency on his federal income tax return and pays penalty and interest, is any of the deductible?

Answer 2

No, the interest is considered personal interest and is not deductible

Question 3

If a new partner joins how much are they liable for the previously existing partnership debts?

Answer 3

Liability for previously existing partnership debts is limited to the amount of capital contribution or the interest in partnership property.

Question 4

Is it true that if the payment of money is an adequate substitute for performance by the breaching party, the nonbreaching party must seek damages and may not pursue the remedy of specific performance?

Answer 4

Yes. The primary remedy for breach of contract is monetary damages in amounts sufficient to place the injured party in as good a position as if the contract had been performed.
Specific performance is permitted only when the nonbreaching party persuades the court that monetary damages are not an adequate remedy.

Question 5

Are oral contracts enforceable?

Answer 5

Yes, but the statute of frauds prevents enforcement at law of certain contracts unless a signed writing exists that contains essential contract terms. A services contract is within the statute of frauds unless it can be completed within a year of entering into the contract.

Question 6

Is stock owned by a sibling apart of constructively owned stock?

Answer 6

No.

Question 7

What does anticipatory breach mean?

Answer 7

It occurs when one party repudiates the contract. It is an express or implied indication that (s)he has no intention to perform the contract prior to the time set for performance.

Question 8

Is a price tag in a store considered a quotation/invitation or an offer.

Answer 8

It is not an offer.

Question 9

Is a services contract within the statute of frauds if it can be completed within a year of entering into the contract?

Answer 9

Oral contracts are usually enforceable unless they are within the statute of frauds. A services contract is not within the statute of frauds if it can be completed within a year of entering into the contract.

Question 10

If one party to an agreement has no knowledge that what (s)he is to supply is intended for an illegal use, can (s)he enforce the agreement?

Answer 10

Yes. The party intending the illegal use may not. The latter restriction is based on the argument that the bargain would facilitate accomplishment of an illegal objective.

Question 11

If someone orally accepts an agreement to buy land, is it enforceable on both parties?

Answer 11

It is enforceable only against a party who signs a written memorandum of the offer. Oral acceptance bound the person selling only.

Question 12

What is the frustration of purpose doctrine?

Answer 12

If principal purpose was substantially frustrated without fault. An event occurred, the nonoccurence of which was a basic assumption on which the contract was made.

Question 13

If unable to purchase oil because of unseasonably warm weather breach a contract?

Answer 13

Yes, if performance was not conditioned on customer usage or demand then the doctrines of impossibility and impracticability excuse does not apply. Unseasonably warm weather is not such a circumstance, it is ordinary business risk.

Question 14

Are contracts that are of no effect and not recognized under law are unenforceable or void.

Answer 14

They are void. Neither party has a legal obligation to the other based on the contract. The parties may go through with their performance, but the law provides no remedy for a breach.

Question 15

Does an offeror have the power to revoke (cancel) an offer at any time prior to acceptance?

Answer 15

Yes, revoke (cancel) an offer at any time prior to acceptance. Exceptions are option contracts and a written commitment to keep an offer open made by a merchant-seller of goods. To be effective, revocation must be communicated to the offeree prior to acceptance. Notice of revocation may be indirectly communicated, including the sale of the subject matter.

Question 16

If an employer voluntarily pays the entire FICA tax for its share and the amounts that it could have withheld from the employees is it deductible by the employer or is there a penalty charged?

Answer 16

The employer is required to withhold the employees’ share of FICA taxes from its employees’ wages. But, the employer is treated as having paid additional compensation to the employees in the amount of the employees’ share. This additional compensation is a deductible ordinary and necessary business expense.

Question 17

What is an agency coupled with an interest?

Answer 17

The lender is an agent with an interest in the subject matter of the agency separate from the principal’s and not existing for the principal’s benefit. The agent’s power to sell the securities is to the agent’s but not the principal’s advantage because it secures a loan.

Question 18

Are both termination of the agency relationship and imposition of a constructive trust appropriate when an agent breaches a fiduciary duty?

Answer 18

Yes

Question 19

What are the eight remedies for a principal when an agent fraudulently breaches a fiduciary duty?

Answer 19

Terminate the agency, withhold the agent’s compensation, recover secret profits, impose a constructive trust on resources in the agent’s possession, seek an injunction against breach, obtain damages for breach of the agency contract, seek reimbursement for liability to third persons caused by the agent’s misconduct, and rescind certain contracts.

Question 20

Is notification to third parties needed if there is destruction of the subject matter of the agency?

Answer 20

Destruction of the subject matter of the agency makes fulfilling the purpose of the agency impossible. So it terminates the agency by operation of law and notice to third parties of termination of the agency’s existence is usually not necessary.

Question 21

Will the apparent authority of a partner to bind the partnership in dealing with third parties be effectively limited by the filing of a statement of partnership authority?

Answer 21

Yes. Each partner is an agent of the partnership. The partners may not limit partnership liability to third parties by agreement among the partners alone. But apparent authority is effectively limited to the extent a third party knows of limitations imposed on a partner’s authority. The RUPA provides for filing of a statement of authority that may give notice of limitations on the authority of a partner.

Question 22

Does authority of an agent terminate when they accept kickbacks?

Answer 22

Yes, the authority terminated when accepted kickbacks, breaking fiduciary duty to the principal.

Question 23

What is agency by estoppel?

Answer 23

If an agent says something that is not true, but the principal keeps silent and the supplier believes that he is an agent and enters into a contract an agency by estoppel is created.

Question 24

What is vicarious liability?

Answer 24

Vicarious liability results from the actions of the agent for which the principal may be found liable. Vicarious liability arises when (a) the agent’s act was a tort, whether or not intentional; (b) the agent’s act was not authorized by the principal; (c) the agent was an employee of the principal; and (d) the act was within the agent’s scope of employment

Question 25

Can an individual claim a loss from selling personal use property?

Answer 25

No cannot include a loss on the sale of principal residence. Property held for personal use only, rather than for investment, is a capital asset, and a gain from its sale must be reported as a capital gain. However, a loss from selling personal use property cannot be deducted.

Question 26

Can a 3rd party withdrawal from a contract when an agent exceeds express, implied, or apparent authority?

Answer 26

Yes, can withdrawal. A principal is not bound until (s)he ratifies. Also, certain conditions terminate the power of ratification, such as (1) the third-party’s withdrawal, death, or loss of capacity; (2) changed circumstances; or (3) failure to ratify within a reasonable time. If 3rd party withdrew prior to ratification, no agreement exists and there is no contract to breach.

Question 27

Does storage of an asset prior to its intended use qualify as a cost incurred to bring it to its full use and should be capitalized under UNICAP?

Answer 27

Yes, UNICAP rules require the capitalization of all expenses necessary to bring the asset to its intended use. Storage (warehousing) should be capitalized.