REG20

Question 1

Are nonbusiness deducts deductible in computing a NOL?

Answer 1

Yes, they are deductible in computing a NOL only to the extent of nonbusiness income.
Example of nonbusiness income is a gain on the sale of investment property.

Question 2

What are the limits for the Child Care Credit?

Answer 2

35% for AGI under $15K, reduced to 20% by 1% increments above $15K.

Question 3

Are ST Capital Gains included in AGI?

Answer 3

Yes.

Question 4

Is there a limitation on the rental real estate loss if MAGI is over $100K?

Answer 4

Yes, MAGI > $100K is reduced 50%, MAGI includes dividends.

$25K - ((MAGI - $100K) x 50%)

Question 5

Does the AMT exemption have a phase out?

Answer 5

Yes, phased out by 25% of the amount of AMTI over $500K.

(AMTI - $500K) x 25% = Amount to reduce exemption by…$70,300 - amount

Question 6

Are contributions made by a self-employed person to a personal retirement plan considered nonbusiness deductions?

Answer 6

Yes.

Question 7

If a closely held corporation (more than 50% of the value of its stock is held by 5 or fewer people) during the last half of the year and they derive more than 50% of its gross receipts from the real property, can they offset a passive loss against active and portfolio income?

Answer 7

Yes

Question 8

Will compensating an employee for personal services always cause an employee trust to lose exempt status?

Answer 8

No, reasonable compensation is permissible.
They may not engage in prohibited transactions, like lending without adequate security or reasonable interest, or paying unreasonable compensation for personal services.

Question 9

Does OI include interest expense?

Answer 9

Yes

Question 10

Is it true that annual information returns, employment tax returns, and a report of cash received are all returns that might be required of a tax-exempt organization?

Answer 10

Yes under Publication 557

Question 11

Do general partners file a statement of authority that may give notice of limitations on the authority of a partner?

Answer 11

Yes. apparent authority is effectively limited to the extent a 3rd party knows of limitations. The RUPA provides for filing of a statement of authority.

Question 12

If there is an agreement on how to share profits but silent on sharing of losses, how are the losses shared?

Answer 12

The partners will share in losses according to the allocation of profits specified in the partnership agreement.

Question 13

Is a distinguishing characteristics of the partnership form of business that its lacks continuity of life?

Answer 13

Yes.

Question 14

If the amount available to distribute in a liquidation of a partnership is less than the total capital contributions, what happens?

Answer 14

There is a loss that must be allocated based on the agreed %. Cap Cont - available for distr = Loss. Loss x % = allocation. A partner may have to personally contribute to the partnership.

Question 15

Is a provision for issuance of voting stock an implicit requirement for a corp to include in its articles of incorporation to obtain a corporate charter?

Answer 15

Yes, the articles must include the # of shares authorized to be issued. So, provision for issuance of voting stock is implicit.

Question 16

What is a dissenters’ or appraisal rights and how is it invoked?

Answer 16

Shareholders who disagree with fundamental corporate changes may have dissenters’ or appraisal rights. May be invoked only when a SH has a right to vote on a fundamental change, does not vote in favor, and gives written notice of a demand for payment.

Question 17

If a premium is paid on a bond, is it amortized and reduces interest income?

Answer 17

Yes, premium may be amortized over the life of the bond as a reduction of interest income.

Question 18

Is a matching contribution to employee-designated qualified universities considered a charitable contribution?

Answer 18

Yes

Question 19

If there is a dividend received deduction for a 20% SH, what is the deduction %?

Answer 19

65%

HAS TO BE LESS THAN 20% FOR IT TO = 50%

Question 20

Is internally generated goodwill a capital asset?

Answer 20

Yes, internally generated goodwill is a capital asset.

Goodwill acquired is treated as amortizable property, which is not a capital asset.

Question 21

If own 50% of an S corp and have a basis of $3,000; Corp has OI of $2,000 and makes a distribution of a truck with an AB of $5,000 and a FMV of $7,000. How do you calculate the TOTAL income reported by SH for the Year?

Answer 21

Basis is $5,000 ($3,000 beginning basis + $1,000 OI + $1,000 Gain). The truck has a FMV of $7,000, $5,000 is treated as a tax-free return of capital. The additional $2,000 is reported as income. So $3,000 TOTAL gain: $1,000 from income reported by the S corp from the distribution and $2,000 gain exceeding basis.

Question 22

What is the maximum amount of time allowed from the creation of a charitable organization for submission of exemption if the status is to be effective from the date of organization?

Answer 22

If filed within 27 months of organization, retroactive treatment is available.

Question 23

When does risk of loss in a sale or return pass to the buyer?

Answer 23

Risk of loss in a sale or return passes at the same time and place as in any other sale of goods, i.e., in accordance with the shipping terms.
Except for a sale on approval, delivery and receipt of the goods will customarily signify that risk of loss has passed to the buyer.

Question 24

Are limited and general partners in respect to their undistributed profits the last to be paid in dissolution?

Answer 24

Yes. 
#1 = Creditors #2 Partners for unpaid distributions #3 Partners for the return of their contributions #4 Partners for remaining assets (i.e., undistributed profits) in the proportions in which they share distributions

Question 25

Does the ‘as is’ provision only exclude implied warranties?

Answer 25

Yes, an express warranty is rarely effectively disclaimed.

Question 26

What is considered interest as it relates to a loan?

Answer 26

Interest, prepayment penalty, and loan origination fees. As prepaid interest, the loan origination fees must be amortized over the period the loan, but the balance is deductible if the loan is paid off.
All other expenditures are costs of obtaining a loan and are deductible over the period of each loan as Sec. 162 business expenses (other costs). The balance of the costs are deductible when the loan is paid off.

Question 27

How many month are organization expenses amortized?

Answer 27

The partnership may elect to amortize organization expenses over a period of not less than 180 months.

Question 28

What is the exclusion per year to reimburse an employee for educational expenses to cover expenses for undergraduate and graduate courses?

Answer 28

The IRC provides an exclusion of payments up to $5,250 per year.

Question 29

For an incentive stock option (ISO), is there a taxable event when granted, exercised or sold?

Answer 29

No income tax consequences on the grant date or the exercise date of an ISO if that employee meets two requirements.
#1 cannot dispose of the stock within 2 years after the grant date or within 1 year after the exercise date.
#2 the employee must be employed by the company on the grant date until 3 months prior to the exercise date.
Recognize a capital gain when he sold.