Review Flashcards
If you assign money does it have to be in writing
no - it does not necessarily covered by the statute of frauds
does not have to be in writing to be valid
When are Built In Gains applicable
ONLY when a C corp elects a S corp status
NOT when a sole proprietorship incorporates
What is the passive income rule for S corp s
An S corp automatically terminate when passive income exceeds 25% of gross receipts for 3 years
What is an advantage of a Llc over a S corp
An LLC, unlike an S corporation, can generally distribute appreciated property tax-free to an owner.
Packer Corp., an accrual-basis, calendar-year S corporation, has been an S corporation since its inception. Starr was a 50% shareholder in Packer throughout the current year and had a $10,000 tax basis in Packer stock on January 1. During the current year, Packer had a $1,000 net business loss and made an $8,000 cash distribution to each shareholder. What amount of the distribution was includible in Starr’s gross income?
The IRS requires that the annual calculation of a shareholder’s S-Corporation stock basis be conducted in the following order:
Increased for income items (including gains) and excess depletion;
Decreased for distributions;
Decreased for non-deductible, non-capital expenses and depletion; and
Decreased for items of loss and deduction.
Normally cash distributions are non-taxable to the extent of a shareholder’s basis in an S corporation. Starr’s basis was decreased from $10,000 to $2,000 as a result of the $8,000 distribution. Since Starr’s basis exceeded the amount of the distribution, there is no taxable gain. After the distribution is accounted for, Starr’s basis is reduced by another $500, to $1,500, as a result of Starr’s 50% share of Packer’s loss.
Adams owns a second residence that is used for both personal and rental purposes. During 20X1, Jackson used the second residence for 50 days and rented the residence for 200 days. Which of the following statements is correct?
f a residence is rented for more than 14 days during the year and is used for personal purposes for the greater of (i) more than 14 days or (ii) more than 10% of the rental days, it is treated as part personal residence and part rental property. If this is the case, expenses attributable to the residence must be prorated between personal and rental use.
How do you calculate whether an individual is insolvent or not
An individual is insolvent when liabilities exceed the fair value of assets. Since liabilities are $175,000 and assets have a total fair value of $155,000, the individual will be unable to pay $20,000 of the liabilities and is insolvent.
The carrying value of the assets is not relevant since the excess of carrying value over fair value will not be available to repay debt.
Thompson’s basis in Starlight Partnership was $60,000 at the beginning of the year. Thompson materially participates in the partnership’s business. Thompson received $20,000 in cash distributions during the year. Thompson’s share of Starlight’s current operations was a $65,000 ordinary loss and a $15,000 net long-term capital gain. What is the amount of Thompson’s deductible loss for the period?
55,000
In an action brought against an auditor under common law liability, the client must prove which of the following?
Lack of Due Care
Proximate Cause
both
In a common law action in which a plaintiff has no contractual relationship with an accountant but wishes to hold the accountant liable in relation to services performed by the accountant, the plaintiff must prove that a loss was suffered as a result of misstatements, making them the proximate cause of the loss, and that the accountant performed negligently and did not apply a requisite amount of due care to the engagement.
A tax preparer has advised a company to take a position on its tax return. The tax preparer believes that there is a 75% possibility that the position will be sustained if audited by the IRS. If the position is not sustained, an accuracy-related penalty and a late-payment penalty would apply. What is the tax preparer’s responsibility regarding disclosure of the penalty to the company?
both
A tax preparer must always inform a client of any potential penalties that are reasonably likely to apply to the client. Even if there is a 75% possibility that the position will be sustained by the IRS, there is still a reasonable chance that the client could be penalized.
Any party the auditor could have reasonably foreseen as a third-party beneficiary is a foreseen third-party beneficiary.
False
A party that the auditor could have reasonably foreseen is considered foreseeable, not foreseen.
When you assign payment to another party what are their rights
They are entitled to the payments and to insurance proceeds if those come. This is because the contracts rights include assignment of the rights in the event of death - these are transferred as well
What is the difference between a limited partnership and a LLC
Lp has a general partner who has some liability
LLC protects everyone
A corporate merger or takeover that qualifies as a corporate reorganization under the Internal Revenue Code generally receives non-recognition treatment of gains and losses under Code Section 368.
True
In a corporate merger or takeover that qualifies as a reorganization, no gain or loss is recognized on the transaction under Internal Revenue Code Section 368 and the basis of the target’s assets carry over without being adjusted to fair market value.
Who is required to file a M1 or M3
All corp must file a M1, M3 is optional if you have less than 10M in assets
If you have more than 10M in assets you must do a M3
When must a CPA comply with the private securities litigation reform act
When auditing the F/S of issuer under 1934
When a corporation has unused capital losses that they are carrying forward - what are the rules
If carried forward they are used to offset future capital losses
They are always considered short term capital losses - regardless of their original nature
Can personal service companies and personal holding companies get a DRD
No - they do not qualify
A purchaser who obtains real estate title insurance will
rHave coverage for the title exceptions listed in the policy.
Be insured against all defects of record other than those excepted in the policy.
Have coverage for title defects that result from events that happen after the effective date of the policy.
Be entitled to transfer the policy to subsequent owners.
Be insured against all defects of record other than those excepted in the policy.
A title insurance policy provides a buyer of property protection against defects in the property’s title. It is issued after the title insurance policy researches the title and applies to defects in existence as of the date of the policy. A title insurance policy will generally list exceptions, which are types of defects against which it will not provide protection. A title insurance policy provides no protection from actions of the buyers and does not cover defects to the title that occur after the date of the policy. Since the policy is as of a particular date, it cannot be transferred to a subsequent purchaser.
What does a proportionate liquidating distribution mean
Its a complete liquidation
In 20X2, Barlow moved from Chicago to Miami to start a new job, incurring costs of $1,200 to move household goods and $2,500 in temporary living expenses. Barlow was not reimbursed for any of these expenses. What amount should Barlow deduct as itemized deduction for moving expense?
none - Not itemized deductions
what is the Keogh deduction
20% max of self employment income
What is the difference between foreign branch and a foreign subsidiary
Branch - is a business operation by a US company - subject to US tax and tax benefits
subsidiary - is a separate company - can’t consolidate - so no DRD, no loss deductions, or foreign tax credit
What is nexus
nexus is the connection between a company and a state that is sufficient for the state to tax the company
Which of the following securities is exempt from registration under the Securities Act of 1933?
Corporate debentures that were previously subject to an effective registration statement, provided they are convertible into shares of common stock.
Shares of nonvoting common stock, provided their par value is less than $1.00.
A class of stock given in exchange for another class by the issuer to its existing stockholders without the issuer paying a commission.
Limited partnership interests sold for the purpose of acquiring funds to invest in bonds issued by the United States.
A class of stock given in exchange for another class by the issuer to its existing stockholders without the issuer paying a commission.
This is a stock split which is exempt along with stock dividends
How does a shareholder treat the gain on a redemption of stock that qualifies as a redemption to pay death taxes under Section 303?
entirely as a capital gain
Which of the following is correct regarding self-employment taxes?
I. For purposes of the portion of self-employment tax that is equivalent to Social Security tax, taxable self-employment income is limited to a prescribed maximum amount reduced by other wages earned by the taxpayer that are subject to FICA and Medicare taxes.
II. For purposes of the portion of self-employment tax that is equivalent to the Medicare tax, taxable self-employment income is limited to a prescribed maximum amount reduced by other wages earned by the taxpayer that are subject to FICA and Medicare taxes.
I. For purposes of the portion of self-employment tax that is equivalent to Social Security tax, taxable self-employment income is limited to a prescribed maximum amount reduced by other wages earned by the taxpayer that are subject to FICA and Medicare taxes.
A portion of the self-employment tax is equivalent to the Social Security tax paid equally by the employee and the employer on the employee’s income, limited to a certain amount. The remainder represents payments for Medicare and are applied to all income without limitation.
The amount of self-employment income that is therefore subject to the self-employment tax that is equivalent to Social Security is the amount of the limit reduced by any wages upon which the taxpayer has paid the Social Security tax through an employer. No such reduction is made for the Medicare portion.
Are punitive damages taxable
is workers comp taxable
reimbursement for medical expenses - physical harm
Yes - fully taxable
no - not taxable
no - not taxable unless you expensed them in previous years then they are taxable
Mr. and Mrs. Sloan incurred the following expenses on December 15, 20X2, when they adopted a child:
Child’s medical expenses $5,000
Legal expenses $8,000
Agency fee $2,000
5,000
An adopted child is a dependent, and medical expenses of $5,000 paid by the taxpayers for that child qualify as itemized deductions. Legal expenses and agency fees are not deducted as expenses, but may qualify the taxpayers for an adoption credit. An exclusion also exists for adoption fees paid by the taxpayer’s employer.
An individual with gross income of $78,000 had the following gains and losses from capital transactions during the current year:
Loss of $11,000 on the sale of principal residence held for five years;
Gain of $5,000 from the sale of securities held for four years;
Loss of $9,000 on the sale of municipal bonds held for seven months;
Loss of $4,000 on the sale of a painting held for investment for fifteen years.
What amount of the capital loss should the individual carry forward?
5,000
no principle residence
+ 5,000
- 9,000
- 4,000
total 8,000 loss
can take 3,000 capital loss per year and rest is carried forward
5,000
are medical insurance paid by your employer included in your income
no - they are not
what are the awards of service rules
what about a gift -
you can exclude up to $400 for years of service from income
gifts are YES included in taxable income
wat is the rule with state income taxes
you can take real estate, personal property, and state income taxes. NOT Sales Tax at the same time
State sales taxes are deductible in lieu of state income taxes, but they may not be deducted in the same year.
On dissolution of a general partnership, distributions will be made on account of:
I. Partners’ capital accounts
II. Amounts owed with respect to profits
III. Amounts owed partners for loans to the partnership
III I II
Upon dissolution of a partnership, after paying the creditors, distributions are first made to partners to cover loans they made to the partnership, then in proportion to partner capital account contributions, and, finally, profits.
Lakeview is a 1,000 acre property that is owned by the Church. It operates primarily as a retreat center for church youth in the winter and summer months. For two weeks out of the year, it serves as the “fish camp” for incoming freshman at a public university, an activity begun at the request of the university.. Revenues from which of the following activities will trigger Unrelated Business Income (UBI)?
Winter and summer retreats for the youth of the church.
“Fish camp” for incoming freshman at a public university
neither - because it is intermittent - it is not UBTI
An S corporation must separately pass through which of the following items to its shareholders?
A net Section 1231 loss
Foreign income taxes
Investment interest expense
all three
A pass-through entity, such as an S corporation, will report separately those items that receive special tax treatment on the returns of the S corporation’s shareholders.
This includes a section 1231 loss, since it is offset against other 1231 gains and losses with net gains taxed as capital gains and net losses as ordinary;
foreign income taxes, which may provide a foreign tax credit;
and investment interest expense, which is allowed as an itemized deduction with certain limitations.
Which of the following increases the accumulated adjustments account of an S corporation?
Capital contributions by the shareholders.
Distribution to shareholders.
Interest and dividends.
Charitable contributions.
Interest and dividends
The accumulated adjustments account (AAA) consists of the accumulated amounts of the corporation’s income, net of deductions, that has not been distributed to shareholders.
