Review Flashcards
How can the PHC tax be eliminated or reduced?
By sufficient dividend distributions
When would a corporation recognize a gain on distribution of property to a shareholder?
When the property is appreciated property and recognized as if it had been sold at FMV. If there’s liability and it is greater than the FMV, then the FMV of the asset is equal to the liability.
When must a C corp use the accrual method?
A C corp that has more than $25M in sales on average for a 3 year period
When is a shareholder considered “at risk”?
For the shareholder’s investment plus any portion of entity liabilities
What is an advantage of an LLC over an S corp?
Appreciated property can be distributed tax free to an owner
How are partnerships created?
Informally b/c all the partners have unlimited liability
If a partnership distributes property, can any gain/loss be recognized?
No gains/losses are recognized on property distributions, for both current and liquidating.
What is not considered a gift?
The following payments are not considered gifts: Transfers to spouses, transfers to charitable organizations, political contributions, and payment of medical expenses or tuition of another (the payment must be made directly to the health care or education provider).
What are attributes of a complex trust?
It distributes corpus, makes distributions that are more or less than DNI, makes charitable contributions.
When is the mid-quarter convention applicable?
When an entity acquires at least 40% of its depreciable and amortizable assets in the final 3 months of the year, the mid-quarter convention is applied, under which depreciation is calculated only for ½ of the last quarter of the year, or 1 ½ months.
Surviving spouse or head of household
Provide over 50% of the cost of maintaining the principal residence of a dependent child.
Which credit can result in a refund?
Earned income credit and child tax credit
What happens to suspended losses for individuals when the activity is sold?
The suspended losses may be used to offset active, passive, and portfolio income.
What portion of benefits from an annuity paid for entirely by the employer can be excluded from income by the employee?
When a pension benefit is in the form of an annuity that has been paid for entirely by the employer, no portion is excluded from income.
Which AMT item is a tax preference?
Private activity bond interest, always add.
Can a husband and wife file a joint return even if they have different accounting methods?
Yes.
What prevents a husband and wife from filing joint returns?
If they have different tax years. They can have different accounting methods, but not different tax years.
How is personal casualty loss calculated?
The lower of (1) the reduction in fair value of the property or (2) the property’s adjusted basis.
To avoid underpayment penalties, an individual must pay what?
The taxpayer must pay a “safe harbor” amount. The general safe harbor amount is 100% of the PY’s tax liability or 90% of the CY tax liability (whichever is lower).
What is the personal exemption for a trust?
$100 for a complex trust; $300 for a simple trust; $600 for an estate
When is life insurance proceeds included in a gross estate of the decedent?
When either: 1) the proceeds are paid directly to the estate OR 2) decedent retained power of ownership of policy w/the ability to name or rename beneficiary
Medical expenses are deducted where for a decedent?
From the gross estate on the estate return. If a waiver is filed, then it can be deducted on the final 1040.
What is an inter vivos trust?
Created between living people
What is a testamentary trust?
A trust created through the execution of a will
What is income in respect of a decedent?
Income paid to an estate that was earned by the decedent prior to death
How can a deceased spouse’s unused lifetime exclusion be used by the other spouse?
Through the timely filing of Form 706
For what entities is the 80% rule a factor?
C corps and S corps
What are 2 artificial entities that file a return?
Trusts and estates
When does a revocable trust become irrevocable?
Upon death of the grantor
Can a partnership qualify for tax-exempt status?
A partnership cannot qualify to be a non-profit
A non-profit must operate as a what?
In the form of a corporation or a trust
What interest subject to the annual exclusion?
A present interest
The basis in inherited property will be what?
The FMV at date of death or the AVD
When would taxes paid be added to the beneficiary’s basis?
Gift tax paid, not estate tax
When would an exempt organization have to file an annual return?
When gross receipts exceed $50,000 per year
Will tax credits cause a permanent difference between book and taxable income?
No; tax credits reduce tax liability and not a reduction of taxable income.
