Review

Question 1

How can the PHC tax be eliminated or reduced?

Answer 1

By sufficient dividend distributions

Question 2

When would a corporation recognize a gain on distribution of property to a shareholder?

Answer 2

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.

Question 3

When must a C corp use the accrual method?

Answer 3

A C corp that has more than $25M in sales on average for a 3 year period

Question 4

When is a shareholder considered “at risk”?

Answer 4

For the shareholder’s investment plus any portion of entity liabilities

Question 5

What is an advantage of an LLC over an S corp?

Answer 5

Appreciated property can be distributed tax free to an owner

Question 6

How are partnerships created?

Answer 6

Informally b/c all the partners have unlimited liability

Question 7

If a partnership distributes property, can any gain/loss be recognized?

Answer 7

No gains/losses are recognized on property distributions, for both current and liquidating.

Question 8

What is not considered a gift?

Answer 8

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).

Question 9

What are attributes of a complex trust?

Answer 9

It distributes corpus, makes distributions that are more or less than DNI, makes charitable contributions.

Question 10

When is the mid-quarter convention applicable?

Answer 10

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.

Question 11

Surviving spouse or head of household

Answer 11

Provide over 50% of the cost of maintaining the principal residence of a dependent child.

Question 12

Which credit can result in a refund?

Answer 12

Earned income credit and child tax credit

Question 13

What happens to suspended losses for individuals when the activity is sold?

Answer 13

The suspended losses may be used to offset active, passive, and portfolio income.

Question 14

What portion of benefits from an annuity paid for entirely by the employer can be excluded from income by the employee?

Answer 14

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.

Question 15

Which AMT item is a tax preference?

Answer 15

Private activity bond interest, always add.

Question 16

Can a husband and wife file a joint return even if they have different accounting methods?

Answer 16

Yes.

Question 17

What prevents a husband and wife from filing joint returns?

Answer 17

If they have different tax years. They can have different accounting methods, but not different tax years.

Question 18

How is personal casualty loss calculated?

Answer 18

The lower of (1) the reduction in fair value of the property or (2) the property’s adjusted basis.

Question 19

To avoid underpayment penalties, an individual must pay what?

Answer 19

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).

Question 20

What is the personal exemption for a trust?

Answer 20

$100 for a complex trust; $300 for a simple trust; $600 for an estate

Question 21

When is life insurance proceeds included in a gross estate of the decedent?

Answer 21

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

Question 22

Medical expenses are deducted where for a decedent?

Answer 22

From the gross estate on the estate return. If a waiver is filed, then it can be deducted on the final 1040.

Question 23

What is an inter vivos trust?

Answer 23

Created between living people

Question 24

What is a testamentary trust?

Answer 24

A trust created through the execution of a will

Question 25

What is income in respect of a decedent?

Answer 25

Income paid to an estate that was earned by the decedent prior to death

Question 26

How can a deceased spouse’s unused lifetime exclusion be used by the other spouse?

Answer 26

Through the timely filing of Form 706

Question 27

For what entities is the 80% rule a factor?

Answer 27

C corps and S corps

Question 28

What are 2 artificial entities that file a return?

Answer 28

Trusts and estates

Question 29

When does a revocable trust become irrevocable?

Answer 29

Upon death of the grantor

Question 30

Can a partnership qualify for tax-exempt status?

Answer 30

A partnership cannot qualify to be a non-profit

Question 31

A non-profit must operate as a what?

Answer 31

In the form of a corporation or a trust

Question 32

What interest subject to the annual exclusion?

Answer 32

A present interest

Question 33

The basis in inherited property will be what?

Answer 33

The FMV at date of death or the AVD

Question 34

When would taxes paid be added to the beneficiary’s basis?

Answer 34

Gift tax paid, not estate tax

Question 35

When would an exempt organization have to file an annual return?

Answer 35

When gross receipts exceed $50,000 per year

Question 36

Will tax credits cause a permanent difference between book and taxable income?

Answer 36

No; tax credits reduce tax liability and not a reduction of taxable income.