Review for REG

Question 1

R5
Power of Attorney

Answer 1

Is a written appointment of agency,
Signed by the principal and
Giving the agent authority to act on the principal’s behalf.

Question 2

R6
Business judgment rule,

Answer 2

A Director is protected from liability
for decisions made on behalf of the corporation
IF
The director acts in good faith and in in the best interest of the corporation,

Exercising care that a reasonably prudent person would exercise in a similar position.

The action must also ostensibly be within the power of the corporation to undertake and ostensibly within the authority of management to make.

Question 3

R2
Preferential Tax Rates
Things to know

Answer 3

STCG - taxed as ordinary tax rates
LTCG - taxed at preferential tax rates

Gain on sale of collectibles and Qualified Small Business Stock (QSBS) is taxed at max 28% tax rate

Question 4

R1
Charitable Contribution

Answer 4

Taxpayer can deduct long-term (i.e., held longer than 12 months) capital gain property at the higher FMV (higher than cost basis) without paying capital gains tax on the appreciated portion.

This deduction is limited to 30 percent of adjusted gross income (AGI). A five-year carryforward period applies.

Question 5

R5
Agent for an Undisclosed Principal,

Answer 5

Broker (agent) has the same actual authority as if the principal’s identity were disclosed.

Actual authority depends on the communications between the principal and the agent and is unaffected by whether the principal’s identity is disclosed to third parties with whom the agent deals.

Question 6

R5
Agent owes the principal a duty of loyalty

Answer 6

and must act solely in the principal’s interest

Question 7

R4
For a cause of action for negligence,

Answer 7

the client must prove at least that the CPA failed to exercise due care.

Question 8

R5
The impossibility defense can be raised when

Answer 8

An event occurs after a contract is formed that will make performance of the contract objectively impossible (i.e., no one can perform).

If a contract specifies the source of the subject matter and that source is destroyed after the contract is formed, performance is objectively impossible because the specified source no longer exists.

Question 9

R6
Dissolution of a Partnership

Answer 9

RULE:
Each partner has liability for partnership debts

Partners will continue to have apparent authority

Partners must inform 3rd parties of the dissolution

Question 10

R4
The MORE-LIKELY-THAN-NOT

Answer 10

Standard involves a position that has a more than 50% chance of succeeding

IN a lawsuit by the IRS

Question 11

R1
Real Estate Taxes & Mortgage Interest

Answer 11

Will be deductible either on Rental Sch E or as itemized deduction Subject to Limitations

Question 12

R5
Parol Evidence Rule

Answer 12

Bars evidence of prior or contemporaneous oral stmts to vary the terms of a fully written contract

Oral evidence is permissible when the contract is incomplete, ambiguous, invalid, or subject to a condition precedent, or to modify after the original contract is written.

A contemporaneous oral agreement will be excluded

Question 13

R2
Government Bonds as Capital Assets

Answer 13

• Government bonds held by an individual investor are considered capital assets.
• When these bonds are sold, any profit or loss is reported as a capital gain or loss.

Question 14

R5
Nonconforming Goods and Risk of Loss

Answer 14

• When nonconforming goods are shipped, the risk of loss is always on the seller.
• This applies regardless of the shipping terms.

Question 15

R6
Partnership Agreement & Notice to Creditors

Answer 15

• A partnership agreement can be oral unless it is to last more than one year.
• Whether it needs to be in writing is decided when the agreement is made.
• Notice to creditors is not required upon dissolution.
• Without notice, partners may still be liable for the partnership’s debts after dissolution.

Question 16

R4
Tax Preparer Responsibilities

Answer 16

• Must make reasonable inquiries if taxpayer’s information is incomplete.
• Liable for penalties if understatement of liability is due to negligence or intentional disregard of rules.
• Not required to obtain supporting documentation unless accuracy is in doubt.
• Must make reasonable inquiries if information appears incorrect or incomplete.

Question 17

R1
Series EE Savings Bonds Interest Exclusion

Answer 17

• Tax-exempt if used for higher education for taxpayer, spouse, or dependents.
• Reduced by any tax-free scholarships received.
• A married taxpayer files a Joint Return
  -Taxpayer is over 24 yo

Phase out:
Single/HOH $96.8k-$111.8k
MFJ $142.2k-$175.2k

Question 18

R6
Derivative Action

Answer 18

• When a corporation doesn’t enforce its rights against a third party.
• A shareholder can sue on behalf of the corporation.
• Example: Suing a third party to enforce the corporation’s rights.

Question 19

Stockholder and Board of Directors Rights

Answer 19

• Stockholder Approval: Must approve major changes like dissolution.
• Corporate Borrowing: Approved by board of directors’ resolution.
• Selecting Officers: Done by the board of directors, not stockholders.
• Declaring Dividends: Decided by the board of directors; no absolute right for stockholders to receive annual dividends.

Question 20

R3
For S Corporation

Answer 20

Guarantee of corporate debt does not create debt basis.

Only direct loans to the corporation create debt basis.

Question 21

Golsen Rule

Answer 21

US Tax Court will follow the precedents set by the US Court of Appeals for the circuit where the taxpayer resides