Review Questions

Question 1

Accord and satisfaction

Answer 1

Where both parties agree to new terms that vary from the original contract such that the old contract is discharged and the new agreement is fulfilled

Question 2

Novation

Answer 2

When a new contract substitutes a new party for an old party in an existing contract on the agreement of all parties

Question 3

When does Circular 230 allow contingent fees

Answer 3

1) an IRS examination or audit
2) a claim solely for a refund
3) a judicial proceeding arising under the IRC

Question 4

Unreimbursed employee expenses are:

Answer 4

NOT deductible

Question 5

Common Adjustments

Answer 5

• Educator Expenses
• Traditional IRA Contributions
• Student Loan interest
• Self employment tax, health insurance, retirement plans
• Penalty on early withdrawal of savings
• Alimony paid
• Charitable contributions ($300)
• Real estate taxes

Question 6

Common Itemized Deductions

Answer 6

• Medical Expenses
• State, Local, Foreign taxes
• Interest Expense
• Charity (60, 50, 30% rule)
• Casualty Losses

Question 7

How are gains realized from the sale of hot assets treated

Answer 7

as ordinary income

Question 8

Which of the following are included in taxable income: punitive damages, compensatory damages

Answer 8

Both are included in taxable income

Question 9

In a situation where a writing is required, when is a contract enforceable even without that writing (SWAP)

Answer 9

• Specially manufactured goods
• Written confirmation (10 day rule)
• Admitted to in court
• Performed already (to the extent of the performance)

Question 10

Define real property

Answer 10

Includes land and all items permanently affixed tot he land (ie. buildings, paving, etc)

Question 11

Gain or loss on gifts

Answer 11

IF FMV>NBV, Rollover basis = NBV.
If FMV is LESS THAN NBV, basis is based on the selling price. If below FMV, basis is FMV. If above NBV, basis is NBV. If in-between basis is the same as selling price and gain/loss is 0.

DONT FORGET THIS RULE

Question 12

What allows a creditor to collect money from a debtors wages?

Answer 12

Writ of garnishment

Question 13

Where are guaranteed payments stated

Answer 13

Ordinary business income AND K-1 (separately)

Question 14

Common deductible medical expenses

Answer 14

• Prescription drugs
• Necessary surgeries
• Medical insurance premiums
• Eye exams, glasses, hearing aids, wheelchair, crutches
• Drug rehabilitation treatment
• Plastic surgery from prior injuries
• Transportation costs for medical purposes
• Physical therapy

** Supplements and vitamins are NOT deductible, even if recommended by a physician. Only prescription medication is deductible

Question 15

What is the max allowable business loss deduction for single taxpayers? Married taxpayers?

Answer 15

$262,000 / $524,000

Question 16

What type of income is interest income

Answer 16

Portfolio income, NOT passive income

Question 17

How are Current E&P and Accumulated E&P distributed throughout the year

Answer 17

Current E&P: Distribute pro rate based on distribution amount NOT distribution date
Accumulated E&P: Chronological order, first come first serve

Question 18

Separately stated depreciation

Answer 18

Section 179: YES

MACRS: NO

Question 19

What does a covered opinion include

Answer 19

Any written or electronic advice concerning transactions specified by the IRS as listed transactions

Question 20

Auctions without reserve

Answer 20

1) Must sell goods if an offer is made
2) Goods don’t have to be sold if an offer is not made in a reasonable time
* With reserve, you can withdraw the goods put up for sale any time before the auctioneer announces completion of the sale

Question 21

Defense of privity

Answer 21

• Privity of contract = no direct relationship between the accountant and the third part
• Privity is only a defense to negligence, not fraud

Question 22

Power of Attorney

Answer 22

A written authorization of agency

- The principal, not the agent, is the only party required to sign the power of attorney

Question 23

Common Law vs. Sales Article

Answer 23

Common law - an offeree must assent to every term in the offer without change, otherwise the offeree makes a counteroffer (ie. mirror image rule)

Sales Article - New or different terms in an acceptance of a a contract under the Sales Article generally do not affect the validity of the acceptance

Question 24

Type of writing needed to satisfy the statute of frauds

Answer 24

• The full contract itself does not need to be in writing, any type of writing that state the material facts will do
• The writing only needs to be signed by one party, but the contract can only be enforced against the one who signed it
• The terms can be stated in more than one document

Question 25

Result to a surety when a creditor and debtor decide to extend the time of payment

Answer 25

• Any extension of time discharges a gratuitous surety

- A compensated surety is discharged only if the extension of time materially increases the suretys risk

Question 26

If a security becomes worthless in the current taxable year, it is treated as sold or exchanged on:

Answer 26

The last day of the current taxable year. A worthless security is treated as being sold or exchanged on the last day of the year it becomes worthless

Question 27

Wash sales

Answer 27

Sale of security 30 days before or after a repurchase of the same security is a disallowed loss TO THE EXTENT of what is repurchased.

Question 28

Separately stated items in a partnership

Answer 28

• Guaranteed payments to partners
• Net rental income or loss
• Interest / Dividend income
• Capital gains and losses
• Net section 1231 gain / loss
• Charitable contributions
• Section 179 depreciation
• INVESTMENT interest expense
• Partners health insurance premiums and retirement plan contributions (part of guaranteed payments)
• Tax credits claimed by partners

Question 29

Charity itemized deduction FMV vs NBV

Answer 29

• Cash = FMV (obviously)
• Ordinary income property = LESSER OF FMV and NBV
• LTCG property = FMV only