Revise (Final review) Flashcards

Question

Homeowner's exclusion, Sec 121 exclusion - Sale of primary residence 2/5 YEARS - Owneship test (by one spouse) 2/5 YEARS - Use test (by both spouses) MFJ - $500,000 EXCLUSION SINGLE, HOH, MFS - $250,000 EXCLUSION If Surviving spouse sells the residence within 2 years of death of spouse, she is allowed to take entire $500,000 MFJ exclusion. A TP mau use the homowner exclusion as often as available over his or her lifetime provided he or she meets the other requirements, but the exclusion may not be used more than every 2 years

Answer 1

Hardship provision = If sale is due to a change in palce of employment, health or other unforeseen circumstance taxpayer may prorate the exclusion. Change in employment requires the new work location to be at least 50 miles farther from the home sold than the old work location. (If MFJ TP moved due to change in work location and lived in home only for 1 year out of 2 eligible period, he is eligible for only half of the exclusion of $250,000 (1/2*500000)) Non-qualified use provision if couple doesn't live in the primary residence in 1/5 years 2 steps involved: 1. Calculate realized gain e.g. 850000-$240000 = 610000 Step 2 = 610000/5=$122,000 (Gain for 1 year of NON-QUALIFIED USE will be taxable) Non qualified period = (Nonqualified use/total ownership period)

Answer 2

1231 NET GAIN = treated as Capital gain Sec 1231 (Business property held in business or trade for more than 1 year)

Answer 3

Dep 300000 Gain 400,000 Sec 291 recapture = 20% of 300,000 = 60000=Ordinary income REMAINING = Sec 1231 gain

Answer 4

Entities that are more than 50% owned, either directly or indirectly by an individual are related parties.

Answer 5

gain or loss is always ZERO SP=Purchase price

Answer 6

Charitable contribution deduction: 1. Capital gain property: FMV at contribution (appreciating property) 2. Ordinary income property (depreciating) = Lesser of Property's AB or FMV at contribution Charitable deduction, Adjusted basis = when it's related to unintended purpose Immediately sells it at less than FMV, take SP as deduction

Answer 7

Nonsystematic risk, or business risk, is risk that is unique to a certain industry or company rather than affecting an entire system. It can be mitigated by diversifying investments. Default risk, which is the risk that the issuer of a bond will fail to make interest payments or repay the principal when a bond matures, is an example of nonsystematic risk. Nonsystematic risk cannot be mitigated by investing in derivatives, such as options or futures contracts, or short-selling investments. Management risk, which is the risk inherent in any company's day-to-day operations, is an example of nonsystematic risk.

Answer 8

Tuition and fees are qualified higher education expenses for both types of Section 529 qualified tuition programs (QTPs), prepaid tuition plans and educational savings plans. Books and supplies are qualified higher education expenses for educational savings plans but not prepaid tuition plans. Equipment required for the program of study is a qualified higher education expense for educational savings plans, but not prepaid tuition plans Room and board for students enrolled at least half-time are qualified higher education expenses for educational savings plans but not prepaid tuition plans. Student Loans Another very popular mechanism students use to help pay college tuition is a student loan. Unlike other types of financial aid, loans need to be repaid. As a result, special care and planning needs to be made to ensure that any loans taken out can be repaid in the future. Loans for federal student aid must be repaid even if the student does not graduate from the program. The loan may be forgiven, cancelled, or discharged under certain circumstances. 3.5.1 Stafford Loans Stafford loans are for undergraduate and graduate students who can show financial need after aid from other sources is subtracted from the cost of attendance. The loan is made by the U.S. Department of Education and offers flexible repayment options. There are two types of Federal Stafford loans: subsidized and unsubsidized. Subsidized Stafford loans are need-based. The federal government pays the loan interest while the student is attending school, in deferment, or during the grace period before repayment begins. Unsubsidized Stafford loans are not need-based, and eligibility is determined by the student's year in school, other financial aid awards, and the estimated cost of attendance. Students who borrow unsubsidized Stafford loans are responsible for all interest that accumulates while they are in school, in deferment, and during the grace period. A student may be eligible for one or both types of Stafford loans. Parent Loans for Undergraduate Students Parent loans for undergraduate students (PLUS) are federal student loan programs available to the parents of dependent undergraduate students. Parents may borrow up to the cost of attendance minus any other aid through this credit-based loan program each academic year. The PLUS program is not need‑based. The parent must meet federal standards of creditworthiness and is responsible for repaying the loan. 3.5.3 Student Loan Interest Expense. The adjustment for education loan interest is limited to $2,500. All interest payments qualify for the adjustment. It is phased out for AGI between: 2023 Unmarried MFJ $75,000–$90,000 $155,000–$185,000 Deduction is completely phased out at AGI equal to or more than $90,000 (2023) for unmarried taxpayers (single or head of household) and $185,000 (2023) for married taxpayers filing jointly. Married taxpayers must file jointly to claim the adjustment. A dependent may not claim the adjustment. The taxpayer must be legally obligated to pay the loan (e.g., interest paid by a parent on a child's student loan will not qualify for the adjustment). Interest is only deductible on loans incurred by a taxpayer solely to pay for qualified education expenses (e.g., general loans such as a home equity line of credit would not qualify). 3.6 Grants 3.6.1 Federal Pell Grant Federal Pell grants are based on financial need and are awarded to undergraduate students who have not yet earned a bachelor's or professional degree and are enrolled in an eligible degree or certificate program. Amounts for Pell grants change annually. The amount received by a student will depend on cost of attendance for a particular school, a student's financial need, full- or part‑time student status, and whether schooling will be for a full academic year or less. Federal Pell grants do not have to be paid back and there is no interest due because it is a grant and not a loan. Federal Supplemental Educational Opportunity Grant Federal Supplemental Educational Opportunity grants (FSEOG) provide grants to low-income undergraduate students to finance the costs of post-secondary education. The program is administered directly by the college or university's financial aid office and is "campus-based"— not all schools participate in the program. Participating institutions apply each year for the FSEOG allocation by applying to the Department of Education (DOE). Based on a statutory formula, the DOE awards funds based on the specific institution's previous funding level and the aggregate need of eligible students in attendance in the prior year. The college or university must contribute 25 percent of the award amounts. FSEOGs do not have to be paid back and there is no interest due because it is a grant and not a loan.

Answer 9

A living trust designates a trustee and provides instructions for the distribution of a decedent's assets after their death. The trustee must distribute the assets according to the instructions in the trust agreement. Property is transferred to the living trust during a person's lifetime, but the assets are not transferred to beneficiaries until after the person's death. Retirement accounts should not be placed in a living trust due to possible complications with retirement account early withdrawal penalties. Assets owned by a living trust are excluded from the decedent's probate estate.

Answer 10

ROTH IRA 1. Not tax deductible 2. MAGI Phaseout range MFJ - $230,000 - $240,000 Single and HOH - $146,000 - $161,000 3. Contribution - lesser of $7,000 or earned income for 2024 Age 50 or older $1,000 catch up contribution 4. Neither contributions nor earnings are taxed (if it falls under qualified category, more than 5 year contribution) 5. 10% penalty = earnings only before age 59.5 and account opened for <5 years 6. Withdrawals are not required for the original owner

Answer 11

they were deductible (traditional IRA)

Answer 12

Traditional IRA = requires RMD to begin from April 1 of the year following the year in which TP reaches 73 Traditional IRA = EARNINGS are TAXABLE

Answer 13

Corporations in which an INDIVIDUAL (not a corporation) owns 80 percent or more of the stock of two or more corporations are brother-sister corporations.

Answer 14

(a)Rollover basis +Boot/Gain received by transfer/Shareholder (b) Mortgage

Answer 15

The IRS is able to make transfer pricing adjustments when a U.S.-based taxpayer enters into a service contract with an affiliate that does not file a consolidated tax return with the U.S.-based taxpayer or is not subject to U.S. income tax. Because the affiliate files a consolidated tax return with the U.S.-based taxpayer, the IRS is not able to make transfer pricing adjustments in this case. The IRS is able to make transfer pricing adjustments when a U.S.-based taxpayer shares costs with an affiliate that either is not subject to U.S. income tax or does not file a consolidated income tax return with the U.S.-based taxpayer. The IRS is able to make transfer pricing adjustments when a U.S.-based taxpayer transfers, sells, purchases, or leases tangible or intangible property to or from an affiliate that either is not subject to U.S. income tax or does not file a consolidated income tax return with the U.S.-based taxpayer. Because the taxpayer sold tangible property, the IRS is able to adjust. The IRS is able to make transfer pricing adjustments when a U.S.-based taxpayer transfers, sells, purchases, or leases tangible or intangible property to or from an affiliate that either is not subject to U.S. income tax or does not file a consolidated income tax return with the U.S.-based taxpayer. Because the taxpayer purchased intangible property, the IRS is able to adjust.

Answer 16

Gains from the disposition of a United States real property interest are deemed U.S.-source income. Because the patent use happens within the U.S., this would be U.S.-source income All underwriting income from issuing an annuity would be deemed U.S.-source income Real property always sourced to PROPERTY LOCATION.

Answer 17

OCCASIONAL travel does not imply PERMANENT Establishment

Answer 18

Choice "C" is correct. BEAT is a minimum tax on large U.S. corporations with a significant amount of deductible payments to related foreign affiliates. This provision is a means to eliminate the tax advantage that would result from these payments, as they reduce the U.S. tax base. The BEAT rules only apply to payments made to RELATED foreign affiliates because corporations would be able to exert significant control over those affiliates' businesses. BEAT rules apply to US CORPS Only Choice "A" is incorrect. An IC-DISC allows certain manufacturing companies to reduce their tax liability. Choice "B" is incorrect. GILTI tax is a minimum tax imposed on certain low-taxed income that is intended to reduce the incentive to relocate CFCs to low-tax jurisdictions. Choice "D" is incorrect. The transition tax is a one-time tax on the previously untaxed foreign earnings of a CFC, consistent with the TCJA's change to a territorial-based tax system.

Answer 19

BEAT - Also known as minimum tax on large U.S. Corporation with a significant amount of deductible payments to related foreign affiliates.

Answer 20

S corp in certain situations may owe taxes(conversion from C Corp to S CORP). Partnership may never owe taxes. C CORP - Individuals subject to 3.8% NIIT On dividend income and other passive income. Only applies to higher income taxpayer whose AGI exceeds a threshold amount of $200,000 (MFJ $250,000). NIIT (applies to passive owners only)- partners in a partnership and shareholders in an S corp may be subject to NIIT on their share of business income if the partner or shareholder is NOT actively involved in the operations of the business.

Answer 21

Calculate annualized income Calculate annualized tax (calculate 25-100% of annualized tax as applicable)

Answer 22

Elected at partnership level: 1. Organizational expenditures and start-up costs 2. Accounting methods and inventory methods 3. Tax Year 4. Depreciation methods 5. Election out of installment sale treatment 6. Sec 754 election as these cause significant impact on P/S Taxable income and profits/losses PARTNER LEVEL 1. Exclusion of income from discharge of indebtedness 2. Election for foreign taxes paid 3. Cost or % depletion for oil and gas wells.

Answer 23

Outside basis = Partner's basis in their partnership interest.

Answer 24

No gain or loss is generally recognized on the contribution of property to a partnership in exchange for a partnership interest. One exception where gain is recognized is where a partnership assumes liabilities transferred by a partner, and the liabilities assumed by the other partners are more than the contributing partner's basis in the property contributed. In this case, Zara does contribute property with debt attached that is assumed by the partnership. However, the debt assumed by the other partner, Anton, is only $25,000 ($50,000 × 50%), which is less than Zara's $250,000 adjusted basis in the building contributed, so Zara does not recognize any gain.

Answer 25

General partnership, GP or Joint venture can be made by a handshake. No formal documentation required. Because Kyle and Jimmy have not filed any documents with the state, they have formed a general partnership or joint venture. A general partnership or joint venture can be formed with a verbal or written agreement or by mere conduct and does not require that documents be filed with the state.

Answer 26

Grantor trusts are trusts in which the grantor retains certain ownership powers or control over the property transferred to the trust. All income and deductions of the trust are passed through to the grantor and included on the grantor's income tax return. Choice "A" is incorrect. Grantor trusts are not required to file separate income tax returns. Choice "C" is incorrect. There is no requirement for annual distributions to the beneficiaries.

Answer 27

BIG tax is applicable on the GAIN that occurred while the CORP was a C CORP.

Answer 28

Foreign-derived intangible income is not a category of income for foreign tax credit limitation purposes. The categories of income for foreign tax credit limitation purposes are - general category income, -passive category income, -foreign branch income, and -global intangible low-taxed income.

Answer 29

Common stock and Partnership interests are specifically EXCLUDED from LIKE-KIND EXCHANGE classification

Answer 30

Shreholder's basis = Rollover basis -Liabilities assumed + Gain recognized 20,000-30000+10000=0

Answer 31

The first 20 days of a skilled nursing facility care are paid in full by Medicare. For days 21–100, Medicare requires a daily coinsurance payment. After 100 days of coverage, the patient must pay the full cost of care in a skilled nursing facility.

Answer 32

Jerry uses a building for business purposes. The building was purchased on April 1, Year 3, for $124,000. It was sold on October 3, Year 6, for $200,000. Accumulated depreciation as of the date of sale was $14,000, $4,000 of which was in excess of straight line. How much of the gain in Year 6 is recaptured as ordinary under Section 1250? UNRECAPTURED SHOULD BE 10K - the difference.

Answer 33

A U.S. shareholder of a controlled foreign corporation is a U.S. person who owns at least 10 percent of the stock value OR voting stock.

Answer 34

AFFILIATED: When a corp DIRECTLY owns 80% or more of voting power AND value of stock of another corp. CORPORATE SHAREHOLDERS, CORPORATION SHOULD OWN (not individuals) (FIRES denied privilege of filing Consolidated return) Consent form - Form1122 Brother Sister - cannot be consolidated TO BE REMOVED from each member's TI at the time of consolidation: CAPITAL GAINS AND LOSSES, SEC 1231 GAINS AND LOSSES, NOL, Charitable contri deduction, DRD.

Answer 35

always at FMV

Answer 36

the partner's TAX BASIS and AT-RISK BASIS. Loss suspended due to at-risk basis = Non recourse that's not allowed in the Tax basis (Cheat code) (Year 1) Year 2 = Suspended PAL due to insufficient AT-RISK Basis can be deducted from the gain on sale in the YEAR OF SALE.

Answer 37

Rental real estate passive income can be used to offset Partnership losses (but other partnership XYZ activity income cannot be used to offset partnership ABC losses)

Answer 38

LIQUIDATING DISTRIBUTION - PROPERTY DISTRIBUTION ONLY GAIN TO SHAREHOLDERS/PARTNERS C CORP, SHAREHOLDER LOSS/GAIN = BASIS of shareholder - FMV of property distributed S CORP SHAREHOLDER LOSS/GAIN = Basis of shareholder + (Gain on S CORP property distributed to be added to BASIS of shareholder) - FMV of property distributed - Gain on S CORP property distributed ULTIMATELY same result as C CORP GENERAL PARTNERSHIP, partner's Gain or loss = NO GAIN OR LOSS on DISTRIBUTION OF PROPERTY (e.g. LAND) unless there is CASH distribution

Answer 39

NO RECAPTURE OR UNRECAPTURED SEC 1250 RULE = DO NOT RECAPTURE FOR INDIVIDUALS, That's why it's known as UNRECPATURED rule

Answer 40

NOT IN S CORP

Answer 41

TAI DOES NOT INCLUDE CORPUS CORPUS = PRINCIPAL + CAPITAL GAINS+CASUALTY GAINS

Answer 42

Income that comes from exporting goods associated with intangible assets. OUT AND OUT , not to a related party for its own use (like own entity not allowed, use for its own dental centers in Mexico)

Answer 43

FSA/Flexible spending account = Use it or lose it Max Contribution = $3,200 Employer may offer 2.5 months grace period or $640 carryover to the next year 1. Can have a low - deductible plan or no health plan 2. Set-up by employer 3. Owned by employer 4. Not portable 5. Forfeited at year-end 6. May have a 2.5 month grace period 7. $3,200 per employee 8. Can change amount at open enrollment or if family situation changes 9. Distributions are tax-free if used for medical expenses 10. Annual contribution is available at beginning of plan year

Answer 44

Passive activity Subject to phase out beyond AGI $150K

Answer 45

ALWAYS ADD BACK GAIN ON PROPERTY IN E&P OR DIVIDENDS PROBLEMS, DIFFERENCE BETWEEN (FMV-BASIS)

Answer 46

Holding period = Carryover basis as well

Answer 47

Gain is RECOGNIZED only to the extent that the FUTURE SALE PRICE exceeds the previous relative's cost basis. (Use RELATIVE's basis to determine gain) No gain or loss is RECOGNIZED when SP is in the middle. Loss is RECOGNIZED only to the extent that the SALES PRICE to the UNRELATED party is LOWER than the acquiring relative's original purchase price in the asset. (FMV) USE PURCHASE PRICE to determine LOSS.

Answer 48

Assets titled as joint tenants with rights of survivorship are not included in the probate estate and transfer to the named beneficiary upon death. Assets that are designated payable on death (POD) automatically transfer to a named beneficiary upon death of the person and are not included in the probate estate. TOD (transfer on death) assets automatically transfer to a named beneficiary upon death of the person and are not included in the probate estate.

Answer 49

Upon death, the trustee of the trust will distribute the assets according to the instructions in the trust agreement.

Answer 50

(Same year income, same year deduction), cannot be in different years.

Answer 51

NO income is recognized until sold

Answer 52

Umbrella insurance contracts provide benefits for a liability claim. A liability claim arises from an injury or damage to another person's property (not the insured).

Answer 53

A PROPORTIONAL Stock redemption is treated as a DIVIDEND

Answer 54

For gift loans between individuals of $100,000 or less, the imputed (foregone) interest is limited to the amount of the borrower's net investment income for the year. If the borrower's net investment income is $1,000 or less, the imputed interest is treated as zero.

Answer 55

Traditional IRA is beenficial when current tax rate is expected to be lower in future.

Answer 56

S CORP shareholders eligible for 20% QBI deduction

Answer 57

80% TI Limitation 2017 and pre-2017 = carryback 2 years, carryforward 20 years 2018-2020 = carryback 5 years, carryforward indefinitely , 100% TI 2021 onwards = carryforward indefinitely, subject to 80% TI Limitation , NO carryback

Answer 58

0-19% == DRD 50% (Small) 20%-79% == DRD 65% (Large) 80%-100% ==DRD 100% (Consolidated)

Answer 59

CHaracter of gain or loss is always ST

Answer 60

Accumulated E&P are applied in chronological order, beginning with the EARLIEST distribution.

Answer 61

The value of the taxable stock dividend is the FMV on the distribution date.

Answer 62

Disproportional - meaningful reduction in shareholder's ownership interest. The % ownership after the reduction must be less than 50% AFTER THE REDEMPTION and must be less than 80% BEFORE THE REDEMPTION. Regardless of family ownership, a complete 100% termination of shareholder's interest is considered dispropotional. PaRTIAL liquidation teeated as an EXCHANGE of stock, NOT as dividend

Answer 63

Minimum Accumulated earnings credit = $250,000 (deduct from TI-FEDERAL TAX) PSC can use cash method

Answer 64

Naming a beneficiary on an insured's life insurance policy is not a complete gift because it is subject to a conditional precedent (the death of the insured), so it is not subject to the gift tax.

Answer 65

Corporate bonds are generally higher risk than municipal bonds because a state or local municipality has the ability to levy taxes to fulfill its pledge under the bond indenture, whereas a corporation does not.

Answer 66

A traditional SEP IRA is a type of retirement account that is available to self-employed taxpayers. This type of plan would not be the most advantageous for the client because the contributions are deductible in the year they are made, and subsequent distributions of both principal (contributions) and earnings are fully taxable. Since the client's other deductions currently result in a $0 income tax liability, the client would not benefit from the tax deduction for the contribution and would have to pay income tax on the total distributions after the client retires and is in a higher tax bracket. A traditional employer-sponsored 401(k) plan would not be the most advantageous plan for the client because the contributions reduce the taxpayer's taxable wages in the year the contributions are made, and subsequent distributions of both principal (contributions) and earnings are fully taxable. Since the client's other deductions currently result in a $0 income tax liability, the client would not benefit from the reduction in his or her taxable wages and would have to pay income tax on the total distributions after the client retires and is in a higher tax bracket.

Answer 67

Modified Accelerated Cost Recovery System (MACRS) The depreciation method generally used since 1986 for depreciable property other than real estate. MACRS reduces an asset's basis faster than the straight-line depreciation method.

Answer 68

Cash contributed + Services performed

Answer 69

The property is tangible personal property; AND the charitable org uses the property for some purpose that is not related/UNRELATED to its charitable purpose (Such as selling or auctioning off the property)

Answer 70

If the charitable org sells the vehicle for $500 or less, the deduction is limited to the lesser of: 1. $500 or 2. the FMV on the date of contribution (assuming the FMV is less than AB of the vehicle)

Answer 71

Tax qualified retirement plan has an advantage - avoidance of probate when the retirement plan is part of a trust arrangement or insurance contract.

Answer 72

Contracts between a TP and an insurance company. The earnings in the annuity accumulate on a tax deferred basis.

Answer 73

ROTH 401K Wages that an employee elects to contribute to a ROTH 401K are still fully TAXABLE. Employer contributions to ROTH 401K accounts are TAXABLE income to the employee at the time of contribution

Answer 74

IRA 10% penalty tax exceptions (differ from 401K exceptions): 1. HOMEBUYER (first time) - Distribution used toward the purchase of 1st home within 120 days of distribution ($10,000 maximum exclusion) 2. Insurance (medical) - If unemployed within 12 consecutive weeks of unemployment compensation 3. Medical expenses in excess of % of AGI Floor 4. Disability (permanent or indefinite, not temporary) 5. Education: College tuition, books, fees, etc. 6. Adoption or birth of a child made within 1 year from the DOB or adoption ($5k max exclusion) 7. Disaster - Qualified natural disaster ($22k maximum per disaster) SAME AS 401K 8. TERMINAL illness or death SAME 9. Emergency Expenses (for personal or family emergency, upto $1,000 per year) SAME 10. Domestic abuse victims (lesser of $10,000 or 50% of retirement account) SAME

Answer 75

Carry forward = Pay less taxes in future

Answer 76

Annual sec 382 limitation amount = FMV of the loss of corp immediately BEFORE the ownership change * LT Tax Exempt rate If limitation amount is greater than the TI amount for the year, any unused limitation amount is CARRIED FORWARD and it INCREASES the next year's LIMITATION amount

Answer 77

50%, 65% AND 100%

Answer 78

If shareholder only contributes services, he is not counted as having control in corp. However, if he contributes both services and cash , then he is counted towards having a 80% control.

Answer 79

Distribution of depreciated property: 1. The corp cannot recognize a loss 2. The dividend is taxable income to the shareholder. 3. The shareholder's basis in property distributed is the FMV of property.

Answer 80

PROPORTIONAL - If all shareholders are treated the same, the stock redemption is treated as a dividend. TAXABLE DIVIDEND = ORDINARY INCOME DISPROPORTIONAL or Substantially DIspropotionate, stock redemptions treated as a SALE and recognizes CAPITAL GAIN . The % ownership after the redemption must be less than 50% and must be less than 80% of the percentage ownership before the redemption.

Answer 81

The parent assumes the basis of the sub's assets, as well as any unused NOL or capital loss, or charitable contribution carryovers.

Answer 82

Issuer of Section 1244 stock 1. Domestic corp 2. Small business stock (issued

Answer 83

INTERNATIONAL TAX ISSUES Foreign subsidiary - separate legal entity, Certain types of income are not allowed to be deferred and are subject to immediate taxation (such as e.g. passive investment income) Income earned by the SUB is not taxed until the earnings are brought back to the U.S. in the form of a dividens. In this way, the U.S. company has control over when foreign profits are recognized. ________________________________ A 10% shareholder than is not a U.S. Corp is not eligible for the DRD. A U.S. Corp is allowed to exempt foreign source dividend payments from U.S. Taxation by taking a 100% DRD against such income if US corp owns 10% or more of the Dividend paying foreign corp. No residual tax is imposed on dividend repatriations from foreign jurisdictions and the U.S. govt will not collect taxes on the foreign income. _______________________ Following are not eligible for the 100% DRD X Subpart F income XGILTI XIncome invested in U.S. property XIncome subject to the transition tax

Answer 84

PFIC - A foreign entity is a PFIC if it meets: 1. Gross income test -75% or more of the foreign corp's gross income is passive (e.g. dividends, interests, rents, royalties) OR 2. The asset test - at least 50% of the foreign corp's total assets are passive (e.g. assets that produce passive income). PFIC undistributed earnings are subject to U.S. taxation under one of the 3 methods: 1. QEF - Qualified electing fund 2. MTM - Mark to marker method 3. Excess distribution method

Answer 85

GILTI arose from TCJA, Applies from 2018 - It is a minimum tax imposed on certain Low-taxed income that is intended to reduce the incentive to relocate CFCs to low-tax jurisdictions. US Corps are allowed special deduction? Tax deduction amount 1. 2018-2025, the deduction amount is 50% of GILTI (37.5% for 2026 and later) 2. The TP is allowed to take a FTC upto 80% of the foreign taxes deemed paid 3. This deduction generally results in an effective tax rate of 10.5% (13.125% beginning in 2026) on GILTI inclusions as it halves the statutory corp tax rate of 21% Tax Inclusion amount - The GILTI is equal to the U.S. shareholder's share of the CFC's NI reduced by the excess of: (a) 10% of the CFC's aggregate AB in depreciable tangible property used in its trade or business over (b) the CFC's net interest expense NI less: 10% of avg adjusted basis of quarterly depreciable tangible property= GILTI income e.g. corporate shareholder's ownership percentage e.g. 18% * GILTI income will be his share e,g, 18% *1384375 = $249,188 Corporate shareholder is eligible for 50% GILTI deduction because it is a corporate shareholder. It's GILTI deduction is 50% of $249,188 = $124,594

Answer 86

Transition tax - It is a 1 TIME TAX on the previously UNTAXED FOREIGN EARNINGS of a CFC consistent with the TCJA's change to a territorial based tax system. TCJA created a territorial style system for certain U.S. corps by allowing a 100% DRD for foreign source dividends from CFC. The TRANSITION to this new system requires all U.S. shareholders to pay a 1 TIME TAX on the CFC's previously UNTAXED FOREIGN EARNINGS. For the last TAXABLE year beginning before Jan 1, 2018, a 1 TIME DEEMED REPATRIATION TAX is imposed on accumulated, untaxed earnings of foreign corps and is taken into account by all U.S. shareholders who own 10% or more of the CFC. An EXCEPTION permits S CORP to defer the tax until the S CORP LIQUIDATES, CEASES doing business or the STOCK of the S CORP is TRANSFERRED. CFC untaxed earnings, transition tax Cash and cash equivalents = 15.5% All other earnings = 8% US shareholders can elect to pay the transition tax in 8 installments over 8 years pursuant to a specified schedule Year 1 to Yr 5 = 8%, Yr 6 = 15%, Yr 7 = 20%, Yr 8 = 25% (Total = 100%)

Answer 87

SUBPART F INCOME (PASSIVE AND ACTIVE INCOME FROM A RELATED PARTY) BEAT - This PROVISION is a means to ELIMINATE the TAX ADVANTAGE that would result from these payments, as they reduce the US Tax Base.

Answer 88

The deduction for FDII is available only to C CORP that is not RICs or REITs.

Answer 89

It's a TAX-EXEMPT entity that works as follows: 1. The US based corp (exporting co.) pays a commission to the IC-DISC, which generates a deduction for the US based corp. 2. The IC-DISC receives the commission income from the US based corp but since the IC-DISC is tax-exempt, no tax liability is generated. 3. The IC-DISC distributes the commission to shareholders, which is taxed at preferential rates to the shareholders (qualified dividend/LTCG rates)

Answer 90

GILTI - A minimum tax imposed on certain low-taxed income that is intended to reduce the incentive to relocate CFCs to low-tax jurisdictions.

Answer 91

Provision applicable to US shareholders intended to deter US TPs from REPATRIATING non-SUBPART F earnings from a CFC through loans and other investments in US property in a tax free manner.

Answer 92

US Income tax return of a Foreign CORP to report the income earned by the US BRANCH.

Answer 93

NON BUSINESS INCOME: FATCA, 2010 it deals with withholding tax on foreign entities for failure to provide information to US recipients: The purpose of FATCA is to help combat tax evasion tied to US persons investing in foreign entities (e.g. deposits in foreign banks) Imposes a 30% withholding tax on foreign entities that do not provide information about US persons on Form 8966 FATCA report. Applies to 1. Foreign fin institutions 2. Non fin foreign entities

Answer 94

1/3 of preceding year and 1/6 of preceding prior year

Answer 95

ZERO DEDUCTION IN NEXT YEARS. In the year of disposition, any remaining suspended losses (PERMANENTLY LOST) due to INSUFFICIENT TAX BASIS are not deductible.

Answer 96

Shareholders are going to be TAXED on their proportionate share of the S corp earnings REGARDLESS of whether the earnings are distributed to them. S CORP Shareholder basis: Cash contributed + NBV of property contributed (reduced by any liability assumed by the corp) + FMV of any services contributed (Taxable to shareholder + Any gain recognized ________________________________________ SHareholder's initial basis in the stock received) SHAREHOLDER BAsis = FMV (when it does not qualify for Sec 351 exchange or NBV+ GAIN Or AB in property- debt assumed by the corp (WHEN Mortgage is involved) GAIN REALIZED = FMV of property contributed - Basis CORP'S BASIS = Greater of AB or Liability Assumed Distbn of DEPRECIATED PROPERTY is not allowed for S CORP - NO LOSS recognized by Shareholder/Corp. S CORP recognizes ONLY GAIN on APPRECIATED PROPERTY. S CORP Status will terminate as a result of the following 3 occurrences: 1. Shareholders holding more than 50% of the stock (voting and nonvoting) consent to a voluntary revocation 2. Corp fails to meet any of the qualifications for S status 3. Excess passive investment income - More than 25% of the corp's gross receipts are from passive investment income for 3 consecutive years (but only if the corp has prior C Corp E&P) If no date is specified and the revocation is filed by March 15, the revocation is effective Jan 1 of the current year. If revocation is filed after March 15, the effective date is Jan 1 of the following year. IF CORP FAILS to meet any of the requirements, S Corp status is terminated immediately. With excess passive income, S Corp status is terminated at the beginning of the 4th year. One S corp status has been TERMINATED, the corp must wait until the BEGINNING of the 5TH YEAR after the year of termination before it can elect S CORP status again

Answer 97

ANNUALIZED METHOD Q1 12/3 25% OF ANNUALIZED TAX Q2 12/3 50% OF ANNUALIZED TAX Q3 12/6 75% OF ANNUALIZED TAX Q4 12/9 100% OF ANNUALIZED TAX

Answer 98

PARTNER'S BASIS = CAPITAL ACCOUNT + PARTNER'S % OF PARTNERSHIP DEBT (Liabilities) EXCEPTION: A PARTNER'S share of QUALIFIED NONRECOURSE FINANCING (QNF) is a REAL ESTATE MORTGAGE obtained from an unrelated commercial lender and is INCLUDED in PARTNER'S AT-RISK BASIS. Other nonrecourse debts are not included in AT-RISK BASIS. If LIABILITIES assumed by other partners does not exceed the BASIS of the property CONTRIBUTED, then the CONTRIBUTING PARTNER will NOT have to recognize gain (ZERO GAIN) at the time of the CONTRIBUTION.

Answer 99

Partners recognize gain ONLY on the distribution of CASH when CASH DISTRIBUTED exceeds their basis ZERO OUT TO GET OUT (LIQUIDATION) If the entity is organized as a PARTNERSHIP, the entity DOES NOT recognize any gain on the appreciation of the property distributed to the owners in LIQUIDATION of the business and the owners would not geenrally recognize a gain or loss on the disposition of their partnership interest. C and S Corp recognize CAPITAL gain (FMV-BASIS) on appreciation of the property distributed.

Answer 100

None of the members will be liable for RECOURSE LOAN unless one or more owners PERSONALLY GUARANTEE the LLC recourse loan. LLC is more like LIMITED PARTNERSHIP.

Answer 101

ESPP 1. Voting power less than 5% 2. Employee contribution via payroll deduction 3. Plan must be written and approved by shareholders. Available to all FT Employees other than highly compensated employees and those with less than 2 years of employment. 4. Options cannot be exerised more than 27 months after the grant date. 5. No employee can acquire the right to purchase more than $25,000 of stock per year. 6. Employee must remain with the corporation from the date the option is granted until 3 months before option is exercised. 7. Exercise price may not be less than 85% of FMV when granted or exercised (whichever is lesser) 8. Same as ISO - Must be held by an employee for 2 years after grant date and 1 year after exercise date.

Answer 102

AMTI PREFERENCES(ALWAYS ADD): 1. Private Activity bond tax-exempt int income 2. % depletion deduction (excess of regular tax deduction over the property's AB is added back) 3. Pre-1987 accelerated deprecaition over straight line for real property 4. Excess intangible drill costs 5. Gain on small business stock

Answer 103

Grantor Trust (in which grantor retains certain ownership powers or control over the property transferred to the trust such as power to take income or borrow from the trust or change trust beneficiaries)= REVOCABLE LIVING TRUST, grantor trusts are not required to file separate income tax returns. Grantor trusts DO NOT need to file the return separately. Individuals commonly use a revocable living trust instead of a will to stipulate how their assets and the provisions of the trust during the grantor's lifetime. NON-GRANTOR trusts - SIMPLE or COMPLEX trusts, these are separate taxpaying entities. Trust Income is taxable either to the trust or to the beneficiaries, depending on the amount of distributions to beneficiaries, the type of income and the type of trust.

Answer 104

1. Surviving spouse is entitled to the full $500,000 exclusion if the surviving spouse sells the home within 2 years after date of the decedent spouse's death 2. If only one spouse meets use test and not the other spouse, then exclusion amount is limited to $250,000 on sale of personal residence. Both must meet Use test, only one can meet OWNERSHIP test. exception: hardship due to medical condition which forced the sale, exclusion amount in that case is : Maximum single exclusion($250,000)*Months of qualifying ownership (e.g. 12 months) _____________________________________________ 24 months =$125,000 allowable exclusion 3. In case of non-qualified use, e.g. rented for 2 out of 5 years, exclusion will be limited.This will apply to gain. If the home is empty, it is not considered nonqualified use.

Answer 105

A portion of each installment payment will be treated as IMPUTED int, taxed at ordinary rates if no interest or inadequate interest is reported by the seller. The interest is reported separately from each installment payment as ordinary income.

Answer 106

NET Sec 1231 loss is treated as Ordinary loss NET Sec 1231 gain is treated as Capital gain 5 year lookback rule

Answer 107

RELATED PARTY LOSSES are disallowed. Holding period is when daughter bought stocks from mother (mother's basis 10000)for 8000 (NO ROLLOVER Holding period for related party losses) When sold at a lower price by daughter (Use daughter's or second party's original purchase price while determining loss), loss should be minimum.

Answer 108

LOAN >$100,000 (Sec 7872), Imputed interest will be charged and reported. Lender taxed on total foregone interest. Borrower can deduct all foregone interest regardless of NII (not personal interest)

Answer 109

Considered as boot

Answer 110

Sec179 expense is a separately stated item Late filing penalty - SS ITEM Charitable contri deduction - SS item

Answer 111

Losses nondedcutible on partner's individual return when partner owns more than 50% ownership

Answer 112

GUARANTEED PAYMENT, ACTIVE NON-BUSINESS INCOME

Answer 113

reduces basis in stock

Answer 114

ALWAYS ADD GAIN ON Non liquidating distrubtion to the BASIS of all the shareholders.

Answer 115

NONRECOURSE DEBT - Secured equipment loan + QNF (Mortgage) QNF=Part of both Tax Basis and At-risk basis

Answer 116

Income passed through by both PARTNERSHIP AND S CORP are eligible for 20% QBI deduction. No QBI deduction in case of loss

Answer 117

Transfer to non citizen spouses upto $185,000 are not reportable. QTP - Qualified Tuition Plan can be spread over a 5 year period if an election is made. If the contribution is less than the annual gift tax exclusion ($18,000*5=$90,000) , no reporting is required.

Answer 118

DIsproportional (only given to 1 shareholder and not to all) stock redemption is also treated as a SALE and therefore, E&P is not relevant in this question. Disproprotional stock redemption means that there has been a meaningful reduction in the shareholder's ownership interest. when company buys back - exclude the shares bought back from the total remainder (500) exam outstanding were 1000, bought back 500=remaining 500 total were 10,000, bought back 500 calc = 1000-500 ______________ = 5.3% 10000-500 Disproportional stock redemption means that there has been a meaningful reduction in the shareholder's ownwership intererst % ownership after redemption must be less than 50% % ownership before the redemption must be less than 80%

Answer 119

ROYALTY INCOME - where it is being used.

Answer 120

SE Tax and Liability are calculated separately so Add SE Tax to calculate under payment penalty

Answer 121

PARTNERSHIPS - self-employed individuals /partners GUARANTEED PAYMENTS for services subejct to SE TAX SUBJECT TO SE TAX 1. Guaranteed payments for services 2. Guaranteed payments for use of capital 3. Partner's share of partnership income (does not include distributions)

Answer 122

Flexible spending account (FSA) - contributions to FSA and HSA cannot be made in the same year. However, an HSA may be paired with the dependent care FSA and the limited purpose FSA because the covered costs for each type of account are different(i.e. health care, dependent care, and dental/vision). FSA - Employer established, not for self-employed, lower contribution limits, no interest earned, use it or lose it. HSA - Must have a HDHP (more out of pocket spending before health care plan kicks in, need to pay high deductible in the beginning) , self-employed eligible, higher contribution limitss, earns tax-free interest, portable

Answer 123

DEDUCTION AND LOSS - ACCELERATE RECOGNITION TO CURRENT YEAR WHEN RATES ARE HIGHER.

Answer 124

Church need not file the return, Form 990 NON-CORPUS INCOME = TRUST ACCOUNTING INCOME TAXABLE INCOME TRUST = INCLUDE ALL TAXABLE ITEMS including CORPUS and deduct only DEDUCTIBLE PORTION OF trust accounting income (do not include the one related to Tax exempt income) Tax exempt /Trust accounting income = exempt portion of trustee fee

Answer 125

It reduces ORD INCOME for CORP

Answer 126

Realized gains ARE VERY WELL RECOGNIZED in related party sale Recognized loss will depend on the SALE PRICE NO holding period if NO GAIN or LOSS is recognized. SALE PRICE IN THE MIDDLE - FOLLOW GIFT TAX RULES, No profit No loss Like kind exchange does not apply to personal property and that's why entire REALIZED GAIN will be recognized in FULL when it comes to PERSONAL PROPERTY.

Answer 127

Transfers are unlimited: Exception: Terminable interest transfers DO NOT qualify unless QUALIFIED TERMINAL INT PROPERTY (QTIP) election is made.

Answer 128

Does not create PE: 1. Warehousing, displaying goods 2. Order processing 3. Advertising, marketing, market research

Answer 129

Term Life Insurance The purchase of a term life insurance contract is analogous to renting an apartment. No ownership is vested in the property, and at the end of the period, the renter is left without a home and faces the prospect of increased rent payments for the current or new apartment. Term insurance works in much the same fashion. If the insured dies prior to the end of the term, the death benefit of the insurance contract is paid to the named beneficiary. If the insured lives beyond the term of the life insurance contract, the insured is faced with higher premium payments should they desire to continue coverage; or worse, they may end up without insurance if the premiums become too expensive. Term life insurance provides protection for a definite, but limited, period of time. A term life insurance policy is appropriate when there is a limited time need for the protection (such as coverage for children's education needs or a home mortgage) and there are limited funds available for coverage. It is also used to cover the home mortgage (if the main income producer dies).

Answer 130

Long-Term Care Insurance Long-term care insurance provides a benefit to individuals who are either cognitively impaired or who are unable to perform two of the activities of daily living: eating, bathing, dressing, toileting, transferring (walking), and continence. Health insurance contracts (both group and individual) exclude coverage for the costs of long-term care. A long-term care insurance contract pays the insured a specific daily amount (based on scheduled limits) for services to assist with the activities of daily living. While long-term care benefits are available under Medicare, they are inadequate due to limitations on benefits, as well as eligibility requirements. Medicare Limitations The purchase of a long-term care insurance contract should not be considered without an adequate understanding of benefits provided by Medicare. It may be said that long-term care insurance picks up where Medicare leaves off. To qualify for benefits in a skilled nursing facility under Medicare Part A (Hospital Insurance), the patient must meet the following conditions: The patient's condition requires skilled nursing care. The patient has been in a hospital for at least three days in a row before admission to a participating skilled nursing facility. The patient is admitted to the skilled nursing facility within a short period of time after leaving the hospital (within 30 days). The patient's care in the skilled nursing facility is for a condition that was treated in the hospital. A medical professional certifies that the patient needs and is receiving skilled nursing care. The first 20 days of a skilled nursing facility care are paid in full by Medicare. For days 21–100, a daily coinsurance payment is required by Medicare. After 100 days of coverage, the patient must pay the full cost of care in a skilled nursing facility. To qualify for a skilled nursing facility, care reimbursement under Medicare, the patient's condition must be expected to improve within a predictable time. Alzheimer's coverage, and other forms of dementia, for which there is no known cure, are specifically excluded. Benefit Triggers and Activities of Daily Living The Health Insurance Portability and Accountability Act (HIPAA) defines the six activities of daily living (ADLs): eating, bathing, dressing, transferring from a bed to chair, using the toilet, and maintaining continence. If a person is unable to perform, without substantial assistance from another person, at least two activities of daily living (ADLs) for a period of at least 90 days, they are considered chronically ill. Additionally, if substantial services are required to protect an individual from threats to health and safety due to substantial cognitive impairment (Alzheimer's disease, strokes, or other brain damage) they are considered chronically ill. Both categories, activities of daily living and cognitive impairment, trigger benefits under a long-term care insurance contract.

Answer 131

Common stock, Savings account and municipal bonds carry relatively low market risk and credit risk. Because they do not involve diversification, they both have high concentration risk.

Answer 132

Umbrella insurance coverage kicks in when liability limits from other policies have been exhausted, but it does not cover the policyholder's personal expenses (e.g. home furniture repairs). Because it offers an expanded liability shied, umbrella insurance is particularly useful for those with significant assets they want to protect from a potential lawsuit (e.g. from a car accident). Umbrella insurance premiums are not deductible for individuals but may be a deductible expnse for businesses.

Answer 133

1. Failure to file a return for 3 consecutive years 2. Failure to operate toward stated exempt purpose 3. Actiing to the PVT BENEFIT OF AN INDIVIDUAL (e.g. executive) 4. Substantial LOBBYING for or against legislation 5. Participating in political campaigns for or against any candidate

Answer 134

Gain realized on a property sales to a family member may be recognized over multiple tax years electing to use the installment sale method. However if the acquiring family member subsequently sells the property within 2 years of the installment sale, the original selling family member must recognize any remaining gain in that tax year.

Answer 135

1. Foreign personal holding company income-Generally, passive income, CFC income from dividends, interest, rents, royalties, gains from SALE OF CERTAIN FOREIGN PROPERTY and gain from FX RATE 2. Foreign base company sales income - CFC income from the purchase or sale of PERSONAL PROPERTY to or from a RELATED party when the property is MANUFACTURED OR SOLD OUTSIDE THE CFC'S COUNTRY OF INCORPORATION. If the CFC meaningfully participates in the production of income (e.g. provides sunstantial manufacturing to complete unfinished inventory), then the income is not considered SUBPART F INCOME. 3. Foreign base company services income- CFC income from the performance of services for on on behalf of a related party when the performance of services occurs outside the CFC's country of incorporation.

Answer 136

does NOT qualify for the annual gift tax exclusion.

Answer 137

ORDINARY income to be recognized when Stocks VEST (FMV of stock at vesting date)

Answer 138

FMV on exercise less FMV on grant

Answer 139

DECREASE basis by Recourse and non recourse basis as partner will be getting rid of the liabilites.

Answer 140

Hot asset to the extent of basis , No gain or loss to be recognized in distribution of hot assets or other assets. Gain To be recognized only for the DISTBN in excess of CASH Distbn

Answer 141

The distribution amount of property distbn = FMV of the property (-) Liabilities assumed by the shareholder _____________________________________________ XXXX

Answer 142

DISTRIBUTE consolidated Gain/Loss of S CORP gain or loss to each shareholder (NOT Individual gain/loss to each partner) MORTGAGE assumed by shareholder will reduce shareholder's basis

Answer 143

100% DRD can be taken on SUB'S INTER COMPANY DIVIDENDS

Answer 144

Holding period to be counted from Exercise date

Answer 145

Mom and POP exception to PAL limitation: An individual TP amy deduct upto $25,000 of net passive activitiy losses if the TP, 1. Actively participates in the rental real estate activity 2. Owns at least 10% of the rental real estate activity Eliminated when AGI exceeds $150,000

Answer 146

The possibility of a reversion (where the property could return to the donor in the future) doesn’t necessarily invalidate the gift as being complete, because the recipient has received an immediate interest in the property.

Answer 147

A gift is revocable if the donor reserves the right to revoke the gift or change the beneficiaries. The gift is complete when those rights terminate by reason other than the dono'r death. E.G. The donor voluntarily gives up the right to revoke (they decide, in writing, that they will no longer be able to change or revoke the gift). The conditions of the gift change, such as a trust becoming irrevocable, or the donor no longer has the power to modify the terms.

Answer 148

When an S corporation has more than 25% (not 35%) of its gross receipts from passive income for three consecutive years, it risks termination of its S corporation status under IRS rules. Specifically, if the corporation earns more than 25% of its gross receipts from passive income (such as interest, dividends, royalties, or rents), and this occurs for three consecutive years, the S corp can lose its S status and will automatically revert to a C corporation. This rule is in place to prevent S corporations from being used primarily as passive investment vehicles instead of active businesses. If the termination happens, the S corp will need to file taxes as a C corporation, which could result in different tax treatments for the company and its shareholders. Keep in mind, if the passive income situation is corrected (i.e., the passive income percentage falls below 25%), the S corporation status can be maintained.

Answer 149

C corp 1.Taxed as separate entity 2. Unlimited types and classes (voting, nonvoting, preferred, convertible) 3. Limited liability - Yes 4. BOD and corporate officers 5. Any type of nationality, no limit on number 6. Nation of Origin - ANY

Answer 150

Trust Accounting Income

Answer 151

NOT TAXABLE

Answer 152

Stephen should contribute the maximum amount of $5,150 (2024) from his salary to an HSA and have the $4,000 of medical expenses paid from the HSA. Stephen can contribute up to $5,150 of his salary to an HSA in the current year ($4,150 2024 individual limit + $1,000 additional contribution for age 55 or older), which reduces his taxable gross income by $5,150. The payment of his $2,200 in medical expenses from the HSA is not included in his taxable gross income. HSA funds that are not spent continue to accumulate tax-free, so the $2,950 balance in his HSA at the end of the current year ($5,150 HSA contribution – $2,200 medical expenses paid) is rolled over to future years.

Answer 153

ZERO , No deduction allowed

Answer 154

Partnership

Answer 155

ANNUALIZED METHOD: The method of annualizing quarterly income essentially estimates the tax that would be due if the corporation continued earning income at the same rate for the remainder of the year. Because estimated payments are due 15 days following the end of the quarter, the annualization lags one quarter, with the exception of the first quarter.

Answer 156

When the GAIN exceeds $100,000, property ACQUIRED from related parties and certain close relatives DO NOT qualify as REPLACEMENT PROPERTY.

Answer 157

replacement cost.

Answer 158

A program to resolve actual or potential TRANSFER PRICING disputes prior to EXAMINATION (Audit). The agreement is a binding contract between the IRS and the TP by which the IRS agrees NOT TO seek a TRANSFER PRICING ADJUSTMENT for a COVERED Transaction if the TAXPAYER files its return consistent with the agreed TRANSFER PRICING method set forth in the contract.

Answer 159

1. CAPITAL OR SEC 1231 ASSET , HOLDING PERIOD = ROLLOVER Holding period of property contributed (holding period of partner continues) 2. ORDINARY INCOME ASSET - Holding period begins on date property is contributed to the partnership

Answer 160

QNF is a real estate mortgage obtained from an unrelated commercial lender. ONLY Type of PARTNERSHIP NONRECOURSE DEBT included in a partner's AT-RISK BASIS.

Answer 161

1. Gain from the sale of DEPRECIABLE PROPERTY to a RELATED PERSON 2. SALE of STOCKS OR SECURITIES traded on an ESTABLISHED MARKET

Answer 162

An LLC cannot become a public company. It must convert to a corporation before issuing an IPO. An LLC does not have these same restrictions with regard to members as S Corps have with regard to shareholders. A sole proprietorship may become a single-member LLC if it files articles of organization with a STATE.

Answer 163

Revise Elizabeth tab

Answer 164

DIVORCE PROPERTY SETTLEMENT - no gain recognized EXCEPTION : except when property is held in TRUST. Except REAL PROPERTY in different countries.

Answer 165

Deduction of NET capital losses is LIMITED to $3000 per year

Answer 166

True (% ownership does not matter) IRC SECTION 267 = Related parties

Answer 167

Loan less than $100,000, imputed int to the extent of NII NII LESS THAN $1,000 - ZERO IMPUTED INT to be reported

Answer 168

For risks that involve low loss severity and low loss frequency, the most suitable technique is retention. These risks rarely occur, and if they occur, their financial impact is inconsequential.

Answer 169

For risks that involve low loss severity and high loss frequency, the most suitable technique is reduction. Installing security cameras often discourages thieves and reduces the risks associated with theft.

Answer 170

For risks that involve high loss severity and low loss frequency, the most suitable technique is risk transfer (insurance). The insured shares the risk with the insurance company and the retained portion has low financial impact.

Answer 171

For risks that involve high loss severity and high loss frequency, the most suitable techniqueis avoidance. Insurance premiums on a vacation home in an area prone to flooding couldbe cost prohibitive. Instead of owning the vacation home, renting the vacation home would avoid the risk.

Answer 172

for a limited or a fixed period. Term life insurance provides protection for a definite, but limited, period of time. A term life insurance policy is appropriate when there is a limited time need for the protection (such as coverage for children's education needs or a home mortgage) and there are limited funds available for coverage. It is also used to cover the home mortgage (if the main income producer dies).

Answer 173

Unlike term insurance, permanent life insurance accumulates cash value; and at some point, the accumulated value, and/or current dividends (if a whole life insurance contract), are sufficient to the make the premium payments. An analogy may be made to home ownership; at some point in time, the mortgage is paid off and the property is owned free and clear and no additional mortgage payments need to be made. When the contract's values are used to make premium payments, the life insurance contract is said to be in premium offset. Note: premium offset cannot be guaranteed and is contingent on the insurance company's dividends and earnings within the life insurance contract. The permanent life insurance contract's accumulated values grow on a tax-deferred basis. Dividends paid by the contract, if applicable, are income tax free, and the accumulated values of the contract may be accessed on a first-in-first-out accounting basis. Additionally, contract values may be accessed through contract loans, with the insurance company using the contract's accumulated value as security for the loan. Permanent life insurance contracts are often a vital piece of the portfolio of a high-net-worth individual who will be subject to the estate tax. These insurance proceeds are often used to pay the estate tax and give the taxpayer the ability to leave their entire estate to their heirs.

Answer 174

MEDICARE LIMITATIONS LT CARE INSURANCE picks up where MEDICARE LEAVES OFF. To qualify for benefits in a skilled nursing facility under Medicare Part A (Hospital Insurance), the patient must meet the following conditions: The patient's condition requires skilled nursing care. The patient has been in a hospital for at least three days in a row before admission to a participating skilled nursing facility. The patient is admitted to the skilled nursing facility within a short period of time after leaving the hospital (within 30 days). The patient's care in the skilled nursing facility is for a condition that was treated in the hospital. A medical professional certifies that the patient needs and is receiving skilled nursing care.

Answer 175

UMBRELLA INSURANCE CONTRACTS - Liability claim as OPPOSED to a BENEFIT for a PROPERTY Claim.

Answer 176

Subject to 80% TI

Answer 177

A tax system implemented to ensure that individual taxpayers, particularly those with high income who use certain tax breaks under the tax law in order to significantly reduce their tax liability, pay at least some amount of minimum amount of income tax.

Answer 178

Accumulated E&P - Chronologically

Answer 179

Unified credit amount not the taxable state.

Answer 180

If shareholder is ALSO an EMPLOYEE, the imputed interest is normally TREATED as a DIVIDEND if the employee owns more than a DE MINIMIS amount of stock. However, if the loan was made solely in connection with the performance of services, it may be treated as compensation even when the employee owns a substantial amount of stock.w

Answer 181

T1 - half T2 - (half done) Intl Tax carry in train and study

Answer 182

DNI ? Trust taxable income ?

Answer 183

Distributions of earnings are always taxable, whether or not the taxpayer deducted the contribution when made. A distribution from a nondeductible, traditional IRA is allocated between principal (contributions) and earnings pro rata based on relative amounts in the IRA account at the time of the distribution.

Answer 184

NON-QUALIFIED when ROTH IRA does not meet 5 yr holding or contribution period, then EARNINGS are TAXABLE. Distributions from Roth IRAs are considered to first come from principal (contributions), then earnings.

Answer 185

1. Real estate professional with More than 50% of service from real estate and 2. Greater than 750 hours

Answer 186

ORD INCOME

Answer 187

SEPARATELY STATED ITEM, NON DEDUCTIBLE

Answer 188

1. It should first come from S CORP'S AAA 2. If election is made to bypass AAA, then distribution will come from C CORP's AEP