SE1 Flashcards
which of the following activities regularly carried out by an exempt organization will not result in unrelated business income?
a. the sale of heavy-duty appliances to senior citizens by an exempt senior citizens center
b. the sale of laundry services by an exempt hospital to other hospitals
c. accounting and tax services performed by a local chapter of a labor union for its members
d. the sale of a trade association of publications used as course materials for the association’s seminars, which are oriented towards its members
d. the sale of a trade association of publications used as course materials for the association’s seminars, which are oriented towards its members, will not result in UBI.
UBI is:
1. derived from an activity that constitutes a trade or business,
2. is regularly carried on, and
3. is not substantially related to the organization’s tax-exempt purpose.
an unrelated business does not include any activity where all the work is performed for the organization y unpaid volunteers. Thus, using unpaid volunteers makes that business or activity “related”
which of the following is not a category of income for foreign tax credit limitation purposes?
a. foreign branch income
b. general category income
c. passive category income
d. foreign-derived intangible income
d. 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.
life insurance
protects against the economic loss created by death
life insurance
provides income to surviving dependents, satisfies outstanding debts, and pays for funeral expenses and sometimes children’s college costs
umbrella insurance contracts
provide benefits for a liability claim, as opposed to a benefit for a property claim. A liability claim arises from an injury or damage to another persons property (not the insured)
A piece of depreciable machinery is sold. It has been held for 3 yrs and qualifies as Section 1231 property. The selling price is greater than the adjusted basis but less than the original purchase price. Which statement below is correct?
a. Section 1245 recapture will not apply bc there is a loss on the sale
b. All of the gain will be subject to Section 1245 recapture
c. Only a portion of the gain will be subject to Section 1245 recapture
d. None of the gain will be subject to Section 1245 recapture
b. There is a gain on the sale bc the selling price is greater than the adjusted basis. The gain up to all accumulated depreciation is subject to Section 1245 recapture. Bc the selling price is below the original purchase price, all of the gain is due to accumulated depreciation. Therefore, all of the gain is subject to Section 1245 recapture.
Gain is recaptured as ordinary income under Section 1250
to extent of depreciation in excess of straight line
partner owns 60% of partnership and sells stock to the partnership at a loss. How is the loss treated by the partner?
Partner owns more than 50% of partnership so they are related parties and the loss is disallowed. The partner is not allowed to deduct the loss on this sale made to the pship sorry bruh
partner’s basis in partnership interest immediately after formation
partner’s basis in partnership interest is the partner’s basis in the property contributed at the date of contribution. Regardless of built in gains
partnership’s basis in property contributed upon formation
partnership takes on the contributor’s basis of the contributed property; regardless of if any built in gains exist
corp’s basis in property contributed upon formation
greater of contributor’s basis in the property or debt assumed by corp
property distribution made to shareholders when property distributed’s fmv > basis
corp treats property distributions as if sold at fmv, so the gain on the distribution fmv-basis=gain which MUST BE ADDED TO CURRENT E&P before determining how much will be a taxable dividend to the recipient shareholder.
simple trust
cannot make distributions to charitable organizations/have charitable beneficiaries
simple trust
must distribute all income currently; cannot distribute out of corpus/principal
trust accounting income
includes all taxable and nontaxable income and expenses other than capital gains and trust administrative expenses allocated to corpus
nondeductible trustee fees
if a trust has nontaxable income, then a portion of the trustee fees is also nondeductible.
nondeductible portion of trustee fees
the ratio of tax-exempt income to total trust accounting income
Section 382 limitation amount
(FMV of the corp’s stock immediately before the ownership change) X the applicable federal long-term tax-exempt rate
Section 382 limitation amount
limits the deduction of pre-change NOLs against taxable income each year after ownership change
in a complete liquidation of a partnership, the partner’s basis in the distributed property is
the same as the adjusted basis of his partnership interest, reduced by any monies received.
the partner recognizes gain only to the extent that money received exceeds the partner’s basis in the partnership
Andy, an accrual-basis taxpayer, borrowed money from Wilson, a related party. Wilson is a cash-basis taxpayer. During year 1, Andy accrued $10k of interest expense related to the loan. Andy paid $10k to Wilson in year 2. What is the proper year to report the amounts on the taxpayers’ income tax returns?
a. Year 1deduction for Andy, and year 2 income for Wilson
b. year 1 deduction for Andy, and year 1 income for Wilson
c. year 2 deduction for Andy, and year 1 income for Wilson
d. year 2 deduction for Andy, and year 2 income for Wilson
D. year 2 deduction for Andy, and year 2 income for Wilson. Since Andy and Wilson are related parties, Andy, as the accrual-basis taxpayer, must defer deduction of the interest expense until year 2, when Wilson receives the interest payment and includes it in taxable income.
An accrual-basis tp cannot deduct an expense for a liability owed to cash-basis related party until the related party recognizes the associated income.
imputed interest is treated as zero
if borrower’s net investment income for the year is $1,000 or less GR: on gift loans between individuals of $100,000 or less, imputed interest is limited to borrower’s net investment income for the year.
UNLESS the borrower’s net investment income is $1,000 or less.
the basis of stock received by shareholders in a tax-free reorganizations is
the original basis of the stock given up by the shareholders
a proportional stock redemption is treated as a
dividend
an individual can treat up to $x of worthless Section 1244 stock as
an individual can treat up to $50,000 of worthless Section 1244 stock as an ordinary loss
Kristen, a single U.S. citizen, lived and worked in Canada for the entire current year. Her salary for the current year is $115,000 and she also received a $20,000 year-end bonus. What amount of her foreign-owned income can be excluded from her current year taxable gross income?
a. $120,000
b. $135,000
c. $115,000
d. $0
a. Kristen is allowed to exclude up to $120,000 of her total foreign-earned income. Kristen lives and works in Canada for the entire year so she meets both the bona fide residence test and physical presence test, although she is only required to satisfy one of the tests to qualify for the foreign-earned income exclusion. Both her salary and bonus qualify as foreign-earned income but the maximum allowable exclusion is $120,000.
foreign-earned income exclusion
must satisfy at least 1 of 2 tests to qualify for the exclusion: bona fide residence test and/or physical presence test. allowed to exclude up to $120,000 of foreign-earned income (2023)
bona fide residence test
tp must have been a bona fide resident of a foreign country or countries for an uninterrupted period that includes the entire taxable year
if satisfied, qualifies tp for foreign-earned income exclusion
physical presence test
requires that the tp be physically present in foreign country or countries for 330 full days during any 12-consecutive-month period, although the 330 days do not need to be consecutive; if satisfied, tp qualifies for foreign-earned income exclusion up to $120k
Which of the following should be used in computing the basis of a partner’s interest acquired from another partner?
a. neither
b. only transferee’s share of partnership liabilities
c. both cash paid by transferee to transferor, and transferee’s share of partnership liabilities
d. only cash paid by transferee to transferor
c. RULE: a partner’s basis for his partnership interest consists of the amount of cash paid for the interest, plus the adjusted basis of property transferred for the interest, plus the new partner’s share of partnership liabilities.
a U.S. shareholder of a controlled foreign corp is a U.S person who
owns at least 10% of the stock value OR voting stock ORRRRRRRRRRRRRRRRR
umbrella insurance contracts
provide benefits for a liability claim.
does not cover your own injuries or damage to your personal property
liability claim
arises from an injury or damage to another person’s property (not the insured).
A personal umbrella policy may provide a benefit for:
a. the cost to replace a neighbor’s fence after the insured intentionally drives his car through the fence
b. the cost to replace a garage door after the insured accidentally drove into the door when coming home at night during a blackout
c. the damages from a lawsuit resulting from the insured, a CPA, failing to prepare a client’s tax return in a timely matter
d. the cost of repairs to a neighbor’s car after a tree from the insured’s yard falls and damages the car
d. umbrella insurance contracts provide benefits for a liability claim, which arises from an injury or damage to another person’s property (not the insured’s property)
