Section 1 - 3 Flashcards
A tax return preparer is a person who (3)
1 Prepares for compensation
2 Employs someone to prepare for compensation
3. A person who preps tax returns for a refund
3 reasons a person cannot be a tax preparer
Mere assistance (typing/mechanical shit) Prepares as a fiduciary Preps a return for a refund of the employer
Three confidential communications
1 Advise client on tax matters
- Confidential between attorney and practitioner
- Noncriminal tax matters before IRS by or against the USA
REECA can practice before the IRS
Registered Tax return preps Enrolled Retirement plan agents Enrolled Actuaries Enrolled Agents CPA Attorney
If you can practice before the IRS what type of documentation do they give you
Enrollment/registration card
OR
Certificate
If the enrollment/registration card or Certificate is INVALID - Who can NOT practice before IRS?
Enrolled Agent, Enrolled Retirement Plan Agent, Registered Tax Return Preparer
What tis an IRS Power of Attorney?
Taxpayer’s WRITTEN authorization for someone to act on behalf of the taxpayer on tax related matters. The individual can perform all acts that the taxpayer can perform
A tax return preparer is subject to penalties if they FAIL to do the following:
___ a return or claim that is required
____ of the tax return to the taxpayer
Kepp for ___ years a copy of the return, __ number, tax years the returns were prepared
Fulfill ____ requirements for a taxpayer entitled to the ___ credit
Sign a return or claim that’s required
Furnish a copy of the tax return to the taxpayer
Keep for 3 years a copy of the return, ID number, current/previous tax years the returns were filed
Fulfill Due Diligence requirements for at taxpayer entitled to to the Earned Income Tax Credit
What does Treasury Circular No 230 contain rules of?
Rules governing the recognition of attorneys,CPA, Enrolled Agent, Enrolled Retirement Plan Agent, Registered Tax Return Preparers, and other people representing taxpayers before IRS
Information must be furnished before the IRS UNLESS WHAT?
the practitioner IN GOOD FAITH believes the records are privelidged
If the practitioner ias aware of noncompliance before the government, the practitioner must:
Advise the client of the fact of the noncompliance (state the fact that noncompliance exists)
When must a practitioner exercise due diligence? (3)
Prepping/assisting: — approving/filing tax returns, documents, affidavits, & other papers
Determining correctness of all representations made by the practitioner to the gov.
Determining the correctness of all representations made by the practitioner to the client
If a practitioner relies on the work product of another person (assuming they used reasonable care)… what did they exercise?
Due diligence
Can a practitioner charge unconscionable(unjust/one-sided) fees?
Can a practitioner charge contingent fees?
Nope
Yes. Three ways:
- IRS examines or challenges an orignal/amended/ return or claim for refund
- Claim for credit/refund is filed only with the determination of statutory interest or penalties
- Any judicial proceedings under the IRC
When must a practioner return client’s records? Can the practitioner keep copies?
Return all records that’s necessary to comply with the client’s FEDERAL tax obligations
They can retain copies
Does a dispute over fee relieve a practitioner their responsibility?
Generally no. Two ways it could
- State law permits retention of client’s records by a practitioner in the case of a dispute over fees for services.
- Practitioner must provide client w/ reasonable access to review/copy records that are necessary for the client to comply w/ tax obligations
When can a CPA represent a client if a conflict of interest exists?
Never
When would a conflict of interest exist:
Representing 1 client would directly adverse another client
Sig. risk that the representations of 1 or more clients will be materially limited by the CPA’s responsibility to another client/former client/3rd person/ personal interest of the CPA
When can a CPA represent a client?
Each affected client waives the conflict of interest and gives informed consent – IN WRITING
A CPA who prepares tax returns may not endorse or negotiate any check issued to a client by the government in respect to a ____
federal tax liability
What is the standard for returns?
CPAmay not willfully/recklessly advise a client/sign a return/ sign a claim/take position that:
- is unreasonable
- Attempt to understate the tax liability
What is the standard for documents
CPA may not advise a client to submit a document that:
- Purpose is to delay/impede tax laws
- That is frivolous (no value, care free)
- Omits information intentionally that violates/disregards a rule or regulation
Can a CPA rely in good faith w/o verification of information furnished by the client when ADVISING to take a position on a tax return??
Yes
When must a CPA possess competence?
When practicing before the IRS
When providing written advise, the CPA MUST
- Base advice on factual & legal assumption
- Consider all relevant facts
- Identify and verify relevant facts
When can a CPA not rely on the advice of others?
CPA knows the other person cant be relied upon
Other person isn’t competent
Other person has a conflict of interest
When does a tax payer adopt a new tax year?
When they file their first income tax return (including extensions) by the due date for that year
What is the difference between a calendar year, fiscal year, and tax year
CY: Ends on 12/31
FY: Ends on any day except 12/31
TY: Varies from 52-53 weeks but can not end on the last day of the month
When is an accounting method chosen?
How can someone change their accounting method?
When the first tax return is filed
Change method w/ IRS approval
When is TCJA Applicable?
What is TCJA?
Tax Cut and Jobs Act
TCJA is applicable after 12/31/2017
Ppl who have gross receipts of $25M or less during the last 3 years are NOT requried to account for COGS using inventories.
They dont have to use the accrual - they can use any method as long as it treats inventories as non-incidental materials OR conforms to the taxpayer’s financial treatment of inventory.
What entities are PROHIBIITED from using the cash method? (3)
C
P
S
A corporation (other than S corp) w/ an avg. annual gross receipt exceeding $25M
Partnership w/ a corporation (excluding S Corp) as a partner w/ avg annual gross receipts exceeding $25M
Tax Shelter
What are the special exceptions for hte allowance of the cash method?
Qualified personal service corporations can use the cash method
Taxpayers engaged in farming can use the cash method
What must you include to properly value inventory under the cost method?
Direct and indirect costs
What is the purpose of the accrual method?
When is income reported?
Match income w/ expenses
Reported when:
- Taxpayer receieves payment
- Income amount is due to taxpayer
- Taxpayer earns the income
- Title has passed
Can a taxpayer deduct expense that are paid in advance?
What method would this apply to?
No (note: applies to anything that creates an asset)
Apply to cash and accrual methods
Accrual Method - Why can you deduct bad debt?
B/c taxpayer reports income when earned. Taxpayer can deduct amounts owed to them b/c it was included in income previously in a different year.
When does a taxpayer report income under cash method?
Can you take a bad debt deductions?
When money is received
No b/c you recognize when the money is received.
What method can a taxpayer deducted taxes paid during the year?
What real estate taxes are deductible?
Are all taxes deductible?
Either one.
Any state/local/foreign taxes on real estate levied for general public
Not all taxes are deductible
Can taxpayers deduct taxes charged for local benefits and imrpovements that increase the value of the taxpayer’s property?
What are some examples of local benefits/improvements
What should the taxpayer do regarding the basis of the property by the amount of assessments?
No
ex: street/sidewalk/sewerline/public parking
Should increase the basis of the property by amount of assessment
TCJA (Tax Cut & Jobs Act) puts a ____ cap for the ____deduction.
Does this cap apply to taxes incurred in a trade or business?
$10K , SALT (State & Local Taxes)
It does NOT apply to taxes incurred in a trade or business.
An LLC is an entity formed under state law and unlike a partnership, ____ of the members of an LLC are personally liable for its debts
none
How may an LLC be classified for federal income tax purposes?
As a partnership, corporation, or an entity disregarded as an entity separate from its owner IF*** it only has 1 owner.
If a DOMESTIC LLC with at least 2 members that do not file an election to be a corporation will be classified as a ___? For what purpose?
partnership for federal income tax purpose
Does the conversion of a partnership into an LLC classified as a partnership terminate the partnership?
What happens to the tax ID number after conversion?
What will change during the partnership?
Nope
Nothing happens - can still use the same tax ID #
It will change the partners bases from recourse liabilities to non-recourse liability
What type of number must a taxpayer have if they pay wages?
EIN - Employer ID Number
Is there a limit on the deductions if a taxpayer has a NFP business/investment? If so, list, if not , dont
Yes
- Taxpayer cannot use a loss to offset other income
- Activities done as a hobby are not entered into for profit
What is an Agent and what is a principal?
Do specific people only have the capacity to be an agent?
What does an agency (agent) require?
What can minors do regarding agents?
Is consideration required?
What does the principal & agent require?
Agent: anyone authorized to act on behalf of another ( the “another person” is the Principal)
Anybody can be an agent
Requires an agreement - orally or written - contract not required
Minors can appoint agents
Consideration is NOT required
Requires meeting of the minds & consent to act
What are the characteristics of an agent (3)
FSH
Fiduciary Duty to principal
Subject to control of principal
Has authority to bind principal contractually to 3rd parties
Who are examples of agents?
Who can not be agents?
Partners, corporate officers, Employees, Real Estate Broker, Power of Attorney.
Can not be agents: infants or mentally incompetent ppl
Disclosed Principals
Partially Disclosed or undisclosed principals
Definitons
Disclose Principal -3rd party knows identify of principal 7 agent is not liable under contract
Partially/undisclosed principals - principal can be personally liable under contract or the agent can be personally liable, but NOT both
Liability to 3rd parties
Principal will be liable for all ___ contracts
Principal will not be liable for ___ contracts
Agent is liable for ___ contract unless the principal….
authorized
unauthorized
unauthorized, unless principal ratifies the contract
What type of fiduciary duty does the principal have to the agent?
What type of fiduciary duty does the agent have to the principal?
None
Agent has the fiduciary duty
How does the termination of an agency occur?
What must the principal do upon termination?
Action of parties or by law
Principal must give notice to older customers and publish notice to POTENTIAL new customers
Examples of Termination of agency by agreement & by law
Agreement: Time, mutual agreement, accomplished objective
Law: Death, bankruptcy, destruction, agreement becomes illegal, failure to obtain required license
Agency/Principal - Types of authority
What is actual/real authority?
What is apparent authority?
What is Express Authority
What is implied authority?
What type of authority do 3rd parties look for?
Actual/real - principal conveys to agent the right to act on their behalf (this may be conveyd under expressed or implied authority)
Express - principal tells the agent
Implied - principal’s conduct gives agent the authority (lol tf)
Apparent Authority - Principal tells/gives appearance 3rd parties that the agent is authorized
3rd parties look for apparent authority
Can a contract be implied?
Yes:
Implied in fact - actions of parties
Implied in law - quasi contract (obligation by law)
If the contract is for sale of tangible goods, apply ___
If the contract is for anything other than the sale of goods, apply ___
Sale of tangible goods: apply statute
Everything else: common law
What are the elements of a contract?
PLACCO
Proper Form - some contracts have to be in writing
Lawful Object - cant be illegal
Acceptance - by offerree
Consideration - both sides agree (meeting of minds)
Competent Parties - nobody is insane/intoxicated
Offer - by the offeror
ELEMENTS OF CONTRACT - ACCEPTANCE
If you add conditions to an offer, what is it?
Under common law, an acceptance has to be a ___ image of the original offer to be valid
When are acceptances effective?
A counter-offer
Mirror image
Effective when sent
Element of Contract - Consideration
Three components of consideration - what is it?
- Giving up a legal right - doing something you dont have to do
- Mutually bargain for - both sides have to give up something
3 Legally sufficient - courts DONT care if it is fair
Element of Contract - Consideration
Is past consideration valid
What is future consideration
Past consideration is NOT valid
Future consideration in exchange for future consideration
Element of Contract - What makes an offer end (not a Q)
Can an offer be revoked?
If there isn’t an expiry time on offer, when does it end?
Offers can be revoked by offeror UNLESS the offeree buys an option (idk what this means)
Expires in a reasonable time (no stated time)
Types of contracts (4)
BUVV
- Bilateral - promise for promise
- Unilateral - promise for an act
- Void contract - unenforceable by either party
- Voidable Contract - Legal contract but one party has right to cancel
Six types of Contract must be in writing
GRIPE + Marriage
Goods for sale of $500 or more. Writing must state qnty
Real Estate Contracts
Impossible Contracts to perform in 1yr (measure when contract is made, not when performance begins)
Promise to answer the debt of another
Executor’s promise to be liable for the debt of an estate
Contracts where MARRIAGE is the consideration
Competent Parties
Minors - Can dis-affirm when
Drunk - Can dis-affirm when
Insane- Can dis-affirm when
Minor - anytime while a minor
Drunk - only when incapable of understanding
Insane - once deemed insane medically
Elements of Fraud
DRIM
Damages / injury (results in damages/injury)
Reliance by injured party
Intent to mislead
Misrepresentation of material fact
Constructive Fraud or Gross Negligence -
RDRM
Reckless disregard for the truth
Damages (results in damages)
Reliance by injured by
Misrepresentation of material fact
Can you void a contract by duress and undue influence?
Yes
What is the Parole Evidence Rule?
Oral/written evidence prior/during writing of contract that contradicts the contract that becomes inadmissible(invalid) in court
Three types of 3rd party beneficiaries
Creditor - Definiton - Has Privity?
Donee - Definiton - Has Privity?
Incidental - Definiton - Has Privity?
Creditor - receives benefit when contract is satisfied - has privty
Donee - promisee gives a benefit to someone (donee) when the promissee doesn’t owe the donee a debt. Has privity.
Incidental - receives a benefit from a contract between 2 parties. Not intended the 3rd party will benefit. No privity
Privity - Relationship between two people
Contract Remedies Actual/Compensatory Damages Specific Performance Liquidated Damages Punitive Damages (SLAP)
Specific performance - provides a performance - used when $$ won’t suffice. Used when something is rare
Liquidated damages - puts in contract what damages will be
Actual/compensatory damages - amount caused by breach (court tries to make you whole)
Punitive damages - purpose is to punish you. Can ask when there is fraud.
Rights and duties
Writ of Execution, Garnishment, Judgment, Assignment
Omitted ones i already knew
Memorize these
What is a homestead exemption
- It is where unsecured creditors/trustees in bankruptcy may not satisfy debts from equity in debtor’s home
- Exception: Mortgage liens/IRS tax liens
Fair Debt Collection Practices Act - Collection Agencies
Can collection agencies contact debtor at inconvenient hours/places/work?
What type of methods can they not use?
What notice must they provide debtor?
If they go to court, where?
They cant call at inconvenient times/locations … can call employers, but if employer refuses, they cant call employers
They can not use abusive or misleading methods
Must provide a written notice of amount and whom owes the debt
Go to court near the residence of the debtor
What is the Truth in Lending act?
- Requires lenders and sellers disclose terms on loans to consumer debt
- Consumers have the right to rescind the credit within 3 days
Bankruptcy Abuse Prevention and Consumer Protection Act
What additional disclosures must lenders make on CC statements?
Preserves teh defenses of consumers against ____ loans sold by bankruptcy trustees that are covered by the ____
Disclosures about late fees/min payments/rates
Also must make disclosures about tax consequences on home equity loans
Predatory loans, covered by the Truth in Lending Act
Equal Credit Opportunity Act
- Prohibits ___ in consumer credit transactions
- If creditor denies credit or worsens credit terms, the creditor must ____
- Provides ___ and ___ penalties
1 Prohibits discrimination
2. Must notify the debtor why
3 Provides for civil and criminal penalties
Fair Credit Reporting Act
Consumer reporting agencies cannot ___
cannot report inaccurate or obsolete info. on consumer credit reports
Fair Credit Billing Act
Consumers have the right to _____
dispute charges and creditors must investigate
Fair Credit and Charge Card Disclosure Act
Annual membership fees/annual % rate ____
must be disclosed on solicitations or the application
Suretyship/Guarantee (general)
- Third party promises to pay debt owed by debtor __
- Protects creditor by adding ___
- Three parties (list them)
- If debtor does not pay
- extra security
- Creditor, Principal Debtor, Surety or Guarantor
Suretyship
- Surety promises to be responsible and is ___ liable for the debt
- Creditor can demand_____
- Creditor doesn’t need to ____
- equally liable for the debt
- demand payment from surety
- doesnt need to collect from debtor first
Guaranty Contract
- Guarantor is ___ liable
- Guarantor is required to pay only when ___
- secondarily
2. only when the principal debtor defaults/doesn’t pay (means same thing)
Creditors rights - Suretyship/Guarantee (overview)
- Creditors may proceed against surety upon __
- Creditors may proceed against guarantor after _
- Upon principal debtor’s default
2. After exhausting remedies against debtor
Surety/Guarantor’s Rights
- Surety may require debtor to pay IF ____
- If surety pays, they’re entitled ____
- Has right of subrogation … explain this
- debtor is able to pay before surety pays
- reimbursement from debtor
- Subrogation is when the surety steps in the creditor’s shoes
What is a cosurety?
What happens if 1 cosurety pays more
When there is more than 1 surety for hte same obligation
If 1 pays more than the other, then the person that paid more can compel others to compensate for the excess paid
What are the 6 types of bankruptcy
- chapter 7 - Liquidation
- Chapter 9 - Municipal Debt adjustment
- Chapter 11 - reorganization
- Chapter 12 - Family farmers w/ regular income
- Chapter 13 a- adjustment of debts of individuals w/ regular income
- Chapter 15 - ancillary and other cross–border cases
Filing under __ , ___, & ___ acts as automatic stay and stops all collection effors w/ the exception of payments for (3)
7, 11, 13
- Domestic support payments (alimony/child support)
- Criminal Actions
- Tax deficiency
Chapter 7 - Voluntary
- Debtor files for ____ & a ___ is appointed
- Turns majority of debtor’s ___ into ___ to pay debts
- ___ may be filed jointly by ___
- Given an ____ of relief when filed
What does the Bankruptcy Abuse and Protection Act of 2005 do?
- liquidation and a trustee is appointed
- assets into cash
- Petition, by husband & wife
- automatic order of relief
made Criteria a debtor must meet to prove they aren’t abusing the bankruptcy code.
Chapter 7 - Involuntary
- Creditors file to ____ liquidation & a ___ is appointed
- If ___ or more creditors, at least __ need to file
- If less than __ creditors, __ or more need to file
- If uncontested by debtor - ___ is same date as filing date
- If contested by debtor - ____ comes after hearing has determined ___
- Force liquidation
- 12 or more creditors, 3 need to file
- 12 or less, 1 or more need to file
- Order of relief is dame date as filing
- order of relief comes after hearing has determined insolvency
Chapter 7 Bankruptcy Proceedings
Property included in debtor’s estate:
1. Debtor property goes to trustee to pay creditors as of ___ date
2. Debtor keeps property necessary in order ___
3 Alimony and child support is ___
4. Social Security and Disability is ___
- Filing Date
- in order to live
- Exempt ( cant get out of that)
- Exempt ( cant get out of that)
Debtor will keep most property gained after filing except
a. Property Gained within 180 days. after filing the petition by the following methods: Divorce, inheritance, insurance settlement
b. Income from property owned by estate after a petition is filed
Leases - trustee can accept or reject
Property can be added to esttate by trustee avoidnig powers
just memorize these
POWERS OF TRUSTEE
What are the 5 requirements for a preferential transfer to happen?
MAINT
More than they would received in bankruptcy
Antecedent debt
Insolvent debtor
Ninety days before filing date. 1 yr if creditor was an insider
Transfer that benefited a creditor
Can trustees liquidate and sell assets to pay debt?
Yes
CHAPTER 11 - REORGANIZATION
5 steps a debtor takes so business continues, no liquidation
1 debtor submits plan to unsecured creditor committ
2 Trustee may be appointed
3 Voluntary or unvoluntary
4 Plan not confirmed until admin cost paid
5 until the final decision from the courts, debts are still paid as normal.Debtor discharged from debts isn’t a thing.
SECURED TRANSACTIONS
Debts secured w/ Collateral (3)
Goods - consumer goods, equip, inventory, fixture, etc
Instruments - negotiable instruments, stock, bond
Intangibles - A/R, intellectual property (ai)
Elements of Attachment
Attachment is the moment when ___
Security interest is attached when the following occurs (3)
moment when security interest is enforceable against a debtor
1 Agreement between creditor & debtor
2 Creditor or secured party gives value
3 Debtor must have rights in collateral
PERFECTION
What does perfection focus on?
When you perfect asecurity interest, who do you give a notice to?
How do you perfect a security interest? (2)
Focuses on rights between other parties that claim an interest in same collateral
You give a notice to 3rd parties
1.) Filing F/S in appropriate state office
2.) Take possession/control of collateral
When can automatic perfection occur?
Automatic perfection can occur w/ consumer goods. Purchase Money Security Interest (PMSI)
PRIORITIES W/ MULTI CREDITORS
Which prevails? Secured or Unsecured?
PMSI creditor in ____ collateral has priority if filed within ___ days of debtor taking possession
If inventory, collateral ___ creditor has priority if they file & give ___ to any creditors ahead of them before debtor takes possession
Secured prevails over unsecured
PMSI creditor in non-inventory collateral has priority if filed within 20 days
If inventory, collateral PMSI creditor has priority if they file & give WRITTEN notice
STRICT FORECLOSURE
Creditor Keeps ___ in full settlement of the debt
Can only retain ____ if debtor paid less than ___ of purchase price
If debtor paid more than ___ of consumer goods, creditor must _____
Reduce claim to legal judgment and ____ the debtor
Creditor keeps collateral
Only retain consumer goods, less than 60%
60% of consumer goods, creditor must sell unless debtor waives the right
Sue the debtor
What are state regulation of securities designed to do?
What are they referred to as?
3 types of state laws:
Designed to protect investing public from fraud
referred to as blue-sky law.
3 state Laws: 1.) Antifraud law (civil and criminal penalty) 2.) Registration law (dealer and broker register w/ state) 3.) Disclosure requirements
STATE DISCLOSURE REQUIREMENT
Three state disclosure requirements
- ) Notification:
- ) Qualification:
- ) Coordination: acept copy of documents filed w/ SEC
wHAT ARE THE TYPICAL ABUSE OF STATE LAWS IN 1920
DEMP
Deceitful Statements
Excessive use of credit
Misuse of Corporate information
Price Manipulation
What did the securities act of 1933 and Securities exchange act of 1934 result from?
Stock market crash in 1929
Provides info on securities offered for public sale
Full and fair disclosure so that unsophisticated investors have an informed choice
Registration statement take responsibility
Prohibits false representations or fraud in sales
what is this
securities act of 1933
Who do you file a registration statement with?
What is included in registration statements? (4)
SEC 1 description of company's business 2 Description of security offered 3 Info about management 4 F/S audited by independent CPA following PCAOB
SEC Examination of Statements
How long does the SEC have to examine a registration statement?
During the __day period, can securities be:
Sold? Distribute a prospectus? Publish tombstone advertisements? Oral & written offers to buy?
20 days
Cannot be sold
Can distribute a “red herring” prospectus
can publish tombstone advertisements
Oral BUT NOT WRITTEN offers to buy can be received
What is shelf registration?
Registration of securities related to a continuous offering or delayed offerings ( waiting for better market conditions)
SEC Registration exemption: Regulation A: Rule 240 Rule 146 Rule 147 Rule 242:
Reg A: equity crowdfunding to offer and sell securities up to $50M
Rule 240: Exempts securities up to $100K within 12 months from registration, but not from anti fraud provisions
146: Establish factors for a private offering
Rule 147: Allow corporations to sell securities within a state w/o federal registration
Rule 242: Exempts securities up to $2M within 6 month period if sold to accredited investors.
SANCTIONS
Who can seek sanctions?
SEC and private parties
Who created the SEC
Securities Exchange Act of 1934
What is the objective of the Securities Exchange Act of 1934?
Registrations separate from the 1933 act includes:
objective: regulate securities on exchanges, OTC stocks with >$10M in assets and >500 shareholders
Separate from - 10-k, 10-Q, 8-K, Proxy Statement
Rule 10b-5 of 1934 Act - Fraud
The 1934 Act makes it unlawful to use any instrument of interstate commerce to do:
1. Employ __
2. Make any __ statemnet or to ___ a material fact
3. Engage in any act that operates as a ___
- Employ any device/scheme to defraud
- Make any untrue statement or omit a material fact
- Prohibits to engage in any act that operates as a business with the purchase/sale of any security
10b-5 of 1934 Act
You must prove what to reach who?
Prove Scienter to reach CPA
What is scienter?
What is the recovery limited to?
Intent to deceive by the CPA, not simple negligence.
It is limited to actual losses from fraud
Insider Trading
Profits from the sale/purchase of a stock within a period of less than ___ by an insider can be recovered by the company
6 months
IF someone is seeking to acquire over 5% of a company’s tsock by purchase or tender offer, what must the person disclose (5) and to who(3) ?
People: SEC, stock exchange, and issuer
Disclose: # of shares already owner, purpose of acquiring >5%, identity of person buying, tender offers planned for additional shares, changes planned in operation
What is aproxy solicitation?
Margin trading - what do they limit?
Proxy Solicitation - All material facts disclosed in filing with the SEC. Filing must be approved.
Limits the amt. of credit for purchasing/carrying securities. SEC investigates sand enforces the restriction
Broker / Dealer Rules - Credit
Who can broker/dealer borrow money from?
Can broker/dealers just lend their investor’s securities?
Can they pledge securiteis?
They can borrow money from a bank that is a member fo the Federal Reserve System
They cant lend, unless they have written permission
Cant pledge their investor’s securities
An exchange member cannot ___, except for ____ dealers
cannot trade their own accounts, except for odd-lot dealers
Can the SEC criminally prosecute?
Nope - Take it to the DOJ
Foreign Corrupt Practices Act
What does the FCP make unlawful?
Unlawful to use interstate/foreign commerce (mail/phones) to offer or give anything of value to a foreign official/foreign political party or candidate… for the purpose of influencing action to obtain/retain business
What is a section 1221 asset?
What is a section 1231 asset?
1221 - any property held by a taxpayer
1231 - depreciable business property owned longer than ayear
Which is lower:
Capital Gains tax or ordinary tax
What do ordinary tax rates depend on?
Capital Gains tax are lower
Ordinary tax depends on the taxpayer’s marginal tax rate
Property Acquire in Trade
Are all properties acquired by trade a taxable transaction?
No
Property Acquire by Service
Properties acquired as a result of services rendered has a basis equal to the ____ of services rendered
FMV
Property Acquire by Service
If taxpayers both agree ahead of time the value of the services, that value will be ___
accepted as FMV unless the value can be shown otherwise
Property Acquired by Gift
Pro
Property acquired by gift of non-depreciable property has a basis equal to:
1. Adjusted basis of the donor unless ___
2. Basis is determined on the day ____
3. The basis is increase by any ___ paid
- the FMV is less than adj. basis on the day of the transfer
- the donee sells or liquidates the property
- Basis is increased by any gift tax paid
Property Acquired as a gift of depreciable property has a basis equal to___
the adj. basis of the donor
Property Acquired by beneficiary is inherited property and has an adjusted basis of
Date of Death: ??
6 Months after Day of Death: ??
FMV
FMV
Property Converted from Personal to Business:
Property converted from personal to biz has a basis equal to :
LCM on the date of conversion
Adjusted Basis of Stock Dividend
The basis of stock received as a dividend depends upon the tax treatment of the dividend when received.
When FMV on the stock dividend is included in gross income, the basis is ___
FMV at a date of distribution
If the FMV of the stock dividend is NOT included in gross income, the basis of stockholder’s original stock is allocated between ____
the dividend stock and the original stock
LIKE-KIND CHANGES
Under 1031, no gain is recognized on business/investment assets that are traded for those of a ___
What is the exceptions?
similar kind
- if taxpayer receives cash
Treatment of Gains & Losses Capital or Ordinary? Section 1221 Section 1231 Specifically Identified by Congress
How are losses resulting from sale/disposition of personal assets recognized?
Capital
Capital
Capital
They’re not - only gains are recognized.
Capital Asset or not? Inventory/property held for biz? Note or AR? Depreciable Business Property or Real Property used in biz? Copy right or other intel property?
All YES!
What form are sales & dispositions reported on? Where is the total transferred to?
Form 8949
Transferred to Schedule D
Capital Gainz are determined by holding periods:
When counting days, count either the ___ date or the ___ date, NOT BOTH
sale date or purchase date
Net LT capital gains are taxed at ___ rate
Net ST capital gains are taxed at ___ rate
For individuals, net capital losses are deductible for AGI up to ___
Capital gains tax rate
Personal marginal tax rate
AGI up to $3,000
How do you detremine what tax rate applies to what net item?
- Pool all gains and losses into 1 of 4 pools ( STCL, STCG, LTCG, LTCL)
- Net all STCG & STCL, resulting either a NSTCG or NSTCL
- Same as #2, but LT
- Net all NSTCL with NLTCG or NSTCG w/ NLTCL
Fuck. Remember this lol
If a NLTCL and NSTCL results or only a NSTCL results, the losses are deductible for ___ and any excess loss is ___
AGI up to $3K and any excess loss is carried over
If only a NSTCG results, the gain is included in ___
If only a NLTCG results, the gain is included in ___
If both a NLTCG and NSTCG results, the NLTCG is included in ___ and NSTCG is included in____
Gross Income
Capital Gains
NLTCG is included in Cap Gain
NSTCG is included in Gross Income
How are corporation’s net capital gains (both ST & LT) taxed?
When can corporations only use a net capital loss?
Can Corporations deduct NCL like individuals?
How long is carry back and carry forward?
Both taxed @ ordinary corporate tax rates
Corporations can only use a NCL to offset capital gain net income.
Cannot deduct NCL like individuals
Carryback : 3 yr Carry forward: 5 yrs
STOCK & BOND - Individual
For stock/bond what is the trade date?
In the case of 1244 stock, the first $___ of losses are treated as an ____
What is 1244 stock also known as?
Date of purchase or sale
$50,000 (or $100k MFJ) , treated as an ordinary loss
Known as smallbusiness stock
If 1244 stock was held for 6 years and sold at a gain, what does that mean?
can exclude up to 50% of the gain if the stock was held more than 5 years
STOCK TRANSACTIONS
Stock Divdend - the FMV of the stock dividend is not included in gross income, UNLESS __
What is a wash sale? Are wash sale losses allowed?
Unless there is a cash option
A wash sale is when taxpayers ells stocks for a loss and within 30 days purchase a identical stock —– wash sale losses are disallowed.
The wash sale loss is added to the basis of the identical stock purchased
SALE OF A PRINCIPAL RESIDENCE
When can a taxpayer exclude a gain of sale on their principal residence? How much?
How is the gain recognized if gain exceeds $250k?
Can exclude when: home is owned by 2 of the last 5 years & lived in that home for at least 2 years.
Can exclude $250,000 single - $500K MFJ
If gain exceeds $250k, the excess is included in income. Even if funds were reinvested in a different home.
T/F 1231 assets are nondepreciable
Sale of 1231 assets are capital gains if held more than 1 year
Ordinary losses occur regardless of holding period for 1231 assets
What is the lookback rule for 1231 assets?
F - it is depreciable
T
T
Lookback rule: 1231 gains must be offset by section 1231 losses from the last 5 years.
When does the Section 1245 Recapture rule apply?
What does the sale of these properties require?
How are excess gains treated?
Sale or liquidation of depreciable PERSONAL property (non real)
Requires the taxpayer to recapture all depreciation up to the amt. of realized gain & claim it as an ordinary gain
Any excess gain is treated as 1231 section gain
When does section 1250 recapture rule apply?
Sale or liquidation of depreciable real property
Section 291 recapture pertains to:
Disposition of section ___ property by a ____
Disposition of section 1250 property by a corporation
If a gain is recognized on the sale of property by a related party, the gainmay be ____ even if theproperty is a ____
If a loss occurs, the loss is ____
the gain may be ordinary income, even if the property is a capital asset
The loss is disallowed
Is a related party: a person who owns more than 40% of a corporation, directly or indirectly
False -50%
What is an involuntary conversion?
What happens if the property is condemned?
What happens if property is destroyed/stolen?
Where cash is received for property that is condemned, destroyed, damaged, or stolen
Condemned: no gain is reported if replaced within 3 years
Destroyed/stolen: No gain is reported if replaced wtihin 2 years
PRE-MACRS is for assets placed in service prior to what year?
The basis of the property reduced by salvage value was recovered over its useful life using _____
SL, Declining Balance, sum of years
For properties placed in service 1981-1986: What was used to rcover the basis of depreciable property?
Accelerated Cost Recovery Sytem (ACRS)
MACRS - this is for assets placed in service after ___
Is MACRS mandatory?
When is MACRS excluded?
How is the salvage value treated?
1986 - it is mandatory
Excluded for: Land, intangible assets, property depreciated under a method not expressed in years.
Salvage value is ignored
The depreciation class of property is determined by what?
Asset Depreciation Range (ADR)
MACRS method reflects ___ with aswitch over to ___ at the midpoint
DDB with as switch over to SL
What are the two most likely tested proeprty classes?
What do 7 year classes include?
What do the 5 year classes include
5 and 7 years
7 year is furniture and fixture
5 year is auto/computer/office equip
MACRS - Half year convention
___ is treated as being placed in service or disposed at the middle of the year
___is treated as being placed in service/disposed in the middle of the month
Personal Property
Real Property
If more than 40% of personal property is placed during the last quarter, what do you use?
Mid-quarter convention
What is bonus depreciation?
Can you claim bonus depreciation if its from related parties?
Bonus depreciation is where taxpayers can claim an additional 1st year depreciation amount that
Cannot claim if from related party
Section 179 Expensing Election
Taxpayers can elect to immediately expense up to $____ in “___”
Which comes first? Section 179 expensing or bonus depreciation?
up to $1M in “qualifying property”
Section 179 comes first.
How are natural resources expeensed (2 methods)
Cost method - Units of production
Percentage method - Statutory rate is used
How are most intangibles amortized (how long)
15 years
Business start up costs - can amortize up to $____ in start-up costs in year which the business BEGINS, but it is reduced by every dollar of start-up costs that exceed $____
Any remaining costs are written off over ___
$5,000 , $50,000
180 months
Estate and Trust Tax Return
If an estate or trust is required a federal income tax return, the following rules apply
Form ___ is filed
Estates have the option to file as a ___ or ___ year
Trust must file as a ___ year entity
Filing is due by the ___ day of the ___ month after close of the year
Trusts are required to make ____
Estates are exempt for the first ____ years
How long can an estate/trust file for an automatic extension?
Form 1041 Calendar or Fiscal Year Calendar year entity 15th day of the 4th month (april 15th) Required to make payments First 2 years
Extension is 5 1/2 months.
What is the calculation of taxable income?
GI - EDIT
Gross Income
Less: Exemption, deductions, income distributions deduction, tax credits
What are the personal exemption amounts?
Estate
Simple Trust
Complex Trust
Estate $600
Simple Trust $300
Complex Trust $100
`
In the case of estates and trusts, the income distribution deduction is the LESSOR of:
Actual Distribution made to beneficiaries
or
Distributed net income (DNI)
What is DNI (Distributable net income)?
It is the max. amount of deduction avail for distributions to beneficiaries
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When does the federal gift tax apply?
Any transfer by gift of real/personal property
or
Transfer for less than adequate consideration in money/money’s worth
A taxable gift equals the ___ of the gift less any ___
What is a gift to an employee?
Gift taxes are reported on the form ___
FMV, less any deductions
Gifts to employees are more likely compensation
Form 709
Taxpayer may exclude up to a certain amt. ($___ for 2018) of gifts of ____ (immediate use) made to each donee during the calendar year
What is gift splitting?
$15K for 2018 ($30k MFJ)
Gifts of present interest
Gift splitting is where spouses either spouse is treated as a half
What gifts are NOT subject to gift tax?
Gifts to:
spouse, charities, educational purpose, medical purpose, political orgnizations
What is the exclusion for a gift made to a spouse that is NOT in the U.S?
$152,000
