Secured Transactions

Question 1

Secured Transactions

Answer 1

Transaction where 1 or more parties provide an assurance to pay money to another party, and that assurance is guaranty or backed up by some form of property or (real or personal).

Ex: I’m going to buy something and I promise to pay you that money at some point in time in future. you want to make certain that the money you loan will be repaid back. You take a security interest in collateral. You can identify the collateral as the property that I bought from you and if I don’t pay you then you have a legal right claim that collateral that property and take it back so you could keep it or sell it.

Question 2

Pawnbroker

Answer 2

Is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral (something provided to a lender as a guaranteed of payment). The items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral.

Question 3

Article 9 of the UCC “Uniform Commercial Code”

Answer 3

Primarily governs security interest in personal property and fixtures.
Personal Property refers to movable items.

Question 4

PMSI (Purchase Money Security Interest)

Answer 4

is a special kind of security interest that when properly perfected, takes precedent over other security interests in the same collateral.

Question 5

When do PMSI occur? ‘

Pass Key’

Answer 5

1- The creditor sells the collateral on credit, retaining the security interest or,
2- The creditors advance funds used by the debtor to purchase the collateral.

Question to ask: did the debtor purchase the collateral with the creditor’s money or creditor’s credit?

Question 6

Under the Secured Transactions Article of the UCC, which of the following requirements is necessary to have a security interest attach?

Answer 6

Attachment requires that: (i) the parties agree to create a security interest—evidenced by either an authenticated security agreement or the creditor’s taking possession or control of the collateral, (ii) the debtor must have rights in the collateral, and (iii) the creditor must give value. There is no requirement that the security agreement be filed. (Filing is related to perfection.)

Question 7

Under the UCC Secured Transactions Article, when collateral is in a secured party’s possession, which of the following conditions must also be satisfied to have attachment?

Answer 7

The debtor must have rights to the collateral.

The term attachment refers to the relationship between the debtor and the secured party (creditor).

There are 3 requirements for an attachment:

Agreement of the parties (either an authenticated record of the agreement or the creditor’s having either possession or control of the collateral).
Value is given by creditor.
Debtor has rights in the collateral.

Question 8

Which of the following is not required to be included in a financing statement under the Secured Transactions Article of the UCC?

Answer 8

A statement of the purpose of the transaction.

A financing statement must contain the following: (i) the name and address of the debtor and of secured party, (ii) a description or indication of the collateral covered by the financing statement, and, (iii) if the collateral is related to real property, a description of that real property. The financing statement must also be authenticated by the debtor. The financing statement need not include a statement of the purpose of the transaction.

Question 9

Under the Secured Transactions Article of the UCC, which of the following items can usually be excluded from a filed original financing statement?

Answer 9

The amount of the obligation secured.

A security agreement need not include the amount of the obligation secured. The security agreement must include the name and address of the debtor, a description of the collateral (by type is sufficient), and the debtor’s authentication (e.g., a signature or electronic substitute).

Question 10

Under the Secured Transactions Article of the UCC, which of the following remedies is available to a secured creditor when a debtor fails to make a payment when due?

Answer 10

Proceed
against the
collateral

Obtain a general
judgment against
the debtor.

Question 11

Tracy, an owner of an S corporation, has beginning basis of $13,000 in stock of the S corporation. During the year, Tracy contributed an additional $4,000 to partially offset the share of the S corporation’s net operating loss, which was $7,000 for this year. At the beginning of the year, Tracy received a $1,000 distribution from the S corporation. What was Tracy’s basis at year-end in the S corporation stock?

Answer 11

9,000

The shareholder’s basis of stock in an S corporation is increased by:
additional contributions
income or gain items (taxable and tax-exempt)
and is decreased by:

distributions to shareholders
nondeductible expenses
loss or deduction items

Question 12

Which of the following statements regarding a limited partner is(are) generally correct under the Revised Uniform Limited Partnership Act of 1976?

Answer 12

No. The limited partner
is subject to
personal liability for
partnership debts

No. The limited partner
has the right to take
part in the control
of the partnership.

The Revised Uniform Limited Partnership Act of 1976, which is followed by a majority of states, provides that a limited partner’s liability for partnership debts is limited to his capital contribution. Only general partners have the right to take part in the control of the partnership.

Question 13

Under the federal Bankruptcy Code, an involuntary petition in bankruptcy may not be filed against which of the following parties?

Answer 13

A farmer

Farmers and nonprofit charities cannot be petitioned involuntarily into bankruptcy.

Question 14

In which of the following circumstances would a tax return preparer be prohibited from disclosing a client’s tax return information?

Answer 14

The information will be provided to section 501(c)(3) charity.

Generally, a tax preparer is prohibited from disclosing a client’s tax return information. Although some exceptions exist, providing the information to a charity is not one of them.

Question 15

Green Trees, LP is a limited partnership. Dave is a limited partner. Seeds Today, Inc. is a creditor of the limited partnership. Upon dissolution of the partnership, the assets of Green Trees, LP will be distributed to pay:

Answer 15

Seeds Today, Inc., first.

Upon dissolution, the assets of a limited partnership are first used to pay off creditors. The contributions of limited partners, such as Dave, are returned next.

Question 16

When a taxpayer needs guidance with a specific tax issue related to a proposed transaction, the taxpayer can ask the IRS for:

Answer 16

A private letter ruling.

A private letter ruling (PLR) is the IRS’s interpretation of the federal tax law as it applies to a specific taxpayer situation. A PLR is issued by the IRS in response to a taxpayer’s request for guidance as to the federal tax consequences of a proposed transaction. It is binding for that specific taxpayer and transaction, but may not be relied on as precedent by other taxpayers or the IRS.

Question 17

Which of the following parties generally has the most management rights?

Answer 17

Member of a limited liability company.

Unless the articles or operating agreement provides otherwise, all members of the LLC have a right to participate in management. A member of a limited liability company has the most management rights of any of the parties listed. A minority shareholder in a corporation has no management rights (and neither does a majority shareholder). A limited partner typically has no day-to-day management rights (indeed, a limited partner is generally prohibited from taking part in control of the limited partnership under the Revised Uniform Limited Partnership Act of 1976, except for voting on extraordinary matters). It is unclear what a limited partner in a general partnership would even be; the existence of a limited partner would make a partnership a limited partnership and not a general partnership.

Question 18

With respect to the penalty for aiding and abetting understatements of tax liability on a tax return:

Answer 18

The burden of proof shifts to the IRS from the taxpayer.

With respect to the penalty for aiding and abetting an understatement of tax liability on a tax return, the burden of proof shifts to the IRS from the taxpayer. Unless the law expressly states otherwise, the taxpayer has the burden of proof to establish by the preponderance of the evidence that the law and the evidence do not support the position of the IRS. With respect to any criminal action, the government has the burden of proof to establish by evidence beyond a reasonable doubt that the taxpayer is guilty of the charges. Note that these burdens of proof are different; criminal (beyond a reasonable doubt) is considerably higher than civil (preponderance of the evidence).

Question 19

Interest on a tax deficiency begins to accrue on the date on which:

Answer 19

The tax was due, without regard to extension of time to file.

Interest on a tax deficiency begins to accrue on the date the original tax was due, even if an extension of time to file was filed.

Question 20

Mailbox rule

Answer 20

Also known as the posting rule, is a common law principle in contract law that determines when an offer is considered accepted. It states that an offer is accepted when the offeree mails their acceptance, rather than when the offeror receives it. This can apply to mail, fax, email, or other irrevocable means of communication.

Question 21

Parol evidence rule

Answer 21

a) Apply after the parties put their final agreement in writing
b) The parties have to intend that the writing contract is complete and final.
c) No parrot, or extra evidence will be allowed to contradict or modify the contract

Question 22

Statute of Frauds

Answer 22

Is a state law that requires that certain contracts be evidenced in writing in order for them to be valid; in most cases, they must be signed by both parties, though there are instances where they only need to be signed by one.