Tax Exempt Organization Flashcards
501(c)(3) - PVT FOUNDATIONS (Single funding source like orgs and individuals)
OR PUBLIC CHARITIES (Churches, Schools, Colleges, Universities)
A tax-exempt Section organization must be organized and operated exclusively for one
or more of the following purposes:
-Religious
-Charitable
-Scientific
-Testing for public safety
-Literary
-Educational, library
-Fostering national or international amateur sports competition (but only if none of its activities involve providing athletic facilities or equipment)
-Prevention of cruelty to children or animals
OTHER Tax Exempt
501(c)
organized under an act of Congress as an instrumentality of the United States,
including federal credit unions
Title-holding corporations organized for the sole purpose of holding title to property,
collecting income from that property, and turning the income over to a taxexempt
organization
Civic leagues and social welfare organizations (e.g., Kiwanis or Rotary Club, homeowners’
association, volunteer fire department)
Labor, agricultural, and horticultural organizations
Business leagues (e.g., chamber of commerce, real estate board)
Social and recreational clubs
Beneficiary and domestic fraternal societies
Mutual insurance companies
Cemetery companies
Veterans’ organizations of past or present members of the U.S. Armed Forces
Investment income _NEXUS
allocated to state of commercial domicile or residence.
. For 3-, 5-, 7-, or 10-year property used in a farming business and placed in service after 2017, in tax years
ending after 2017, the 150% declining balance method is
no longer required.
However, the 150% declining balance
method will continue to apply to any 15- or 20-year property used in a farming business to which the straight line
method does not apply or to property for which you elect
the use of the 150% declining balance method.
IRS.GOV
CONTINGENT fee is allowed only in 3 matters:
- Claim solely for a refund of interest and/or penalties
- A judicial proceeding arising under the Internal Revenue Code
- IRS examination of, or challenge to, an original tax return (or an amended return or claim for refund or credit that was filed within 120 days of receiving a written notice from the IRS of the examination or challenge to the original tax return)
Practitioners publishing a written fee schedule must honor those fees for the ______________following the last date that the fees were published.
If additional fees may be charged for certain matters, the statement must indicate whether clients will be responsible for the costs.
30-day period
In the case of radio and television broadcasting, the broadcast must be recorded and the practitioner must retain ________________________.
In the case of direct mail and e-commerce communications, the practitioner must retain a _________________________
Copies must be retained by the practitioner for a period of ______________________
a recording of the actual transmission.
copy of the actual communication, along with a list or other description of persons to whomthe communication was mailed or otherwise distributed.
at least 36 months from the date
of the last transmission or use.
A practitioner may not endorse or otherwise negotiate any refund check issued to a client.
True
- AICPA - Provides auditing standards, accounting education and CPA exam.
- State Societies of CPA - Provide accounting education at the STATE level (may revoke CPAs membership in the society).
- State Boards of Public Accountancy - License CPAs, enforce rules of conduct, sets CPEs, SUSPENDS or REVOKES licenses and Provides licenses for the acts discreditable to the profession.
- PCAOB - Pvt sector, NFP Corp created by Sarbanes Oxley act of 2002. Oversees CPAs who audit (CPAs who provide independent audit reports) for publicly traded companies. It does not have CPA disciplinary authority.
- NASBA - Oversees STATE boards of accounting
- IRS - Oversees CPAs who practice before the IRS.
- FASB - Provides accounting standards and principles.
Education Authorities
Guaranteed payments - Falls similar to wages or salary income and not passive income. Considered as Salary wages and therefore, not considered as an offset for passive losses.
INHERITANCE - stock , if distributed and sold on the same date, then __________
No gain or loss
$18,600 - claims
Less than 12 creditors, just 1 creditor is enough to sign
More than 12 creditors, at least 3 r required to sign the petition
MUST show debtor is not paying debts
CLean water act
1972 to regulate pollution discharged into water
BOOK TO TAX INCOME
- ACCRUED CREDIT LOSS EXPENSES
- Marketing costs
There is no difference in marketing costs between book and taxable income, thus no adjustment is necessary.
Under tax rules, i.e. bad debts are not deductible until they are ACTUALLY written off. The accrual amount is an expense for book income, not a deduction for taxable income. Therefore, it must be added back to book income.
Gambling losses to be deductible are :
- Transportation costs to and from casinos
- Lodging at casinos
- Cost of wagers
Courts ranking - high to low:
All courts have precedential value(meaning that the legal decision made by a court functions as an authoritative rule in similar future cases) EXCEPT for TAX COURT SMALL ClAIMS Division- tax and penalties claim of $50k or less; they r not considered primary authority). Only Tax Court without small claims division has precedence.
- Supreme court - Grant of certioari (court agrees to hear appeal)
- Circuit court of appeals - appeal from lower courts
- Claims court - Pay deficiency assessment and sue IRS for refund
- District court - pay deficiency assessment and sue IRS for refund
- Tax Court - Dispute tax assessed in 90-day letter
- Tax Court (Small Claims Division - $50,000 or less)
STATUTORY AUTHORITY (e.g. Tax Regulations, Revenue rulings is binding on the IRS.
TAX RULES HIERARCHY
A. BINDING ON IRS
1. IRC
2. Treasury Regulations
3. Internal Revenue Bulletin - Revenue Rulings, Revenue procedures, notices, announcements.
B. BINDING ON IRS TO SPECIFIC TAXPAYER ONLY
1. Written determinations - PLR, TAM, General counsel Memoranda (GCM, no longer issued)
C. NOT BINDING ON IRS
1. Other IRS publications and information - Forms and Publications, news releases and fact sheets, FAQs, Online help and resources, Videos
Pre-requisite for creation of an AGENCY relationship
- Mutual consent (meeting of the minds)
- Legal capacity of PRINCIPAL ONLY (Age 18 and sane mind)
- Agent’s ability to follow principal’s instructions
AGENCY
May be required if STATUTE of FRAUDS applies, such as in
- Real estate
- Agency relationship to exceed 1 year
- Suretyship or guarantee
- Marriage
- Sale of goods greater than $500
- Executor (promise to pay estate’s debts from executor’s personal funds
*A contract of indefinite duration does not fall within the over-one-year category becuase it can end in less than 1 year (e.g. at will employment contract)
Surety’s defenses available to creditor
- Surety lacks INCAPACITY
- Surety BANKRUPTCY
- Any CONTRACTUAL defense the DEBTOR has against the creditor.
S CORP - DIstributions cannot reduce ________
LOAN BASIS
(Excess distb from stock basis is considered as CAPITAL GAIN)
AT-RISK amount of partner =
Total basis after distributions less or Exclude ENDING BALANCE OF NON_RECOURSE Debt/liability share from K-1
Portfolio income
Royalties and annuities
PMSI
Where someone who sells , sells goods on credit (considered as perfected)
ODC or family credit -other dependent care credit
$500 per qualifying relative
UCC Sales article(acronym SUM) - (could be oral or written)
ARTICLE 2 - Merchants and non-merchants are covered.
Overrides common law but applies where ARTICLE 2 is silent.
UCC applies to all sales of goods contracts, not just sale or return contracts or sale on approval contracts.
UCC is not dependent on the contract price. APPLIES to SALE OF GOODS, TANGIBLE, MOVABLE PERSONAL PROPERTY.
S -Offeror must sign a written promise to keep the offer open
U - Offer can be kept open for 3 months max (or less if specified otherwise in the contract)
M - Merchant MUST be the offeror
EMPLOYEE IS RESPONSIBLE or WITHHOLDING IS DONE FROM EMPLOYEE’S SALARY = 50% SS tax, 50% Medicare tax and Federal income tax - responsibility of Taxpayer or
BORNE BY EMPLOYER ONLY - 50% SS, 50% Medicare, unemployment comp insurance, workers’ compensation
CTC - $2000 per child subject to AGI phase out
under 17
refundable upto $1700
AGI limit = $400,000 for married
$200,000 for singles
Damages for improperly filing an involuntary bankruptcy petition
- Debtor’s costs to dismiss petition
- If petition was filed in bad faith:
(a) compensatory damages or
(b) Punitive damages
Attachment and filing - PIGFAT
Attachment
P- Property (collateral owned by debtor (debtor has rights)
I -Interest in the collateral created by either
(i) Signed security agreement
(ii) Taking possession (writing not required)
G - Giving value to debtor (present or past)
ALL 3 conditions are required to be met
One of the requirements for proper attachment of a security interest is that a debtor must sign the security agreement.
PERFECTION - Occurs after any 1 of the 3 conditions (FAT)
F - Filing a financing statement
A - Automatic perfection (i.e. PMSI goods sold on credit)
T - Taking possession of collateral peacefully without judicial proceeding(writing not required)
Security interest protects the creditor from DOTS
- Debtor (creditor needs attachment only)
Creditor needs both Attachment and Perfection:
-Other creditors
-Trustee in bankruptcy
-Subsequent purchaser from debtor without knowledge of perfection (Original seller must file the financing statement within 20 days of attachment (e.g. date of sale)
PMSI applies in situations where someone who sells consumer goods (e.g. merchant) sells goods on credit. Under UCC rules, perfection of the PMSI occurs automatically at the moment of sale which is also the time attachment occurs.
WORKERS COMPENSATION LAW (lost wages, medical expenses, survivor’s lumpsum?)
EMPLOYER NOT LIABLE
1. Employee INTOXICIATED (alcohol or drugs)
2. NOT JOB RELATED (e.g. during commute)
3. DELIBERATE SELF-INFLICTED INJURY
EMPLOYER LIABLE
- Contributory negligence
- Assumption of risk
- Negligence by fellow employees
Non cash property - Charitable contributions
- Non-appreciated property = Report at FMV on the date of donation
- Would property create ordinary income - if yes, report at ADJ BASIS
Would property create capital gain/loss - Report at FMV
Contribution amount for capital assets and personal use property held longer than 1 year is the propertys FMV regardless of appreciation or decrease in value.
CONTRACT LAW, STATUTE OF FRAUDS requires that certain types of contracts must be in writing to be enforceable.
The writing must identify the subject matter of the contract and specify its essential terms such as PRICE, DATES, etc. In addition, it must be signed by the party being sued.
- The subject matter of the agreement must be identifiable.
- Essential terms to the agreement must be specified (e.g. price, significant dates)
- The writing need only be the party being sued or making the offer(e.g. XYZ PARTY or seller ).
XYZs signature easily proves agreement to the contract. Therefore the contract is enfoceable only against the seller even though buyer has not signed it and just orally accepted it on phone.
Under contract law, if there is no stipulation regarding how acceptance must be communicated, any reasonable means (e.g. a telephone call) is valid.
Constructive notice (e.g. public notice)
&
Actual notice to direct 3rd parties (e.g. customers, vendors)
Notification required to be sent to all the parties when :
- Both parties agree to end the agency by mutual agreement
- When agencys purpose has been achieved (no longer necessary)
Unilateral agreement
3. Principal terminates agent
4. Agent resigns
No notice is required in agency when agency terminates due to operation of law:
- Death of either party
- legal incompetence of principal
- Illegality of subject matter
- Destruction of subject matter
- Bankruptcy of principal
DUTIES OF PRINCIPAL
- Compensation
- Cooperation
- Indemnify/reimbursement
- Express contractual duties
Remedies available for principal when agent breaches fiduciary duty - Pursue a court-mandated CONSTRUCTIVE TRUST. A constructive trust (implied trust) is a mechanism used by the court when the agent has been unjustly enriched at the expense of the principal. E.g. an agent who acquires property on behalf of the principal and then refuses to transfer ownership to the principal is in breach of its fiduciary duty. A court will declare that the agent is, in effect, holding the property in a constructive trust for the benefit of the principal and then have title rightfully transferred to the principal.
DUTIES OF AGENT
- Reasonable care
- Loyalty
- Obedience
- Account/recordkeeping
- Express contractual duties
Remedies for breach of contract
1. Compensatory damages - direct or actual losses
2. Consequential damages - Indirect and anticipated losses
3. Predetermined loss amount (e.g. deposit foreitures) agreed to by both parties
4. Nominal damages - trivial sum (e.g. $1) to vindicate the plaintiffès rights when no actual loss or damage occurs
5. Specific performance - court ordering specific transfer of the contracts UNIQUE subject matter (e.g. patents, works of art)when a monetary award will not suffice.
CH 11 - Goal is to give the debtor a fresh start by putting it in a better financial position to operate profitably.
debtor develops debt reorganization plan
Creditors vote on plan (2/3 of $ amount and 1/2 claims)
Court confirms plan and enters decree
Reorganized debtor continues with restructured debt
CH 7 - Liquidation (4-6 months)
CH 11 - Reorganization
CH 13 - Reorg (over 3-5 years)-Trustee is appointed, no liquidation, must pay off debts within a 3-5 year period
Ch 9 - Municipal debt adjustment
Ch 12 - Family farmers with regular income
Ch 15 - Cross-border insolvency cases
Automatic stay -
Once automatic stay has been ordered by the court, the creditor must stop all collection efforts and the DEBTOR must provide:
- A list of all the creditors and all of their addresses
- Breakout a schedule of all the debtorès assets and liabilities at FMV (real and personal property including all acquired within 180 days after the bankruptcy filing).
- Schedule of current income and expenditures
- A statement of all of the financial affairs of the debtor and a copy of all of their paystubs within the last 60 days prior to filing
- May also provide federal tax returns for the prior year
EXCLUDED PROPERTY FROM THE BANKRUPTCY ESTATE:
1. Post petition earnings of the principal debtor (individuals), contributions to educational retirement plans (529 savings plans), spendthrift trusts and qualified state tuition programs that have been made at least 365 days prior to the petition being filed as well as contributions that have been made by the eployees to qualified employee benefit plans (e.g. pension plans)
2. Any and all property that the principal debtor will require in order to continue to live unless that property has a specified lien on it (e.g. shelter, clothing etc.)
Real property - Land and anything attached to land (immovable property) e.g. plumbing, trees, fixtures , rights to extract minerals, fence and walls
Personal property - Personal property refers to movable items that are not attached to land or real estate.
Furniture – Tables, chairs, couches, and other movable items inside a home or office. (DDB 200%, MACRS)
Electronics – Items like televisions, computers, and smartphones.
Vehicles – Cars, trucks, boats, motorcycles, and bicycles.
Jewelry and Watches – Items that are movable and not attached to real property.
Clothing – Personal attire such as shirts, pants, and dresses.
Artwork – Paintings, sculptures, or other pieces of art that can be moved from place to place.
Appliances – Refrigerators, washing machines, and microwaves (if not permanently installed).
UNIVERSAL CPA
REQUIREMENTS for VOLUNTARY BANKRUPTCY
- Median test (married or single has a monthly income in an amount that is greater than the state median income)
Monthly Income less: ALlowable expenses provided under bankruptcy law. Avg income in the 6 months prior to the petition - Means Test - Sixty Times Test:
In addition, the means test will generally apply the “sixty times test”, which will be used to
rationalize the debtor’s election to choose Chapter 7 liquidation as opposed to a Chapter 13
election. This test will be applied as:
60 𝑥 𝐷𝑒𝑏𝑡𝑜𝑟𝑠 𝑀𝑜𝑛𝑡ℎ𝑙𝑦 𝐼𝑛𝑐𝑜𝑚𝑒
Payment priorities
1. Secured
2. Priority
3. Unsecured
Bankruptcy distribution order
I. Secured creditors
II. Priority claimaints
(i) Child support and alimony)
2. Admin expenses (trustee fee and attorney fee)
3. In between claims - ordinary course of business (involuntary gap claims)
4. wage claims to $13,650
5. Employee benefit plans upto $13,650
6. Grain farmers and fisherman upto $6,725
7. Deposits upto $3,025
8. Tax claims
9. Injury claims arising from intoxicated driving
III. General creditors
Debts not subject to discharge:
- Prior discharge within 8 years, debtors will not be able to be discharged in the present year as debtorès ability discharge from debt once evry 8 years
- Failure to keep books and records
- Hiding of property
- Failure to justify loss of assets
- Refusal to answer questions
- Attempt to set up an artificial entity
BASIS OF ASSETS =
SALES PRICE
+ TITLE AND LICENSE
+
Actual, apparent and unauthorized
Actual authority - The principal intends to give the agent the authority. There are two types:
- Express authority - when the principal explicitly states that the agent has authority
- Implied authority - when the principal assigns the agent a task which cannot be carried out without having certain authority to act on the principal’s behalf.
Apparent authoirty - Principal takes an action that creates the appearance to 3rd parties that the agent has certain authoirty (appoints someone as parts buyer)
Ratification - The agent acts without authoirty but the principal decides to honor the contract anyway
A partner’s deductible loss is limited to the lesser of _______
- Basis or
- Amount of Risk
FBAR US person includes
residents of Puerto Rico and Guam
Law DOES NOT permit a CH 7 filing by________________________-
BANKS or INSURANCE COMPANIES
Trustee admin costs rank immediately below___________
perfected claims
Undisclosed principal_________
Agent is Personally liable
Labilities from breaches of contract in bankruptcy whether or not are DISCHARGEABLE in bankruptcy.
Not discharged
1. Liabilities from theft
2. embezzlement
Committing fraud
NON DISCHARGEABLE DEBT . WAFTED
- Willful and malicious injury
- Alimony
- fraud
Taxes
Educational loans
Debts undisclosed in Bankruptcy petition
Courts approve bankruptcy fee
60% of the purchase price applies to whether creditor must sell the ________
repossessed goods.
Involuntary - Ch 7
12 or more creditors filing petition must have claims of $18,600 or more
- 12 or more crediotrs ; 3 or more must sign petition
- Fewer than 12 creditors, only one must sign petition
Premium on GTL in excess of 50,000____
is INCLUDIBLE in income
Gift = Property’s FMV used to determine loss
Donee’s holding period begins when the gift was received
SOCIAL security income of parents is excluded when determining ___________
HOH status
Med expenses - Premium on disability is not deductible.
True
deduction for investment interest expense
is limited to your ____________
net investment income.(and not the gross income)
SE income
Guaranteed payment + Share of income from general partnership + SE income Sch C = SE income
*Ord Income from S corp are not included in the computation of net earnings from self-employment
BECKER
NOLs generated before 2018 can offset 100 percent of a future year’s taxable income, but can
only be carried forward 20 years. NOLs generated after 2017 can be carried forward indefinitely.
NOL carryforwards from post‑2017 tax years can offset 100 percent of taxable income
in 2019 and 2020. Starting in 2021, any NOL carryforwards from post-2017 tax years can only
offset 80 percent of taxable income after deducting any pre-2018 NOL carryforwards.
