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Question 1

Indemnity contract

Answer 1

One party promises to reimburse debtor for payment of debt or loss if it arises

Question 2

Suretyship contract

Answer 2

Relationship whereby one person agrees to answer for the debt or default of another

Question 3

Surety

Answer 3

Promises to pay debt on default of principal debtor

Question 4

Reimbursement

Answer 4

Upon payment of debt, surety may recover payment from debtor

Question 5

Exoneration

Answer 5

Right of surety to require the debtor to pay before surety pays.

Question 6

Mid quarter convention

Answer 6

applies if more than 40% of the value of the personalty purchased during the year is placed in service in the last quarter of the year.

Question 7

Section 179

Answer 7

Section 179 permits a taxpayer to elect to deduct up to $1,040,000 (2020) of the acquisition cost of tangible personal property used in a trade or business.

Question 8

Upon a corporate formation, no gain or loss is recognized to the shareholders or the corporation if the following three requirements are met:

Answer 8

The shareholders contributing property to the corporation own, as a group, at least 80% of the voting stock (and at least 80% of the number of shares for each class of nonvoting stock),
The shareholder contributes property (i.e., not services) to the corporation, and
The shareholder receives only stock of the corporation in exchange.

Question 9

Cash charitable contributions

Answer 9

Cash charitable contributions of any amount are allowed to be deducted for book purposes. For tax purposes, the limit is 25% (2021) of taxable income before the charitable contribution deduction, dividends received deduction, domestic production activities deduction, or any net operating loss carryback or net capital loss carryback.

Question 10

Permanent differences

Answer 10

Permanent differences reflect adjustments between book income and taxable income that will never reverse. It is an item of income or expense that is always includible in income or deductible as an expense for book or tax, but never for both.

Question 11

In order to calculate tax expense per books,

Answer 11

start with book income and add or subtract only permanent differences. Calculate the tax expense per books using the corporate tax table. Compare the tax expense per books to the tax liability per taxable income. A deferred tax asset results if your tax expense per books is less than the tax liability per taxable income. The timing differences between book and tax will reverse at a later date. Currently, ATP owes more for tax than for book. In the future, the timing differences will reverse and ATP will owe less; therefore, a current deferred tax asset exists.

Question 12

Capital loss deduction for individuals

Answer 12

Capital losses first offset capital gains, and then are allowed as a deduction of up to $3,000 against ordinary income, with any unused capital loss carried forward indefinitely. Note that a married taxpayer filing separately can only offset up to $1,500 of net capital loss against ordinary income.

Question 13

Losses between related parties

Answer 13

Losses are disallowed on the sale of property between related taxpayers, including a parent and their child. Any gain later realized by the related transferee on the subsequent disposition of the property is not recognized to the extent of the transferor’s disallowed loss.

Question 14

section 1244

Answer 14

Sec. 1244 permits a shareholder to deduct an ordinary loss of up to $50,000 per year ($100,000 if married filing jointly) if qualifying stock is sold, exchanged, or becomes worthless. The qualifying stock must have been issued in exchange for money or other property and must have been issued to the individual or partnership sustaining the loss. Ordinary loss treatment is not available if the shareholder sustaining the loss was not the original holder of the stock. As a result, an individual who acquires stock by purchase, gift, or inheritance from another shareholder is not entitled to ordinary loss treatment.

Question 15

wash sale loss

Answer 15

No loss can be deducted on the sale of stock if substantially identical stock is purchased within 30 days before or after the sale. Any loss that is not deductible because of this rule is added to the basis of the new stock. If the taxpayer acquires less than the number of shares sold, the amount of loss that cannot be recognized is determined by the ratio of the number of shares acquired to the number of shares sold.

Question 16

amortization period of the covenant

Answer 16

The statutory amortization period for a covenant not to compete that is related to a business acquisition is 15 years.

Question 17

In order to deduct an ordinary loss on sale or worthlessness of stock under Sec. 1244,

Answer 17

(1) the shareholder must be the original holder of stock, and an individual or partnership; (2) the stock can be common or preferred, voting or nonvoting; (3) the amount of ordinary loss is limited to $50,000 ($100,000 on joint return); (4) the corporation during the 5-year period before the year of loss received less than 50% of its total gross receipts from royalties, rents, dividends, interest, annuities, and gains from sales or exchanges of stock or securities; and (5) the corporation’s aggregate amount of money and adjusted basis of other property received for stock as a contribution to capital and paid-in surplus does not exceed $1,000,000.