cpa final review

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  1. grantor trust - grantor is effectively the beneficiary or has control of distributions
  2. what tax year can an estate adopt
    estate can adopt any tax year
  3. when can a person repurchase stock and still be able to record a loss
    after 30 days can repurchase sold stock
  4. what is a joint venture
    joint venture is 2 or more owners to perform a certain activity
  5. what amount of loss can be recorded for a nonliquidating property dividend
    corp cannot record a loss for nonliquidating property dividend
  6. what is the calculation for a foreign income tax credit
    foreign income tax credit = foreign income/world wide income X US income tax
  7. what is carry forward/back for charitable deductions
    charitable deduction are carry forward for 5 years
  8. what is the difference between joint and severally liable
    • joint liability - pay full share and get reimbursed,
    • severally liable - pay proportionate share
  9. can a gain be recorded for a property dividend
    property distributed for nonliquidating dividend can recognize a gain but not a loss and basis for property is FMV
  10. what is the carry forward/loss for a capital loss
    corp capital loss is back 3 forward 5
  11. how are new org expenses amortized for
    new organization expenses are allocated a minimum of 180 months or 15 years
  12. what is taken away from net income to calculate charitable contributions
    charity costs is taxable income less charitable contributions DRD, NOL carryback and capital loss carryback
  13. how is nonbusiness bad debt treated
    loss from nonbusiness bad debt is treated as short term loss
  14. what is the difference between recognized and realized gain, TAX BASIS
    • realized gain is FMV-basis
    • recognized is boot
    • tax basis = actual basis - liability assumed + cash contributed
  15. when would a stock be considered disproportionate
    stock redemption is disproportionate if owns less than 50% of voting power and 80% of interest
  16. when would tax payer income not be recorded on final tax return
    income is not included on a final tax payer return if on a cash basis and not received yet
  17. when would a employee trust lose exempt status
    certain employee trusts lose exempt status if lending without adequate security, paying unreasonable compensation for personal services
  18. when would corp be forced to file with SEC
    SEC requirements are a must for companies with 500 or more shareholders and 10 M in ASSETS
  19. when is primary liability for a draft established
    a draft has no primary liability until acceptance by drawee
  20. what is minimum amount for involuntary bankruptcy
    14,425 is amount must have for unsecured creditors to file bankruptcy if under 12. if 12 or more need at least 3 creditors
  21. what is carry forward/back for operating loss
    operating loss is carryback 2 years and forward 20 years
  22. when can a deficiency judgment be filed
    deficiency judgment can by filed against a debtor if property sold is less than amount due
  23. when are employee awards not taxable
    employee awards are 400 or 1600 under qualified plans if for years of service. Go off of basis
  24. what is depreciation method for intellectual property
    income forecast method is the depr method for intellectual property
  25. how are section 1231 gain/losses reported for partnerships
    sec 1231 gains and losses are netted at the partnership level
  26. how are intercompany property sales counted when given to outsider
    intercompany property sales are counted as ordinary income when finally sold to an outsider
  27. when are DRDs for foreign corps eligible for income
    dividends from foreign corps are eligible for DRD if the corporation is subject to US income tax
  28. what trusts are exempt from calendar year rule
    only exempt trusts and wholly charitable trusts are exempt from calendar year rule
  29. how is unrealized AR treated when selling partnership interest
    unrealized accounts receivable will count as ordinary income when selling a partnership interest
  30. how is a generation skipping tax applied
    generation skipping tax is imposed as a separate tax in addition to the gift and estate tax
  31. what is the error portion for 10B(5)
    there error for 10b5 is the defendant’s intent to deceive, manipulate, or defraud
  32. how are prepaid for customer treated for tax purposes
    prepaid for customer are prorated over course of prepayment
  33. what is the difference between capital gain net income and net capital gain
    • capital gain net income adds short term and long term capitals,
    • net capital gain is the excess of long term capital gains over the short term capital losses and does not include short term capital losses
  34. when is a person considered a real estate professional
    real estate professional to a person spending 50% or more of time in real estate and more than 750 hours of service in rental property trades
  35. how long do you have to file if not payment was made
    if payment is made but no filing was made have 2 years from payment to file
  36. what is the difference between net income and net earnings
    calculate net income from self employment by revenues less expenses, net earnings is net income minus employer taxes for FICA
  37. what are qualifications for earned income credit
    • earned income credit is qualifying child or meets OR
    • (have principal place for more than half the year, AND
    • at least 25 and not over 64, AND
    • cant be claimed as depended
  38. what are the power of a trustee
    • 1. Collect property,,
    • 2. Account for property,,
    • 3. Perform investigations,,
    • 4. Set aside fraudulent conveyances and preferential transfers,,
    • 5. Void certain liens,,
    • 6. Operate the debtor’s business
    • ,, 7. Hire professionals,,
    • 8. File reports, and,
    • 9. Close the estate.
  39. what is a quitclaim deed
    quitclaim deed - as is
  40. what is a warranty(general) deed
    warranty/general deed - guaranteed full rights of use and no undisclosed claims
  41. what are the priorities for bankruptcy
    • domestic obligations,
    • admin expenses,
    • claims from ordinary course of business,
    • up to 11,725 for wages within 180 days,
    • employee benefit plans,
    • depositors of money for purchase of undelivered goods,
    • tax claims by govt,
    • intoxicated auto claims
  42. what is depr for residential rental property
    residential rental property is 27.5 years @ S/L and mid month convention
  43. what is depreciation for business and investment property
    business and investment property is 39 years @ S/L and mid month convention
  44. what are characteristics for tangible property
    tangible property (1245) - can use double declining, S/L, or 150 DD, half year convention or mid quarter conventions if 405 in final 3 months
  45. what are different types of endorsement
    • special endorsement - names next payee,
    • blank endorsement - signs but does not designate next payee,
    • qualified endorsement - "without recourse",
    • restrictive endorsement - writes conditions (for deposit only, for collection only)
  46. what are the rights of original payee, holder, and holder in due course
    rights of original payee and holder(original designator) are subject to real and personal defenses against payment, holder in due course is subject to real defenses but not personal defense
  47. what qualifies as a real defense
    • real defense (FABLE) - forgery
    • alteration
    • bankruptcy
    • , lack of capacity,
    • execution fraud/extreme duress
  48. what qualifies as a personal defense
    • personal defense - (BUILD) -
    • breach of contract,
    • unauthorized completion,
    • inducement in fraud
    • lack of consideration,
    • duress
  49. what can cause a contract to be voidable
    voidable - duress, undue influence, misrepresentation, mistake, capacity
  50. what can cause a contract to be void
    void - extreme duress, fraud in execution, illegal subject matter, incompetent persons
  51. what are the different types of contracts
    • express contract - terms specifically stated,
    • implied - some of all terms are inferred,
    • executed contract - terms fully performed,
    • executory contract - terms have not been fully performed by both parties,
    • unilateral - one party promises to perform,
    • bilateral - each party exchanges promises
  52. what parties does negligence deal with
    negligence deals with foreseen parties (foreseeable is party could reasonably would foresee and receive FS (used in fraud))
  53. what do you have to prove for 1933 act
    1933 act - suffered loss, material misstatement
  54. what are the different types of damages
    • compensatory - direct losses,
    • consequential - indirect costs & anticipated losses,
    • nominal - no real provable loss,
    • punitive - punish,
    • specific, unique property
  55. what is an implied warranty of merchantability
    implied warranty of merchantability - seller warrants goods are in fair condition for their ordinary purpose and conform to all package claims (seller must be a merchant)
  56. what is an implied warranty of fitness
    implied warranty of fitness - relying on sellers judgment in selecting the product
  57. what muse be proven for strict liability
    • strict liability must prove - suffered an injury,
    • seller in the business of selling good,
    • product sold in defective condition,
    • defect made the product unreasonably dangerous
  58. a strict liability seller is liable regardless of what three items
    strict liability seller liable regardless - unaware of defect, injured party did not exercise due care, not in privity
  59. what is an effective tax rate
    effective tax rate - rate that person actually pays (taxes paid / income)
  60. what is a marginal tax rate
    marginal tax rate - tax bracket person resides in
  61. what is required vote to terminate an s-corp
    50% of voting and 50% of non voting must consent to revocation to terminate an s-corp
  62. what is a corporations basis in property received from customer
    corporations basis in property is the basis of property plus any gain recognized by person giving property(mortgage assumed does not constitute a gain)
  63. what is the definition of illegal per se
    illegal per se - inherently legal
  64. what does an "as is" provision disclaim
    express warranties are rarely disclaimed. "as is "provision secludes only implied warranties
  65. what is realized by a partner who sells his interst in a partnership
    when a partner sells his interest the amount realized is cash given for partnership + liabilities assumed
  66. what does the value of the gross estate include
    The value of the gross estate includes the value of all property in which the decedent had an interest at the time of death, proceeds from life insurance policies when the proceeds are receivable by, or for the benefit of, the estate, dividend is includible in the decedent’s gross estate only if the decedent died after the record date of the dividend
  67. what is personal interest
    Personal interest (no longer deductible) is any interest other than qualified residence interest, investment interest, interest taken into account in computing income or loss from a passive activity, interest in connection with a business, and interest during certain extensions of time to pay the estate tax. Interest on an ordinary bank loan incurred for medical care is personal interest.
  68. what is the holding period of a partners interest
    The holding period of the partner’s interest includes the holding period of contributed capital and Sec. 1231 assets. The holding period on an interest acquired in exchange for money, ordinary income property, or services begins the day after the exchange.
  69. what does a debtor need to prove to show remove a involuntary bankruptcy claim
    This answer is incorrect because a debtor need only prove that s/he is solvent in the equity sense (i.e., that s/he is paying her/his debts as they mature) and that a custodian was not appointed or did not take possession of the debtor’s property within 120 days before the filing of the petition. The debtor need not prove that her/his assets exceed her/his liabilities (solvency in the bankruptcy sense).
  70. when is an security interest automatically perfected
    Automatic perfection applies to purchase money security interests in consumer goods. Goods purchased for inventory or equipment do not get automatic perfection
  71. what is the basis for like-kind exchange
    The basis of property received in a like-kind exchange is equal to the adjusted basis of the property surrendered, decreased by any boot received and increased by any gain recognized or boot given.
  72. when is a gain reported for a like-kind exchange
    recognize gain to the extent of the lesser of the realized gain or the value of boot received. In this case, however, Leker does not have a realized gain. Hence, no gain is recognized.
  73. what is a personal service corp
    A personal service corporation has two main characteristics: (1) Substantially all of its activities must involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting, and (2) substantially all of its stock must be owned by employees who perform the services. The taxable income of a personal service corporation is taxed at a flat rate of 35%
  74. can s-corp use something other than calendar year
    For taxable years beginning after 1986, an S corporation is required to use a calendar year unless it establishes a business purpose for using another year and the IRS consents. Shareholders tax year is not a business purpose
  75. how prosecutes criminal cases for securities laws
    Because administrative agencies cannot impose criminal sanctions, the Justice Department must prosecute criminal cases involving violations of the securities laws.
  76. what is the classification of a seasoned issuer
    One of the four categories of issuers recognized under the Security and Exchange Commission’s integrated disclosure system is a well-known seasoned issuer. This issuer has filed for at least 1 year and (1) has a worldwide market capitalization of at least $700 million or (2) has issued for cash in a registered offering at least $1 billion of debt or preferred stock in the past 3 years. Such an issuer may use Form S-3.
  77. what information must be included in form 10-k
    Certain information must be disclosed in Form 10-K and the annual report to the shareholders. It includes management’s discussion and analysis (MD&A) of financial condition and results of operations. This discussion must address liquidity, capital resources, results of operations, and the effects of inflation and changing prices.
  78. how is a short term capital loss applied to long term gains
    The short-term capital loss will be used first to offset net gain for the highest long-term rate basket, then to offset the next highest rate basket and so on.
  79. what is state car tax classified as
    The state motor vehicle tax on the value of the car is a tax on the value of personal property
  80. how much of small business stock can a person exclude
    an individual may exclude from gross income 50% of any gain from the sale or exchange of qualified small business stock held for more than 5 years.
  81. how much of a deductions is allowed for worthless 1244 stock
    Up to $50,000 ($100,000 for MFJ) of loss realized on disposition or worthlessness of Sec. 1244 stock is treated as an ordinary loss.
  82. what is a fee simple
    A fee simple (or fee simple absolute) is the most extensive interest in land. It represents the totality of ownership rights recognized by law because it includes the rights of possession, exploitation, and full ownership for life or in perpetuity
  83. what is a license for land
    A license is a revocable personal privilege that permits one party to enter and make some use of land in possession of another without being considered a trespasser.
  84. what is an easement
    An easement is the right of one person to legal entry onto, and limited use of, the land of another.
  85. what is a restrictive covenant
    A restrictive covenant is a promise included in an agreement that limits the use of real property or the building that may be erected on it.
  86. what is the maximum for adoption credit
    A credit is allowed for qualified adoption expenses incurred after 1996. The maximum credit is $12,650 per child.
  87. how is a sec 1231 loss carry forward treated
    Sec 1231 loss carry forward is treated as ordinary income
  88. what type of lien is an artisans lien
    An artisan’s lien is a possessory lien. If possession of the personal property is not relinquished by the owner and retained by the improver, the lien cannot exist. Because Art repaired the car at Ann’s home, Ann retained possession.
  89. what amount is realized on the liquidation of a corporation
    The amount realized on the liquidation of a corporation is the amount of money received plus the FMV of property received.
  90. what forms of payment does FICA's SS get applied to
    The Social Security tax imposed by the FICA applies to virtually all compensation received for employment, including money or other forms of wages, bonuses, commissions, vacation pay, severance allowances, and tips
  91. what is recission
    Rescission returns the parties to the positions they would have occupied if the contract had not been made.
  92. what accounting method would not require permission from the IRS
    The general rule is that to change an accounting method the taxpayer must obtain the permission of the IRS. In general, the installment method of reporting income may be used by a taxpayer without the permission of the IRS.
  93. when is an estate tax due
    An estate tax return is due 9 months after the date of death of the decedent.
  94. what is a conglometar merger
    A conglomerate merger is neither a horizontal nor a vertical merger.
  95. what is the built in gains tax
    built in gains tax is taxation from moving to c-corp to s-corp
  96. what is needed for scienter
    Scienter is a prerequisite to liability for fraud. Scienter exists when the defendant makes a false representation with knowledge of its falsity or with reckless disregard as to its truth. For constructive fraud, the scienter requirement is met by proof of gross negligence (reckless disregard for the truth).
  97. when would a partner recognize a gain on property given to a partnership
    The basis of an interest in a partnership acquired by the contribution of property is the adjusted basis of such property to the contributing partner. A decrease in a partner’s individual liabilities by reason of the assumption by the partnership of such liabilities is treated as a distribution of money to the partner, which in turn reduces the basis of the partner’s interest (but not below zero). When Burr became a 20% partner, he was relieved of 80% of his $12,000 mortgage, or $9,600. Burr’s basis in his partnership interest is the $8,000 basis in the property contributed less the $9,600 liability relief (limited to zero). Burr will recognize a gain of $1,600.
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cpa final review
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