cpa final review

grantor trust - grantor is effectively the beneficiary or has control of distributions

estate can adopt any tax year

after 30 days can repurchase sold stock

joint venture is 2 or more owners to perform a certain activity

corp cannot record a loss for nonliquidating property dividend

foreign income tax credit = foreign income/world wide income X US income tax

charitable deduction are carry forward for 5 years

• joint liability - pay full share and get reimbursed,
• severally liable - pay proportionate share

property distributed for nonliquidating dividend can recognize a gain but not a loss and basis for property is FMV

corp capital loss is back 3 forward 5

new organization expenses are allocated a minimum of 180 months or 15 years

charity costs is taxable income less charitable contributions DRD, NOL carryback and capital loss carryback

loss from nonbusiness bad debt is treated as short term loss

• realized gain is FMV-basis
• recognized is boot
• tax basis = actual basis - liability assumed + cash contributed

stock redemption is disproportionate if owns less than 50% of voting power and 80% of interest

income is not included on a final tax payer return if on a cash basis and not received yet

certain employee trusts lose exempt status if lending without adequate security, paying unreasonable compensation for personal services

SEC requirements are a must for companies with 500 or more shareholders and 10 M in ASSETS

a draft has no primary liability until acceptance by drawee

14,425 is amount must have for unsecured creditors to file bankruptcy if under 12. if 12 or more need at least 3 creditors

operating loss is carryback 2 years and forward 20 years

deficiency judgment can by filed against a debtor if property sold is less than amount due

employee awards are 400 or 1600 under qualified plans if for years of service. Go off of basis

income forecast method is the depr method for intellectual property

sec 1231 gains and losses are netted at the partnership level

intercompany property sales are counted as ordinary income when finally sold to an outsider

dividends from foreign corps are eligible for DRD if the corporation is subject to US income tax

only exempt trusts and wholly charitable trusts are exempt from calendar year rule

unrealized accounts receivable will count as ordinary income when selling a partnership interest

generation skipping tax is imposed as a separate tax in addition to the gift and estate tax

there error for 10b5 is the defendant’s intent to deceive, manipulate, or defraud

prepaid for customer are prorated over course of prepayment

• 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

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

if payment is made but no filing was made have 2 years from payment to file

calculate net income from self employment by revenues less expenses, net earnings is net income minus employer taxes for FICA

• 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

• 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.

quitclaim deed - as is

warranty/general deed - guaranteed full rights of use and no undisclosed claims

• 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

residential rental property is 27.5 years @ S/L and mid month convention

business and investment property is 39 years @ S/L and mid month convention

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

• 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)

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

• real defense (FABLE) - forgery
• alteration
• bankruptcy
• , lack of capacity,
• execution fraud/extreme duress

• personal defense - (BUILD) -
• breach of contract,
• unauthorized completion,
• inducement in fraud
• lack of consideration,
• duress

voidable - duress, undue influence, misrepresentation, mistake, capacity

void - extreme duress, fraud in execution, illegal subject matter, incompetent persons

• 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

negligence deals with foreseen parties (foreseeable is party could reasonably would foresee and receive FS (used in fraud))

1933 act - suffered loss, material misstatement

• compensatory - direct losses,
• consequential - indirect costs & anticipated losses,
• nominal - no real provable loss,
• punitive - punish,
• specific, unique property

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)

implied warranty of fitness - relying on sellers judgment in selecting the product

• 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

strict liability seller liable regardless - unaware of defect, injured party did not exercise due care, not in privity

effective tax rate - rate that person actually pays (taxes paid / income)

marginal tax rate - tax bracket person resides in

50% of voting and 50% of non voting must consent to revocation to terminate an s-corp

corporations basis in property is the basis of property plus any gain recognized by person giving property(mortgage assumed does not constitute a gain)

illegal per se - inherently legal

express warranties are rarely disclaimed. "as is "provision secludes only implied warranties

when a partner sells his interest the amount realized is cash given for partnership + liabilities assumed

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

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.

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.

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).

Automatic perfection applies to purchase money security interests in consumer goods. Goods purchased for inventory or equipment do not get automatic perfection

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.

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.

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%

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

Because administrative agencies cannot impose criminal sanctions, the Justice Department must prosecute criminal cases involving violations of the securities laws.

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.

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.

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.

The state motor vehicle tax on the value of the car is a tax on the value of personal property

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.

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.

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

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.

An easement is the right of one person to legal entry onto, and limited use of, the land of another.

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.

A credit is allowed for qualified adoption expenses incurred after 1996. The maximum credit is $12,650 per child.

Sec 1231 loss carry forward is treated as ordinary income

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.

The amount realized on the liquidation of a corporation is the amount of money received plus the FMV of property received.

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

Rescission returns the parties to the positions they would have occupied if the contract had not been made.

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.

An estate tax return is due 9 months after the date of death of the decedent.

A conglomerate merger is neither a horizontal nor a vertical merger.

built in gains tax is taxation from moving to c-corp to s-corp

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).

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.