Tax

Front 1

Inclusion of SS inc in GI

Back 1

The amount of social security benefits that is taxed is dependent on whether be combination income AGI plus interests on tax exempt bonds and 50% of the social security benefit is greater than the threshold amount if the combined income is less than the threshold amount the amount tax is the lesser of 1) 50% or of the benefit or 2) 50% of the excess of the combined income over the threshold. if the combined income is greater than a threshold the amount taxed is the lesser of 1) amount calculated above 85% of the excess of the combined income over the threshold or 2) 85% of the benefit thus 85% of the benefit is the maximum out of tax that may be included in gross income

Front 2

Inclusion of SS inc in GI

Back 2

The amount of social security benefits that is taxed is dependent on whether be combination income AGI plus interests on tax exempt bonds and 50% of the social security benefit is greater than the threshold amount if the combined income is less than the threshold amount the amount tax is the lesser of 1) 50% or of the benefit or 2) 50% of the excess of the combined income over the threshold. if the combined income is greater than a threshold the amount taxed is the lesser of 1) amount calculated above 85% of the excess of the combined income over the threshold or 2) 85% of the benefit thus 85% of the benefit is the maximum out of tax that may be included in gross income

Front 3

Tax exempt awards

Back 3

Generally the fair market value of the prizes and awards is taxable income. However an exclusion from income for certain prizes and awards applies when the winner is selected for the award without entering into a contest [i.e. Without any action on the individual's part] and when they assigns the award directly to a Government or charitable organization

Front 4

Wages and unemployment compensation

Back 4

Gross income includes all income unless it is specifically excluded in the tax code. Wages and all unemployment compensation are not excluded from being taxable; therefore, there are included in the taxpayer's gross income for tax purposes ....

Front 5

Accruable expense

Back 5

one in Which the services have been received/performed but have not been paid for by the end of the reporting. ....

Front 6

Scholarships

Back 6

Scholarships are non taxable for degree seeking student to the extent that the proceeds are spent on tuition, fee, books and supplies. ....

Front 7

Series EE bond interest

Back 7

• Qualified higher education expenses are tuition and and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent for whom the taxpayer is allowed as a dependency exemption, at an eligible educational institution.
• the expenses otherwise taken into account must be reduced by the amounts received for excludable qualifying scholarships, certain educational assistance allowances, and other tax exempt payments (other than gifts, bequest, devises, or inheritance).
  

Front 8

Property settlements

Back 8

Non taxable

Front 9

Ira withdraw

Back 9

• Generally unless an exception applies, retirement money cannot be withdrawn until the individual reaches the age of 59.5.
• If retirement money (without an Exception) is withdrawn before the age of 59.5, the premature distribution is subject to a 10% penalty tax (in addition to be applicable regular income tax that applies to all distributions of traditional Ira money).
  

Front 10

Premature distribution

Back 10

Generally a premature distribution (prior to retirement or other allowable age) from an individual retirement account is subject to a 10% penalty tax. Certain exceptions allowed.

Front 11

Exceptions to 10% tax penalty

Back 11

• 
  
• home buyer 1st time $10000 Max if Used towards 1st home
  
• Insurance
  
• medical medical expenses in excess of 10% of AGI
  
• disability
  
• education
  
• death
  

Front 12

Circular 230

Back 12

• Circular 230 addresses the practices before IRS of:

1. 1. Rules governing the authority to practice before the IRS
2. 2. Duties and restrictions related to practice before they IRS
3. 3. Sanctions of violations of the regulations
4. 4. Rules applicable to disciplinary proceedings
   

Front 13

Rules governing practice before the IRS apply to

Back 13

• attorneys
  
• certified public accountant
  
• Enrolled agents
  
• enrolled actuaries
  
• enrolled retirement plan agents individuals providing appraisals used in connection with tax Matters ( charitable Contribution or is; eststes and gift assets; fair market value for sales gain, etc) ....
  

Front 14

Circular 230 duties and restrictions

Back 14

The information to be furnished

the time in which matter should be addressed with the IRSAssistance from or to disbarred or suspended persons and former IRS employees Practice by former government government employees, their partners, and their associates Fees Conflicts of interests Advertising Fee informacion Best practices for tax advisers Other various issues including client refunds, notary, practice of Law, referral agreements, and standard email disclaimer used in practice ....

Front 15

Agency

Back 15

An agency is a legal relationship in which the principal appoints an agent to act on his behalf

Front 16

Creation of the agency relationship

Back 16

The principal must have capacity (not a minor )

Writing is not generally required. Unless you buy or sell land or agency is last more than a year

Agent (capacity not required)Minor can be an Agent

Consideration is not required for an agency relationship

Front 17

Implied duties agency relationship

Back 17

• Loyalty: agent must act solely in the principles best interests
  
• Obedience: Agent must obey principles reasonable instructions
  
• Reasonable care: agent must not act Neglectfully
  
• Duty to account: for money and property received and paid out
  
• Sub Agent if agent is authorized to hire sub agent sub agent those duty of care to both agent and principal
  

Front 18

Basis of a non taxable stock split dividend

Back 18

The receipt of a non taxable stock dividend will require the shareholder to spread the basis of his original share over both the original and new shares received resulting in the same total basis, but a lower basis per share of stick held.

Front 19

Property acquired as a gift

Back 19

Generally retains the rollover cost basis as it had in the hands of the donor At the time of the gift. Basis is increased By any gift tax paid Attributable to the appreciation In the value of the gift. There is exception to the General role: if the fair market value at the date of the gift Is lower than the roll over cost basis from the donor The basis for the donee depends upon the donee's future selling price of the asset

Front 20

Alternate evaluation date

Back 20

The executor can elect to use an alternate valuation date rather than the date the defendant died to value the property included in the gross estate . Generally 6 mths after decedants death or the earlier date of sale or distribution

Front 21

The de minimise rule

Back 21

Must have written policy to expense certain property as of the beginning of the year for financial stmts. Max $5k

Front 22

Dividend from unaffiliates

Back 22

Allowed a 70% div received deduction

Front 23

Meals and entertainment

Back 23

Only 50 percent deductible

Front 24

Schedule M-1

Back 24

• Reconciliation of income (loss) per books to tax return
  
• Both permanent and temporary differences
  

1. 1) reported as income for book purposes but not tax purposes
   
2. 2) reported as an expense for book purposes but not tax purposes
   
3. 3) reported as taxable income for tax purposes but not as income for book purposes
   
4. 4) reported as deductible for tax purposes but not as an expense for book purposes
   

Front 25

Premiums paid on key person life insurance policy

Back 25

Deductible for GAAP not book

Front 26

Schedule M-2

Back 26

Reconciliation of unappropriated earnings

Front 27

Organizational cost in the year of organization

Back 27

Max $5k deductible remainder must be amortized over 180 months

Front 28

Agents power to contractually bind principle

Back 28

• Principle is bound by agent if agent acted with authority
  
• 2 kinds of authority
  
• Actual
  
• Apparent
  

Front 29

Actual Authority

Back 29

• Authority agent reasonably believes that he possesses because of the principal's communication to agent
  
• Express principle agent specifically grants the power
  
• Implied agent reasonably believes that he has authority based on dealings between principle and agent ; includes authority necessary to run the business or carry out agency agreement
  
• Termination actual authority can be terminated by agreement of the parties, accomplishment of objective, or expiration of stated time. Also terminated by death of either party, incapacity of principle, principle's discharge in bankruptcy, failure to have a required license, destruction of subject matter or subsequent illegality
  

Front 30

Apparent authority

Back 30

Power that a third party reasonably believes agent has, based on principle's conduct or communication toward 3rd party

Holding agent out under a specific title(e.g., an agent held out ad a store manager has apparent authority to do whatever store managers in a similar business in the area do

Failure to give notice of agents termination

Front 31

Ratification of a previously unauthorized act

Back 31

• Can also bind principle
  
• Requirements:
  
• Agent must have indicated that she was acting on behalf of principle;
  
• All material facts must be disclosed to principle
  
• Principal must ratify entire transaction
  

Front 32

Disclosed principle

Back 32

If principle existence and identity are known to the third party agent is not liable

Front 33

Partially disclosed or undisclosed principle

Back 33

If third party does not know that agent is an agent or does not know principle's identity, agent is liable under contract along with principle

Front 34

Tort liability

Back 34

GR: principle is not liable for torts commited by agent; only agent is liable

Front 35

Respondeat superior

Back 35

• Employer can be held liable for employee tort committed with in the scope of employment (while employee is performing services for employer)
  
• Difference between employee and independent contractor is that the employer principle has right to control manner on which employee work is performed
  

Front 36

Employee

Back 36

Uses employer tools

Compensated on a timely basis

Subject to supervision of employer in the details of the work

Front 37

Independent contractors

Back 37

• Has a calling of his own
  
• Uses his own tools
  
• Is hired for a particular job
  
• Is paid a given amount for the job
  
• Follows his own direction
  

Front 38

Subagent

Back 38

Is one who assists the agent in the performance of his or her duties. Owes a duty to both the agent and principle

Front 39

Writing requirement for agency

Back 39

• Generally not required even if contract that the agent enter on the principle's behalf must be evidenced by right
  
• Exception:
  
• Land
  
• Takes more than a year to complete
  

Front 40

Simple trust

Back 40

• Can only make distribution out of current income
  
• Is required to distribute all of its current income
  
• Is not allowed a charitable contribution
  
• Has an exemption of $300
  

Front 41

Order that stock basis is changed

Back 41

1. 1. Increased from income item and excess depletion
   
2. 2. Decreased for distribution
   
3. 3. Decreased for nondeductible, non-capital depletion and expenses
   
4. 4. Decreased for items of loss and deductions
   

Front 42

Computing shareholder baisis (s corp)

Back 42

• Initial basis
  
• +income items
  
• -addt'l sh investment in
  
• -distribution
  
• -losses
  

Front 43

Capital Assets

Back 43

• Real and personal property held by individual taxpayer:
  
• * personal auto for individual txpyr
  
• * furniture and fixture for home of individual txpyr
  
• * stocks and securties of all types
  
• * personal property of individual not used in trade/ business
  
• * real property of individual not used in trade/ business
  
• * interest in partnership
  
• * goodwill of corporation
  
• *Copyright, literary, musical, or artist composition that have been purchased
  
• * assets held for investment
  

Front 44

Netting rules for short term capital gain/loss

Back 44

1. First offset against ST gain that would be taxable at ordinary income rates

2. LT cap gains from 28% rate group

3. 25% rate group

4. Lower (15%) rate.

Front 45

Netting rules for long term capital gain

Back 45

1. If there any long term capital losses (this includes any long term capital loss carry overs) from the 28% rate group, they are 1st offset against any net gains from the 25% rate group and then against any net gains from the 15% rate group

2. If there any long term capital losses (this includes any long term capital loss carry overs) from the 15% rate group , they are offset first against gains from a 28% rate group and then against Net gain from the 25% rate group

Front 46

Section 1231

Back 46

Depreciable business property

Front 47

Machinery and equipment

Back 47

• Half Year convention
  
• Mid quarter convention (if over 40% is in last quarter
  

Front 48

Real estate

Back 48

Mid month convention

Front 49

IRC sec 179

Back 49

Tangible property acquired from an unrelated party for use in the active conduct of trade or business

Front 50

Mid- Quarter convention

Back 50

One attacks pair of places 40% or more of its property (other than certain qualifying real estate properties ) Into service in the last quarter of the taxable year the corporation must use the mid quarter convention for macrs depreciation purposes.

Front 51

Nonresident property

Back 51

Depreciated over 39 years straight line if placed in service after 1993

Front 52

MACRS 5 yr property

Back 52

• Automobiles
  
• Light trucks
  
• Computers
  
• Typewriters
  
• Copiers
  
• Duplicating equipment
  
• And other such items
  

Front 53

MACRS 7YR property

Back 53

• Office furniture and fixtures
  
• Equipment and property with no ADR midpoint classificationRail road track
  
• n
  
• Rail road track
  

Front 54

Chap 7

Back 54

A discharge discharges most debts whether or not there is a bankruptcy estate.

Front 55

Chap 9

Back 55

Municipal debt adjustment

Front 56

Chap 7

Back 56

Provides for liquidation of debtor estate

Debtor may not obtain another bankruptcy for 8 yrs

Front 57

Chap 11

Back 57

• Debt reorganization
  
• Requires:
  
• Reorganization plan must me filed
  
• Plan must be approved by court
  
• Each class of claimants has the opportunity to accept the plan
  

Front 58

Chap 13

Back 58

Adjustment of debts of individuals with regular income

Front 59

Bankruptcy estates

Back 59

Includes property the debt receives from a bequest, devise, inheritance, property settlement, divorce decreeor beneficial interest in a life insurance policy or death benefit plan within 180 days after the filing of petition. Any income generated by estate property ( rent interest dividend) after petition is filed.

Earned income after the case is generally excluded

Front 60

Excluded from Bankruptcy estate

Back 60

• Earned income
  
• Alimony or support payments
  
• Gov't benefits
  
• Income after 180 days
  

Front 61

Involuntary petition for bankruptcy

Back 61

If fewer than 12 creditors:

One or more with unsecured and undisputed claims that aggregate at least $15,775 more than the value of any collateral securing the claim

If more than 12 at least 3 must join

The filing of a petition in bankruptcy invokes an automatic stay against all attempts to collect on most debts

Front 62

Chap 7 proceeding events

Back 62

• Trustee appointed
  
• Stay against creditor. Collection proceedings will go into effect
  

Front 63

Preferential treatment

Back 63

A transfer of the debtors property to or for the benefit of a creditor for an antecedent debt ar a time when the debtors wad insolvent and within 90 dausbof filing the bankruptcy petition constitutes a preference if the transfer gives the transferee more the transferee more than they would have obtained under the bankruptcy code

Not a preferential payment if it is made in the ordinary course of business, according to the ordinary business terms, and for the purpose of repaying a debt incurred in the ordinary course of business

Front 64

Corporation capital loss

Back 64

A corporation may not deduct any NOL from ordinary income instead they can carry it back 3 years or forward 5 years as a short term loss against capital gains or 1231 gains

Front 65

Liquidating distribution

Back 65

When a corp liquidates and distributes assets to shareholders, gain is recognized to the extent that the fair market value of assets distributed to a shareholder exceeds the shareholder basis

Front 66

Type b reorganization

Back 66

The acquisition of a controlling interest (80%) by one corp in then stock of Another company solely for stock is. Tax free reorganization

Stock of target corporation is acquired solely for the voting stock either the acquiring corporation or its parent

Front 67

Complete liquidation

Back 67

Shareholder should treat property received in complete liquidation of a corp as a payment for their stock. Must recognize capital gain or loss

Front 68

Type A

Back 68

A+B=C

Generally no gain or loss is recognized by shareholders of various corp except to the extent they receive cash or other consideration in addition to the stock or security.

In addition neither corporation pursuant to a tax free re org

Front 69

gain realized

Back 69

the realized gain is claculated as the fair market value of the property contributed for value in corporation less the shareholder's basis in property

Front 70

gain recognized

Back 70

the gain recognized is the gain that is reported (recognized) on the tax return of the taxpayer. If there is a realized gain and boot (e.g. cash) gain may be recognized, but only to the extent of boot. If there is no boot received, no gain is recognized for tax purposes

Front 71

tax basis in shares

Back 71

the shareholder's tax basis in the shares is generally equal to the shareholder's net book value of the property immediately before the contribution plus any cash contributed. Remember the transfer of property is generally a non-taxable event, which means that basis is the net book value of the shareholder.

Front 72

Debt exceeds the basis of the contributed property

Back 72

if debt exceeds the basis of contributed property -> taxable boot stemming from the debt relief on the contribution

Front 73

Benefits received from a traditional non-dedicutible IRA

Back 73

the principal, which was not decutible when contributed, is non-taxable. the accumulated earnings on the principal are taxable when withdrawn

Front 74

Personal Residence exclusion

Back 74

the sale of the taxpayer's personal residence is subject to an exclusion from gross income for gain. For qualified single individuals, the exclusion from tgain is $250K.

Front 75

Legal liabilities

Back 75

• Breach of contract
  
• Tort
  
• Violating statues
  

Front 76

Civil actions

Back 76

• Civil actions for tax malpractice usually based on either:
  
• traditional contract
  
• traditional tort principles
  
• 
  
• sue for damages
  

Front 77

Contract principles

Back 77

contract principles impose the obligation to prepare the tax return diligently and competently

Front 78

Tort Principles

Back 78

Tort Principles provide that professional has a duty to exercise the level of care, skill, and diligence commonly exercised by other members of the profession under similar circumstances.

Front 79

prove malpractice

Back 79

• owed duty
  
• breach of that duty
  
• suffered injuries
  
• cause between injury suffered and the duty of the tax preparer
  
• 
  
• adhere to contract terms or certain standard of care
  

Front 80

Breach of contract

Back 80

best defense - client failure to cooperate

can only be sued by people privity to contract

Front 81

privity

Back 81

client and named third party beneficiary

Front 82

Tort

Back 82

• wrongful action
  
• unintentional
  
• intentionally/ willfully / fraud
  
• negligence, ordinary
  
• constructive fraud - grossly negligence
  
• fraud
  

Front 83

Fraud

Back 83

punitive damages

Front 84

Negligence(ordinary)

Back 84

• breach duty to perform due care
  
• 
  
• best defense - due diligence
  

Front 85

Element to sue for ordinary negligence

Back 85

• duty of care
  
• breach of that duty
  
• caused plaintiff's injury and damages
  
• 
  
• * must properly supervise
  
• * failure to warn of known internal control weakness
  

Front 86

Negligence ( Who do you owe a duty to)

Back 86

generally only to clients and any person or limited foreseeable class of persons whom the CPA knows will be relying on the CPA's work ( current creditor/ investors

more than just privity

minority - Ultramares decision - negligence is just like breach of contract - so only privity ( name 3rd party and client )

Front 87

Fraud ( constructive)

Back 87

bad faith - punitive damages as well and more people can sue

Front 88

element for intentional misrepresentations

Back 88

• Misrepresentation of material act
  
• 
  
• Intent to deceive ( scienter)
  
• 
  
• An intent to induce plaintiff to rely on misrepresentation
  
• 
  
• Damages
  
• 
  
• actual and justifiable reliance
  

b

Front 89

"reasonable care"

Back 89

due care is taken = no negligence = not liable

Front 90

Lack of reasonable care

Back 90

• ordinary negligence
  
• 
  
• CPA is liable to anyone he or she knows or reasonably should expect will rely on his/her work
  

Front 91

Lack of even slight care

Back 91

gross negligence or constructive fraud

Front 92

Actual Fraud

Back 92

Actual intent to deceive

Front 93

criminal fraud

Back 93

actual intent to deceive

Front 94

Compensatory Damages

Back 94

• tax return prep malpractice have mutlple components:
  
• 
  
• Taxes
  
• 
  
• penalties
  
• 
  
• Interest
  
• 
  
• Cost Incurred to correct tax returns
  
• 
  
• Consequential damages ( lost investment opportunties or income opportunties
  

Front 95

Duty of confidentials

Back 95

• rules of evidence protect info exchanged in confidential relationships ( attorney client, doctor patient, husband wife)
  
• 
  
• information exchanged within the scope of the relationship may not be disclosed as evidence in court without consent of the privilege holder
  

Front 96

CPA privilege

Back 96

• attorney client privilege ( hired by the attorney)
  
• 
  
• work product privilege ( preparation for litigation)
  
• 
  
• Tax practioner-taxpayer privilege - only for federally authorized tax practioners under IRC Sec 7525
  

Front 97

IRC Sec 7525

Back 97

• same common law protections of confidentiality that apply to a communication between a taxpayer and an attorney also apply to a communication between taxpayer and any federally authorized tax practitioner
  
• 
  
• only applies in noncriminal cases
  
• does not apply to tax shelter
  

Front 98

Federally authorized tax practicioner

Back 98

• authorized under federal law to practice before the IRD. IT is a category that includes certified public accounts, enrolled agents, and enrolled actuaries
  
• 
  
• they and work papers can not be forced or
  

Front 99

tax shelter

Back 99

primary purpose tax avoidance or tax evasion

Front 100

S - corp stock basis

Back 100

adjusted annually, as of the last day of the year

order:

1. increased for income items and excess depletion

2. decreased for distributions

3. decreased for non-deductible, non-capital expenses and depletion

3. decreased for items of loss and deduction

Front 101

taxability of a non-dividend distribution

Back 101

the shareholder looks solely to stock basis (debt basis is not considered)

Front 102

s corp election revocation

Back 102

s corp status can be revoked if shareholders owning more than 50% of the total number of issued and outstanding shares consent. The specific percentage of voting and nonvoting shareholders is not considered , just the total.

Front 103

qualifications to be a S Corp

Back 103

• S corp can only have one class of stock outstanding ( just common stock)
  
• 
  
• One class of stock with different voting rights is allowed for S corp
  
• 
  
• Individuals estates and certain trust maybe s corps
  
• 
  
• Grantor trusts, Section 678 trusts, qualified Subchapter S trusts (QSSTs), certain testamentary trusts, voting trusts
  

Front 104

trusts allowed to be in S Corps

Back 104

• Grantor trusts
  
• 
  
• Section 678 trusts
  
• 
  
• qualified Subchapter S trusts (QSSTs)
  
• 
  
• Certain testamentary trusts
  
• 
  
• voting trusts
  

Front 105

Partnership termination

Back 105

• among other events, a partnership terminates if more than 50% of its interests change hands within 12 months
  
• 
  
• When a partnership is terminated for tax purposes and its remaining partners decide to carry on the partnership business is a (deemed) new partnership,
• tax law treats this as a distribution of the prior partnership's assets followed by a recontribution of the (deemed) distributed assets to the new partnership
  

Front 106

Qualified Stock Options

Back 106

1. options granted under a plan approved by the shareholders

2. options granted within 10 years of earlier of the date when the plan was adopted or approved

3. the options were exercisable within 10 years of the grant date and employees do not own more than 10% of the combined voting power of the corporation, parent, or subsidiary as of the date of the grant

employee's do not pick up any income on the grant date, or exercised date. All income is picked up on the date stock is sold as capital income

Front 107

non-qualified plan

Back 107

• taxed when granted if the option has a readily ascertainable value
  
• 
  
• if the stock does not have a readily determined value you pay the tax on the date stock is exercised and then when you sell it
  
• 
  
• employer may recognized a deductible expense for a nonqualified stock option in the same year the employee will recognize ordinary income
  

Front 108

incentive stock option

Back 108

• Type of qualified stock options
  
• 
  
• must be granted under plan approved by shareholders that sets out total number of shares and who may be issued them
  
• 
  
• option must be granted within ten yeras of the earlier of date when plan was adopted or approved. options must be exercisable within 10 years of grant date
  
• 
  
• exercise price may not be less than the FMV of the stock at the date of the grant
  
• 
  
• the employee may not own more than 10 percent of the combined voting power of the corporation, parent or subsidiary as of the date of the grant
  
• 
  
• Once exercised the stock must be held at least two years after the grant date and at least one year after the exercise date
  
• 
  
• employee must remain an employee of the corp from the date the option is granted until 3 mths ( one year if due to permanent and total disability) before the option is exercised.
  

Front 109

employee stock purchase plan

Back 109

• type of qualified stock option
  
• 
  
• must be written and approved by the shareholders
  
• 
  
• can not grant options to any employee who has more than 5% combined voting power of the corp, parent, or subsidiary
  
• 
  
• 
  
• must include all employees
  
• 
  
• Option exercise price may not be the less than the lesser of 85% of the FMV of the stock when granted or exercised
  
• 
  
• the option cannot be exercised more than 27 months after the grant date
  
• 
  
• no employee can acquire the right to purchase more than $25,000 of stock per year
  
• 
  
• Once exercised it must be held for at least 2 yrs and after the grand date date and at least 1 yr after exercise date
  
• 
  
• employee must remain employed by corp from the date the option is granted until 3 mth before the option is exercised
  

Front 110

readily ascertainable value

Back 110

• if the option is traded on an established market
  
• 
  
• * Option is transferable
  
• * option is exercisable immediately in full when it is granted
  
• * there are no conditions or restrictions that would have a significant effect on the value
  
• FV of option privilege is readily ascertainable
  

Front 111

Employee taxation: readily ascertainable value of nonqualified stock

Back 111

• taxable when granted
  
• recognize ordinary income
  
• no taxation on the exercised date
  
• basis of stock is the exercise price + any income previously recognized
  
• future sale - capital gain/loss
  
• holding period begins on exercised date
  

Front 112

Employee taxation: readily not ascertainable value of nonqualified stock

Back 112

• taxed at exercise date
  
• 
  
• ordinary income
  

Front 113

employer taxation ( nonqualified option)

Back 113

deduct expense that employee reports income

Front 114

Employee taxation: ISO

Back 114

• not compensation when granted or exercised
  
• capital gain/loss when sold
  
• 
  
• generally if the option lapse there is no deduction
  
• 
  
• employee can exercise up to $100k of ISO a year
  
• 
  
• the excess FMV of the stock on exercise date - purchase price is preference item for alternative minimum tax
  

Front 115

Employer taxation: ISO

Back 115

no tax deduction

Front 116

Employee taxation: ESPP

Back 116

not taxable as comp when granted or exercised

capital gain/loss when sold

stock basis is exercise price plus any amount paid for the option

• Generally any gain or loss on subsequent sale of stock is capital. if holding period requirements are not satisfied any gain is ordinary up to the amount that the stock's FMV on exercise date exceeded the option price
  
• 
  
• generally if the option lapse, no deduction is available. maybe deduction loss if any maount was paid for the option itself
  
• 
  
• If option price is less than FMV of the stock on the grant date, then ordinary income is recognized as the lesser of the difference of the FMV of the stock when sold and the exercise price, or the difference between the exercise price and the FMV of the stock on the grant date
  
• 
  
• 
  
• 
  

Front 117

Individual Income Tax Formula

Back 117

• Gross Income
  
• (Adjustments)
  
• Adjusted Gross Income
  
• (Standard or itemized Deduction)
  
• (Exemptions)
  
• Taxable Income
  
• * Tax rate equals
  
• Federal Income Tax
  
• (tax credits)
  
• Other Taxes
  
• (payments)
  
• Tax due or refund
  

Front 118

Filing requirement for individuals

Back 118

generally, a taxpayer must file return if his or her income is greater than:

• * personal exemption, plus
  
• * the regular standard deduction ( except for married filing separately)
  
• * additional standard deduction amount for taxpayers age 65 or Older or blind ( except for married persons filing separately)
  

Front 119

Filing Status

Back 119

GR: use the status as of Dec 31 ( except in case spouse dies)

Front 120

Qualifying widow

Back 120

• * dependent child
  
• * full year residency requirement
  

Front 121

Multiple support

Back 121

• * when two or more tax payers contribute more than 50% of support of a person but none more than 50%
  
• 
  
• * the contributions may decide who claims the dependency exemption
  
• 
  
• * must contribute more than 10% to be eligible
  

Front 122

Gross income

Back 122

all income whatever the source unless specifically excluded

Front 123

Wages

Back 123

also includes FMV of property received for services

Front 124

Life insurance proceeds

Back 124

Generally not taxable

however the interest portion of deferred payout is taxable

Front 125

Interest Income

Back 125

Interest on state and federal tax refunds are taxable

Front 126

Dividends

Back 126

if distribution is from Earnings and profit it is considered a dividend

* tax rate - 15% for most tax payers
* tax free distirbutions: stock dividends, and life insurance dividends
* maximum rate of tax 20% for qualified dividends

Front 127

state tax refunds

Back 127

taxable only if itemized in prior tax return

Front 128

annuities

Back 128

partially taxable ( interest), and partially not taxable (principle)

Exceptions: annuitant outlives life expectancy

Front 129

unemployment comp

Back 129

taxable

Front 130

worker's comp

Back 130

nontaxable

Front 131

SS Income

Back 131

0 to 85 percent is taxable at various levels

Front 132

Schedule C

Back 132

* Sole proprietor

* Meals and Entertainment 50% deduct ( also applies to employee unreimbursed expenses)

* prepaid interest can be deducted; but accural method must be used

* bad debt actually written off maybe deducted only if accrual basis taxpayer

* nondeductible expenses: personal expenses, federal taxes, and salaries paid to sole proprietor

* self employment taxes are not deductible ( adjustment to AGI)

* NOL - 2 years back/ 20 yrs forward

Front 133

Farming Income

Back 133

* income from farming activities treated similar to income from other business

* Schedule F

Front 134

Rent Income

Back 134

* passive

* prepaid rent or nonrefundable deposit is taxable when received

Included on Sch E

Front 135

Individual txpyr: Capital Loss

Back 135

limited to capital income + $3K

Front 136

Trust

Back 136

Separate income tax paying entities

Distributions made by trust are deductible to the trust - but taxable to the recipient

Front 137

Guaranteed pymts

Back 137

made by partnership to partners for services rendered to the partnership, that are deductible business expenses:

* deductible on form 1065, Line 10 to arrive at partnership ordinary income
* Included on schedule K-1 to be taxed as ordinary income to the partners

Front 138

Partnership NOL

Back 138

Ordinary losses are limited to basis and any at risk amount

Front 139

S Corp "at risk" Rule

Back 139

limit the deductiblity of t distributive shares of losses of an S corp to the amount the taxpayer has at risk as opposed to non recourse loans and could loss from activity

Front 140

Form 1120S

Back 140

Gain or loss from S corporation's sale of collectibles is separately reported on the Schedule K-1 of IRS form 1120S

Front 141

Form 141

Back 141

if grantor is does not retain beneficial enjoyment of the corpus or

the power to dispose of the trust income without approval or consent of any adverse party they are a separate entity for tax purposes and must file a Form 1041and issue K-1 to their beneficiaries

Front 142

Teachers adjustment to Gross income

Back 142

teachers can take a $250 adjustment to Gross income

if two teacher they both get $250, so $500 in total.

Front 143

Regular IRA

Back 143

If you are rich and in a plan you can't participate in a regular IRA

Front 144

+/- Adj items to Income

Back 144

Adjustments for gain/loss

Long-Term Contracts

Installment Sales

Excess Depreciation

Front 145

add-back PREFERENCES (increase income)

Back 145

Percentage depletion

Private Activity -- Issued post 1986 ( tax exempt interest income)

Pre-1987 ACRS excess deprecation

Front 146

Adj Current Earnings

-/+ ( negative adjustment limited to past positive)

Back 146

Municipal Interest

Organizational expense amortization

Life insurance proceeds on key employees

Difference between AMT and ACE depreciation

Dividends received deduction under 20%

Front 147

AMT summary

Back 147

Regular taxable Income

ALIE

PPP

MOLDD

Alternative Minimum taxable income (AMTI)

Alternative mini tax base

x 20%

Gross alternative mini tax

Tentative mini tax

Alt Mini Tax

Front 148

Intercompany gain/ losses

Back 148

are eliminated with consolidation

original basis is maintained

Front 149

affiliated group

Back 149

means that a common parent owns

1. 80% or more of the voting power of all outstanding stock and
   
2. 80% or more of the value of all outstanding stock of all outstanding stock of each corporation
   

an affiliated group of corporations may elect to be taxed as a single unit, thereby eliminating intercompany gains and losses.

Front 150

Rules for consolidated returns

Back 150

• must have been members of affiliated group at some time during the tax year
  
• must have filed a consent ( act of filing a consolidated return qualifies as consent)
  
• an affiliated
  

Front 151

Corporations that cannot file Consolidated tax return

Back 151

• S Corp
  
• Foreign corporations
• Real estate investment trusts (REIT)
• some insurance companies
• brother-sister corps in which an individual ( not a corp) owns 80% /> of stock of corps

Front 152

Home equity indebtedness

Back 152

Debt other than acquisition debt that is secured by a qualified residence to the extent that it does not exceed the fmv of residence less acquisition debt

Front 153

Kiddie Tax

Back 153

• the amount of money for a child under 18 that is taxable at the parent's maximum rate
• up to standard deduction is udntaxed
• next $950 is taxed at child's rate
• anything above standard deduction + $950 at child's rate is taxed at parents rate

Front 154

Alternative minimum tax ( individuals)

Adjustments

Back 154

• Passive activity losses
• Accelerated depreciation (post -1986)
• Net Operating Loss of individual taxpayer
• Installment income of a dealer
• Contracts - percentage completion vs completed contract
• Tax deductions
• Interest deductions on some home equity loans
• Miscellaneous deductions are not allowed
• exemptions ( personal) standard deductions

Front 155

Credits that can reduce AMT

Back 155

Foreign tax credit

Adoption credit

Child Tax credit

Contributions to retirement plans credit

Residential energy credit

Front 156

Net Investment Income Tax

Back 156

• 3.8% to certain investment income
  
• $250K if married /$200K for single or HH
• interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in the trading of fin instruments or commodities and businesses that are passive activities to the taxpayer
• Expenses allocable to the income can be deducted

Front 157

political contributions

Back 157

are not charitable donations and are not deductible

Front 158

Wash Sale

Back 158

• when a taxpayer sells stock at a loss and invests in substantially idential stock within 30 days before or after the sale
  
• losses are not deductible

Front 159

Like-Kind

Back 159

Same type of investment (e.g. realty for realty, personalty for personalty, assuming the personal property falls within the same asset class for tax depreciation purposes)

Front 160

Calculation for " Recognized Gain with no Boot"

Back 160

Gain/loss realized:

Amount realized= Fair market value of auto received -- Adjusted basis of auto given up

Gain/loss recognized:

amount recognized = the less of gain realized or boot received

Basis of new property:

New basis = adj basis of property given up + gain recognized

Front 161

Homeowner's exlusion

Back 161

• Sale of taxpayer's personal principle residence is subject to an exclusion from gross income for gain. Qualifications must be met to take benefit of the exclusion.
• 500K for MFJ (both have to meet residency test to get full deduction) and 250 for Single/ MFS and HHC.
  
• 
  
• two year test
  

Front 162

Involuntary conversion

Back 162

Gains realized on involuntary conversion of property.

Tax payers reinvestment of the involuntarily received proceeds restores him to position he held prior to the conversion

if you don't spend all of the proceed it is considered boot. must recognize gain on it

Front 163

Divorce settlement

Back 163

when divorce settlements provide for lump sum payments or property it is a non-taxable event

Front 164

Exchange of like kind property

Back 164

property used in trade or business or held for investment ( except inventory, stock securities, partnership interests, goodwill/going concern value, and real property in different country)

Front 165

Installment method

Back 165

is a tax method of reporting gains for sales made by a "non-merchant" in personal property and "non-dealer" in real estate when part of the payments are received in a tax year after the year of the sale. Under the installment method, revenue is reported over the period in which cash payments are received.

Front 166

Treasury stock

Back 166

when a corp issues, buys back and reissues stock transaction is exempt from gain/loss recognition

Front 167

Related party gain/loss

Back 167

disallowed

Front 168

personal losses

Back 168

non losses is recognized on nonbusiness disposal or loss. An itemized deduction maybe available in the category of casualty and theft

Front 169

Gain realized on Like Kind Exchanges

Back 169

• Value of property Received
• plus: Cash ( boot received)
• Plus: net ( reduction in mortgage debt (boot received)
• Total received on exchange
• less: basis received on relinquished property
• Gain realized

Front 170

Basis of new asset on like kind exchanges

Back 170

• Fair value of property received
  
• less: deferred gain
  
• plus: deferred loss
  

Front 171

inherited property

Back 171

• Unless the executor elects the "alternative valuation date" method, the basis of property acquired by bequest or inheritance is the property's FMV on date of decendant's death.
  
• 
  
• Property is always considered to be long term capital gain regardless of how long the beneficiary held on to it
  

Front 172

Individual tax payer estimated taxes

Back 172

in computing the amount of estimated payments due, an individual taxpayer may choses between the annualized method or the prior year method unless the taxpayer's AGI exceeds $150,000 then they must use 110% of last year's tax

Front 173

annualized method

Back 173

90% of current year's tax

Front 174

Foreign Tax Credit

Back 174

A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid to a foreign country or a US possession. There is a limitation on the amount of the credit an individual can obtain.

Front 175

Adoption Tax credit

Back 175

• Agency fees
  
• Legal expenses
  

Front 176

Child and dependent Care Credit

Back 176

• Refundable
  
• a credit of 20% to 35% of eligible expenditure
  
• Eligible people:
  
• A qualifying child under age of 13 whom an exemption may be claimed
  
• any disabled dependent of any age who is unable to care for himself whether or not he can be claimed as a dependent, but who must meet the support test of a dependent ( half of support provided for by the tax payer
  
• spouse who is disabled and not able to take care of him or her self
  
• Earned income requirement unless full time student or physically or mentally incapacitated

Front 177

Child and dependent care credit computation

Back 177

the credit is computed by using the lowest of :

1. the earned income of the spouse with he lesser amount of :
2. the actual child care expenditure or
3. maximum amount 3K or 6K for 2017
4. This lowest amount would be multiplied by the applicable percentage to get the amount of credit

Front 178

Eligible expenses

Back 178

• babysitter
  
• nursery school
  
• Day care
  
• not grammar school
  

Front 179

Child and dependent care credit computation

Back 179

• Maximum 35% : the maximum child car credit against the tax liability is 35%. in order to obtain the maximum credit, the taxpayer's AGI must be $15K or less
  
• Phaseout 20 to 35 percent: the credit decreases by 1 percent for each 2000 ( or fraction ) of AGI over 15,000 but not below 20 %
• Minimum percent: the child care credit at the minimum rate of 20% for individuals with AGI of mor than $43,000 is $600 (20% of 3,000) or $1,200 (20% of 6,000

) if the taxpayer has two or more qualifying dependents

Front 180

Credit for ederly and/or permanently disabled

Back 180

15% of eligible amount

S - 7.5K

MFJ-10K

MFS- 5K

Front 181

Refundable Credits

Back 181

• Child tax credit ( refund is limited)
• earned income credit
• Withholding taxes
• Excess Social Security paid
• American opportunity credit (40 % refundable)
• 
  

Front 182

Earned income tax credit

Back 182

• Refundable tax credit
• encourage low-income workers to offset the burden of US tax.
• A claimant can have one qualifying child or two or more qualifying children for the credit

Front 183

Earned income tax credit Requirements

Back 183

• The taxpayer must meet certain earned low income thresholds
• the taxpayer must not have more than the specified amount of disqualified income
• the taxpayer must be over age of 25 and less than 65 if there are no qualifying children
• if married, the taxpayers must generally file joint return with spouse
• a qualifying child can be up to and including age 18 at the end of the tay year provided the child shared a residence with the taxpayer for 6 months or more
• the taxpayer must be related to the qualifying child ( or children ) through blood or marriage, or law
• the child must be either in the same generation or a later generation of the taxpayer
• a foster child qualifies if officially placed with the taxpayer by an agency

Front 184

Taxation of a C corp

Back 184

• Filing is due on 15th day of the fourth month ( Apr 15 for calendar year tax payers)
• estimated payments of corporate tax are due on the 15th day of the fourth, sixth, ninth and 12th months. Corporations not classified as larger corps are required to pay the lesser of 100% of current year tax or 100% of preceding year tax
• Tax credits: general business, research and development, foreign tax credit
• Accumulated earnings tax is imposed on C corp who retained earnings are in excess of $250K of those funds are improperly retained. Personal service corps are entitled to only $150K of retained earnings
• Personal holding corporations are more than 50 % owned by 5 or fewer individuals and have 60% of adj ordinary gross income consisting of net rent, interest, royalties and dividends. An additional tax of 20% is imposed on personal holding company net income not distributed.

Front 185

Corporate Alternate Mini Tax

Back 185

• Subject to a mini tax amt of 20 % on alternative minimum taxable income AMTI, less exemption amount
• Certain smaller C corps are exempt from AMT

Front 186

Contributions to a corporation in exchange for stock

Back 186

Formations are generally nontaxable if the 80% rule is met

Front 187

Corporate distribution

Back 187

• Cash dividends from a corporation are taxable to the shareholder who receives the dividend. Distributions come out of E& P first = dividends; then out of accumulated E&P = dividends; then out of stock basis = return of capital (tax free); and then they are taxed as capital gains

Front 188

Stock dividends

Back 188

generally not taxable to the shareholder ( it depends on whether the shareholder had a choice of receiving cash or other property)

Front 189

Corporate liquidation

Back 189

• Generally with a standard liquidation the corporation recognizes gain on the sale of the assets and the shareholder recognized gain to the extent of the basis in the stock, which results in double taxation. Basis in the assets in the shareholder's hands is FMV.
  
• There are several typles of tax-free reorganizations--Type A to Type F. Because these events are nontaxable, neither the corp nor the SH recognizes gain. Thus, the basis of the assets in the SH hands is the adj basis (NBV)
  
• Section 1244 stock allows for an ordinary loss up to $50K or (100K MFJ) rather than a capital loss in event of a sale or the stock becomes worthless
  
• A noncorp SH who holds qualified small business stock for more than 5 yr may exclude 100% of the gain on the sale or exchange of the stock
  

Front 190

Basis of property contributed to corporation in exchange for stock

Back 190

There is no gain or loss to the corp issuing stock in exchange for property for the issuance of stock. the general rule is that the basis of the property received from the transferor/SH is the greater of:

1. adj NBV of the transferor/SH plus any gain recognized by the transferor/SH or
2. Debt assumed by the corp

Front 191

Accrual method

Back 191

will be required by tax shelters, large C corps and manufactures.

Front 192

Charitable Contribution deduction for Corp

Back 192

• if contribution exceeds the limit for the deduction in one year it can be carried over the succeeding 5 years, it cannot be carried back

Front 193

Cost of organizing corporation

Back 193

• expensable subject to $5K limitation
• remainder is amoritzable

Front 194

Cost of selling stock

Back 194

are not expensable/amortizable

Front 195

Accuracy-related penalties

Back 195

apply to the portion of tax underpayments attributable to negligence or disregard of tax rules and regulations as well as to any substantial understatement of income tax

Front 196

The negligence penalty

Back 196

with respect to understatement of tax is an accuracy based penalty for negligence or for disregard of tax rules and regulation

Front 197

Exempt property

Back 197

an individual debtor is entitled to exempt certain property under the bankruptcy code, but states can opt out and supply their own exemptions

Front 198

Preferential payment

Back 198

a transfer for the benefit of a creditor or account of an antecedent debt made within 90 days ( or one year for insiders) prior to filing the petition while the debtor was insolvent and the creditor received more than the creditor would receive under the bankruptcy code. Contemporaneous exchanges for new value are excluded, as are payments of ordinary business bills and payments by consumer debtors of less than $600

Front 199

Fraudulent transfers

Back 199

any transfer for less than equivalent value made with the intent to hinder, delay or defraud creditors. The Trustee has the power to set aside fraudulent transfers made within two years of the filing date.

Front 200

Claims against the estate

Back 200

• A claim is a right to payment from the debtor's estate.
  
• To have an allowed claim a debtor must file a proof of claim and a shareholder must file a proof of interest.
  
• An unsecured creditor who fails to timely file may not take part in the distribution of the estate
  
• 
  

Front 201

Miscellany

Back 201

The trustee can serve as a professional ( e.g. tax preparer) for the estate if the court approves and may receive compensation

Front 202

Donation of services

Back 202

Value of services donated not deductible

Front 203

Exoneration

Back 203

Is the right of a surety prior to payment To get a court order demanding the debtor pay

Front 204

Contribution

Back 204

The right of a co surety to demand pro rata payment from other co surities not available prior to payment

Front 205

Reimbursement

Back 205

The right of a surety to recover from the debtor payments made to the creditor. Not available prior to payment

Front 206

Charitable contributions of property

Back 206

if proerty is capital asset help for over a year before being contributed, it qualifies to be deducted at the higher FMV without capital gains being recognized

30% of AGI limitation applies

Front 207

Fraud penalties

Back 207

For the IRS to prevail in a case with a criminal penalty, the IRS must prove beyond a reasonable doubt that taxpayer willfully and deliberately attempted to evade tax

Front 208

FICA Taxes

Back 208

are fully deductible on a schedule C

Front 209

Passive activity

Back 209

activity that tax payer does not materially participate in

Front 210

passive activity losses

Back 210

• may not be deducted against other types of income. ( wages, other ordinary or active income, portfolio income (interest and dividends) or capital gains)
  
• if it exceeds passive activity gains it is carried forward to a year when it may be used to offset passive income or when then final disposition of the property occurs
  

Front 211

mom and pop exception

Back 211

taxpayers who own more than 10% of rental activity, have modified AGI of under 100K and have active participation may deduct up to 25K of net passive losses

phase out provision from 100-150K

Front 212

Chapter 7

Back 212

Gives debtor a fresh start

Front 213

Chapter 7 - Objection to discharge

Back 213

Reason to deny a discharge of all debts. the reasons that commonly appear on the exam: the debtor is not an individualfraudulent transfers of propertyunjustifiably failed to keep adequate booksreceived a prior discharge within eight years commision of bankruptcy crim

Front 214

Chapter 7 - Execptions to discharge

Back 214

There are a few execeptions to discharge: debt arising from willful and malicious injury, alimonydebts arising from fraudtaxeseducational loansdebt undisclosed at bankruptcy

Front 215

Chapter 7 - Reaffirmation of discharged debts

Back 215

Allowed if the agreement to reafffirm was made before the granting of discharge

Front 216

Chapter 7 - revocation of discharge

Back 216

creditor or trustee may request a revocation if the debtor obtained the discharge fraudulently, the debtor acquired property that would consititute property of the estate and fraudulently failed to disclose, the debtor failed to obey a court order, or debtor could not explain why the debotr failed to make documents available to the auditor

Front 217

Chapter 7 - Distribution of debtor's estate

Back 217

1. Secured claiments - paid first to the exent of the value of collateral2. priority claim - paid next in specific order3. General creditior - paid last

Front 218

Chapter 7 - priority claimants

Back 218

1. Support obligations to spouse and child2. Adminstrative expenses3. Involuntary cas Gap claims4.Wage claims of each employee up to $12,850 earned within 180 days prior to bankruptcy 5. Employee benefit plan contributions for each employee arising within 180 days prior to bankruptcy, up to $12,850 redced by wage claims6. Grain farmers' and fishermen's claim against storage/ processing facilities up to $6,3257. Consumer deposits up to $2,8508. Tax claims9. Personal injury claims arising from intoxicated drivers

Front 219

Chapter 11

Back 219

Create a creditor committee or a stockholder's committeeTrustee generally is not appointed, but can be when there is fraud, dishonesty, incompetence or gross mismanagement by debtor

Front 220

Chapter 11 - reorganization plan

Back 220

unless a trustee is appointed, the debtor has an exclusive right to file a plan during the first 120 days afte rthe order for relief is effectiveCreditors may file a plan if a trustee has been appointed; the debtor has not filed a plan within 120 days; or the debtor has filed a plan but has not obtained acceptance of the plan by every impaired class within 180 days of the entory of the order of relief

Front 221

Chapter 15

Back 221

US court can recognize as a foreign main proceeding ( ie a country where the debtor's main interest are located) or a foreign non-main proceeding ( ie a country other than one whre the debtor's main interest are locatedAutomatic stay takes effect upon recognition of foreign main proceeding prohibits discrimination against foreign creditors and requires cooperation with foreign courts and representatives

Front 222

Attachment

Back 222

Creditor forwarns debtor that if they default they will "reposses" property in a oeaceful mannerprotect yourself from the debtorallows creditor to seize property from debtor without getting a court order

Front 223

perfection

Back 223

notice to the world that creditor has security interest in collateral and because of this notice, give the creditor the right in the collateral superior certain 3rd parties

Front 224

types of collateral

Back 224

goodsintangible/ semi intangibleinvestment propertyproceeds

Front 225

Consumer goods

Back 225

depends on what the debtor is using it for. Automatic perfection if there is a PMSI creditor

Front 226

Investment property

Back 226

You have to controll it

Front 227

Purchse money security Interest

Back 227

Has priority over all other types of security in the same collateral, if PMSI is properly perfected\

Front 228

Alt Min Tax exemption

Back 228

$40Kit must be reduced by 25% of the amout by which AMTI exceeds 150K Exemption is completely phased out at $310K

Front 229

personal holding company tax

Back 229

paid in addtion ot its regular and alt min taxes

Front 230

amt calculation

Back 230

AMTI base * 20%compare tentitive mini tax to regular tax liability

Front 231

tentative min tax credit

Back 231

can only be used to offset a corporation's regular income tax liabilityamt liabilities will result in additional minim tax credit carryforward

Front 232

personal holding company

Back 232

• more than 50% owned by 5 or fewer individuals either directly or indirectly at any time during the last half of the tax year) have 60% of adj ordinary gross income consisting of :

1. Net Rent
   
2. Interest
   
3. Royalties
   
4. Dividends
   

• Taxed additional 20% on undistributed income
  

Front 233

Additional tax assessed on PHC

Back 233

addtional 20% on net income not distributedtaxable income must be reduced by federal income taxes and net long term capital gain net of tax to determine the undistributed personal holding company income prior to the div paid deduction

Front 234

Chapter 11 Plan confirmation

Back 234

only the court can confirm a plan creditiors and security interest vote whether to accept the plan unimpaired parties such as secured creditors are presumed to have affirmed, so their vote is not necessary

Front 235

Chapter 11 Plan affirmation

Back 235

plan needs to be affirmed by 2.3 of the interests ( e.g. 2/3 of the oustanding shares) through the cram down provision of . the Bankruptcy Code (BC) a plan may be confirmed by a court even if only impaired class votes to affirm the plan

Front 236

Alimony

Back 236

can not be discharged in bankruptcy

Front 237

Dischargeable in bankruptcy

Back 237

Contract claimsdebt owed to secured creditors beyond the value of the collateral ( treated like any other unsecured debt) Debts arising from negligent conduct are dischargeable in bankruptcy ( if the auto accident arose from drunk driving or injuries were willful, debt would not be discharged)

Front 238

Bankruptcy Code Section 727

Back 238

sets out the reasons for revoking a discharge. the grounds include failing to answer material questions on the bkrpty petition if the question has been approved by the court, unless the fifth amendment privilege against self incrimination is appropriately claimed

Front 239

Foreign enity

Back 239

May file an ancillary proceeding under chap 15, and may also file a proceeding under chapt 7 and 11 the automatic stay arises after a petiion for recognition is granted by the court

Front 240

Limited Partnership

Back 240

Limited partners generally have no liability beyond their investment and unpaid capital commitments. Limited partners generally have no right to participate in management of the businessIn some states if they manage or control, they are liable to any party who reasonably beleive that they were a general partner must have at least one GP

Front 241

Partnership

Back 241

partners have unlimited personal liability for all contracts of the partnerships and all torts commited y other partnerships within the scope of partnership business. also absent agreement to the contrary, partners have equal rights to manage the business

Front 242

Limited liability Partnership

Back 242

Unless otherwise agreed, patnership have the right to participate in the management of the business, just as partners in a general partnership have the right to manage Partner in LLP is generally not liable for the debt or contracts of business. A business liabilty partnership does not pay federal income tax. the limited partnership has " flow through taxation"

Front 243

Limited Liability Company

Back 243

• An LLC offers all of its owners limited liability.
• Moreover they are not prohibited from participating in control of the business in any way unless the articles or an operating agreement provides otherwise.
  

Front 244

Sole Proprietorship

Back 244

unlimited liability for obligations of the business

Front 245

Corporation

Back 245

Pays federal income taxshareholders have no liability beyon their investment and unpaid captial commitments. Shareholders generally have no right to manage the corporationshareholders do have the right to elect and remove directorsright to vote for fundamental changes in corporation ( dissolution, amendments to the artivles, mergers, consolidations, compulsory share exchanges, and sale of substantially all the corproations assets outside the ordinary course of business

Front 246

Required to file with state

Back 246

Limited partnershipLimited liability company Corporation

Front 247

Joint venture

Back 247

an association of persons or entities with the intent of engagaing in a single business ventrue for profit.The legal requirement and consequence and advantages and disadvantages of forming a joint venture generally idential to those of a general partnership

Front 248

Cumulative preferred stockholder

Back 248

entitled to receive a dividend for the current year and all prior years for which the preferred dividend was not paid before any dividend is paid to the common stockholders

Front 249

business manager

Back 249

• Manage business
  
• not destroy it
  
• no implied authority to sell or mortgage business fixtures or other property of principle (other than inventory)
  
• does not have implied authority to borrow money on the pricncipals behalf ( must be expressed)
  

Front 250

Termination of actual authority

Back 250

Actual authority automatically terminated by law if:

• death of either principle/agent
• incapacity of principle
• discharge in bkrptcy of principle
• failure to acquire license
• destruction of subject matter
• subsequent illegality
  

Front 251

Create a contract under Common Law

Back 251

Identity of offeree and subject matterprice to be paidtime of performancequantity involvednature of work to be performed

Front 252

Common law

Back 252

Services or real property

Front 253

Statute of Fraud: Contracts that requiring a writing

Back 253

must be signed by to be enforacable1.marriage2. cannot be performed in a year3. Land ( real property for sale/ lease) 4. Contracts ny executors or similar rep to pay estate debts out of personal funds5. goods more than $5006. Contracts to act as surety ( pay the debt of another)

Front 254

Death of offeror

Back 254

death of an offer prior to acceptance terminates the offer by operation of law without notice to the offeree

Front 255

unilateral contract

Back 255

promise is exchanged for an act

Front 256

statue of limiation for an alleged breach of contract

Back 256

generally begins on the date of alleged breach. refers to the time period in whcih case must be filed time period varies from state to state depending on type of case

Front 257

Material breach of contract

Back 257

generally discharge the nonbreaching party

Front 258

novation

Back 258

the agreement is unchanged but one of the orignal parties is released and a new party is substituted int heir place

Front 259

substituted contract

Back 259

the orginal parties are both released from orginal agreement, but both are bound to new agreement

Front 260

Consequential damages

Back 260

recoverable for breach of contract only to the extent the are foreseeable. In every case, a nonbreaching party has a duty to mitigate damages- a duty to make reasonable effort to cut down on losses resulting from breach. failure to do so will preclude party from collecting damages that may have been avoided

Front 261

unilateral mistake

Back 261

a defense to a contract if the nonmistaken party knew or should have known of the mistake

Front 262

parol evidence rule

Back 262

prohibits introduction of prior written statements to vary the terms of a fully intergrated contract, but it does not bar the introduction of subsequent oral or written agreements

Front 263

Contract conditions

Back 263

Can be precedent, subsequent, or concurrent

Front 264

undue influence

Back 264

a person in a position of trust or confidence takes unfair advantage of the relationship such that the other party's free will to contract is overcome

Front 265

Domestic Production Deduction(DPD)

Back 265

Overview: a business may deduct a specific %-age of their qualified production activities income.

Front 266

Domestic Production Deduction limitation

Back 266

the deduction may not exceed 50% of the w-2 wages paid by the corporation for the year

Front 267

Calc for DPD

Back 267

the deduction is 9% of the less of : 1 - qualified production activties income(QPAI) 2 - Taxable income (disregarding the QPAI deduction)

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QPAI

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Domestic production gross receipts --------------------------------------------------------------Qualified production activities income

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Domestic production gross receipts

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derived in the US manufactured, produced, grown, extracted, constructed, engineering services, architecutral services

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Charitiable Contribution for C corp

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max deduction of 10% of adjusted taxable income limitationcarried forward for 5 yrs any accural must be paid by april 15thno political gifts

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Adjusted taxable income limiation

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Chartiable contributions for C corps Calculated before the deduction of : chartiable contribution deductiondiv-received deductionany NOL carrybackcapital loss carrybackU.S. production activities deduction

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Business Losses casualty losses related to business C corp

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100% Deductible as ordinary loss or capital loss depending on asset type Partially destroyed : loss is limited to lesser ofthe decline in the value of the propertythe adjusted basis of the property immediately before the casuality Fully destroyed (NBV) amount of loss is the adjust basis of the proporty

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Organizational Expenditures and Start up Costs

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$5K deductionExcess is amortized over 180 mths

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Allowable Org and start up costs

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fees paid for:Legal servicesdrafting the corp charter, bylaws, minutes of org meetingsaccounting servicesincorporation fees

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Disallowed Org and start up costs

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issuing and selling stockcommisionsunderwriter feescost incurred in transfer of assets to corp

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Purchased good will

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amortized on straight line basis over 15 years

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Dividends- received deduction

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First corp must be taxed owned 45 days before or after

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personal service corporation

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accounting, law, consulting, engineering, architecture, health and actuarial science

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regulated investment company

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registared under the investment compay act of 1940some venture capital companiesat least 90% of gross income must be qualified investment source incomemust distribute 90% of dividends and interest incomecorporation is not taxed on amounts distributed to shareholders

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accumulated earnings tax

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imposed on corporations whose accumulated (retained) earnings is in excess of $250K if improperly retained instead of being distributed to shareholders. personal service corps are only entitled to $150K

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Elements of Constructive fraud

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• 1. misrepresentation of a material fact
  
• 2. Defandant acts with gross negligence or recklessly
  
• 3. intent to induce plaintiff's reliance
  
• 4. actual and justifiable reliance by plaintiff
• 5. damages
  

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Ultramares

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limits accuontant's liability for negligence to (1) parties in privity(2) intended 3rd party beneficiaries parties who ware merely "foreseen" cannot recover

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scienter

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knew that the statement was wrong or recklessly disregarded the truth

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Non residential real property using MACRS

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straight line method over 39 years

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MACRS 5 year property

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Autombileslight truckscomputerstypewriterscopiesduplicating equipment