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45 Cards in this Set
- Front
- Back
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STEP TRANSACTION DOCTRINE |
A court may ignore the separate, individual transactions, choosing instead to impose tax based upon the ultimate economic reality of the entire series of transactions. |
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SHAM TRANSACTION DOCTRINE |
Must be real and bona fide - not lacking substances. Ex. when one entity sells a property to another, but they are owned by the same person. |
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SUBSTANCE OVER FORM DOCTRINE |
The substance of a transaction, rather than its "mere form" will govern the tax consequences of the transaction. How a transaction is viewed rather than how it is. |
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REALLOCATION OF INCOME DOCTRINE |
The courts may reallocate income between related taxpayers. Ex. when a personal service corporation is formed to avoid taxes and secure tax benefits for an employee- owner. |
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ASSIGNMENT OF INCOME DOCTRINE |
Any arrangement by which the funds are attributed to a different tree from that on which they grow will not be recognized. (Tree & Fruit questions) |
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ACCUMULATED EARNINGS |
Taxable Income minus federal income tax minus dividends paid minus accumulated earnings credit ($250k - last year acc. earnings) equals taxable income x 20% |
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OWNERSHIP ATTRIBUTION RULES |
The tax effects of a particular transaction depend upon the percentage ownership of stock before and after the transaction. |
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Child Care Credit |
$3,000 per child. If AGI is over $43k, take 20% of deductible amount. |
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Credit for Adoption Expenses |
- $13,400 credit per adoptee - adoptee must be under 18 and unable to care for them self - the credit is nonrefundable |
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Section 121 exclusion may not be used if... |
the residence was acquired in a like-kind exchange in the last five years |
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Replacement period for condemned real estate |
Last day of third taxable year |
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C-corps may... |
use passive losses to offset active income if they are not a personal service corporation |
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Oil and gas working interest |
Losses are deductible against active or portfolio income with no limit and no respect to taxpayer's income |
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Tax Court Method of allocating deductions |
- Uses the number of days in a year, as opposed to IRS method which uses total number of days property is actually used - Usually results in more available deductions |
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Active Participation Rental Real Estate Phaseout |
Two for one from $100k - $150k |
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Historic Rehabilitation Tax Credit |
-May be used to offset tax on $25k of income -Phased out with AGI $200k - $250k |
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Low Income Housing Credit |
-deduction-equivalent tax credit -no AGI phaseout |
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Suspended Losses |
- at death losses are deductible up to amount that exceeds adjusted basis |
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Capital gain distributions |
Treated as long-term capital gains |
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Specialized small business investment company (SSBIC) |
-An investment company that finances small businesses owned by disadvantaged taxpayer
- May be used within 60 days - May be used by individuals or corporations |
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Investment Interest Expense |
- deductible up to the amount of net investment income - can be carried forward into future tax years - tax-exempt investment interest is not deductible |
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Mutual fund basis |
May not use LIFO |
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Investment Interest Expense |
- Net investment income reduced by Tier II investment expenses after the 2% of AGI limitation |
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Tier II Miscellaneous Itemized Deductions |
- Expenses related to determination of tax liability - Unreimbursed employee business expenses (union dues, home office expense, travel expenses, education expenses, uniforms) - Expenses related to the "production of income"(investment adviser feeds, legal fees) |
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Coverdell Education Account |
- Annual contribution of $2,000 per child under 18 |
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50% organizations |
Public charities such as churches, schools, and hospitals - private charities are 30% organizations |
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Standard deduction for someone who can be claimed as a dependent |
The standard deduction for an individual eligible to be claimed as a dependent is the greater of $1,050 or the amount of earned income, $2,400, plus $350, not to exceed the full single standard deduction amount of $6,300. Thus, the earned income of $2,400 plus $350 equals $2,750
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Constructive Receipt |
Serves to accelerate income |
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long-term method of accounting |
Contract is not completed in year it is entered into |
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Section 1244 Stock |
Losses on sale are ordinary up to $100,000 |
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home office deduction |
-the storage space must be used on a regular basis
-the home must be the only fixed location of the trade or business -the inventory must be kept for use in a trade or business |
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Economic performance |
occurs when the services are provided |
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Personal service corporation |
A PSC is a C corporation in which substantially all of the activities involve the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, veterinary services, or consulting if substantially all of the stock is owned by employees, retired employees, or their estates
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Exceptions to undivided portion of less than a donor's interest for charitable deductions |
1. undivided portion of the donor's entire interest 2. remainder interest in a personal residence or farm 3. gift to a public charity of a remainder interest in real property granted solely for conservation purposes 4. gift of a partial interest transferred through a qualifying form of trust |
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Gifts of ordinary income property |
- cash, STCG, art/books when given by person who produced them, inventory, non-related tangible personal property - deduction is based on basis- 50% to public charity - 30% to private charity |
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Gifts of appreciated property |
-LTCG, use-related appreciated tangible personal property -30% to public charity -20% to private charity |
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The 50% election |
May take 50% deduction on LTCG, but have to use basis amount |
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Section 1231 property |
1. used in a trade or business held for the production of income 2. generally eligible for depreciation allowance 3. held for long-term holding period` |
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Section 1245 |
- Applies to personalty that is or has been subject to an depreciation or a nonresidential real property placed in service between 1980-1987 - gain is lesser of cost recovery deductions taken or gain realized - 1245 gain is ordinary income - cost recapture - 1231 gain is LTG |
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Section 1250 Property |
- real estate that is subject to depreciation but is not Section 1245 - primarily buildings -1250 gain has maximum 25% tax - recognized 1250 gain is lesser of the depreciation taken or the gain realized - any additional gain is regular long-term capital gain |
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Alimony Front-Loading |
-compare year 2 & 3 - decrease year 2 by the excess over $15,000 -compare year 1 with average of year 2 & 3 (use new year 2 #) -take difference of year 1 and average and subtract $15,000 from it -add two recapture amounts together |
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AMT tax preference items |
- accelerated cost recovery deductions in excess of depreciation method - depletion in excess of basis (not oil & gas) - intangible drilling costs - bargain element on exercise of incentive stock option - research & experimental cost after deductions - municipal bond interest other than for 2009 and 2010 - passive farm losses - 7% of excluded gain from qualified small business stock |
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Itemized deductions allowed against AMT |
- Medical expense in excess of 10% - casualty losses in excess of 10% w/ $100 floor - gambling loss - qualified housing interest on personal residence - investment interest expense - estate taxes paid - charitable deduction |
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AMT Exemptions |
- MFJ - $83,400 exemption - $158,900 phaseout - S - $53,600 exemption - $ 119,200 phaseout - income minus phaseout times 25% - then subtract that from exemption amount |
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AMT Calculation |
1. AGI is increased or decreased by preference items and adjustments 2. reduce by itemized deductions and net operating loss deduction 3. net AMTI is reduced by exemption 4. tax rate of 26% up to $185,400 and 28% above 5. AMT tax compared to regular tax 6. subtract any credits |
