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16 Cards in this Set
- Front
- Back
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The IRS will issue a 90-day letter (a Statutory Notice of Deficiency) if the taxpayer does not file a protest letter within 30 days of the date of the 30-day letter. |
True. The 90 day letter specifies the amount of the deficiency; explains how the amount was calculated; and states that the IRS will assess it unless, within 90 days of the date of mailing, the taxpayer files a petition with the Tax Court. During 90 days IRS cannot attempt to collect money or if petition filed cannot collect until Court's decision is final. |
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The "automatic" extension period for filing an individual return is seven months. |
False. Unless the taxpayer is abroad, the extension period cannot exceed six months. Individuals file form 4868 to IRS no explanation required. Corporations file a form 7004 for an extension not to exceed six months. |
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The statute of limitations is unlimited for a tax return that is never filed. |
True. No limitation period exists if the taxpayer does not file a return. Thus, the government may assess the tax or initiate a court proceeding for collection at any time. |
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Identify which of the following statements is true. A. For C corporations that desire to be taxed like a partnership, the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership. B. The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation. C. A partnership can elect to be taxed as a corporation under the check-the-box regulations. As a corporation, an S election can be made. D. All of the above are true. |
D. All the above are true |
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Which of the following would terminate a Subchapter S election? A. Voting trust becomes a shareholder. B Grantor trust becomes a shareholder. C. Estate becomes a shareholder. D. Partnership becomes a shareholder. |
D. Partnership becomes a shareholder.
Also cannot be shareholder's; Alien individuals, C Corporations and family up to 6 generations can count as one. |
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An electing S corporation has a 30,000 ordinary loss for the non-leap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Sonya? |
Answer for Sonya is 30,000 x 1/2=15,000
Answer for Beverly is 30,000 x 1/2 x 146/365=6,000 |
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How long does a taxpayer have to file a petition with the US Tax Court following the date of the Statutory Notice of Deficiency? A. 30 days B. 180 days C. 90 days D. Three months |
C. 90 days
If taxpayer doesn't protest with 30 days of the date of the initial letter, the IRS isues a 90-day letter (Statutory Notice of Deficiency) and they have 90 days of the date of mailing to file petition with Tax Court |
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Identify which of the following statements as true. A) The IRS cannot raise a new tax issue after issuance of the Statutory Notice of Deficiency (90 day letter). B) The 90-day letter offers the taxpayer the choice of paying the tax assessed or filing a petition refuting the tax assessment with the tax court. C)A taxpayer can choose to initiate tax litigation in a U.S. district court, the Tax Court, or a Court of Appeals. D) All of the above are false. |
B. The 90-day letter offers the taxpayer the choice of paying the tax assessed or filing a petition refuting the tax assessment with the Tax Court.
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The IRS will issue a ruling
A. only if regulations have been issued on the subject. B. on a completed transaction for which a return has been filed. C. on prospective transactions only. D. to clarify the tax treatment of a transaction. |
D. to clarify the tax treatment of a transaction. |
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Identify which of the following statements is true. A) Individuals and corporations may obtain six-month extensions for paying taxes and filing their returns for the taxable year by filing the appropriate extension requests. B) The "automatic" extension period for filing an individual return is five months. C) A partnership is not required to file a return if the partnership has no income for the yeare. D) All of the above is false |
D. All the above are false. |
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Identify which of the following statements is false
A) The failure-to-pay penalty is levied against taxpayers who do not file a return by its due date at a rate of 5% per month (or fraction of a month) with a maximum additional penalty of 25%. B)Failure to pay penalty is imposed at a rate of 5% per month (or fraction of a month) with a maximum penalty of 25%. C) in addition to interest, taxpayer may be subject to penalties for failure to file on time and failure to pay taxes by the date for the return. D) A different interest rate is charged to corporate and noncorporate taxpayers. |
B)Failure to pay penalty is imposed at a rate of 5% per month (or fraction of a month) with a maximum penalty of 25%. |
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What is the requirement for a substantial understatement of tax for individuals? A) The understatement exceeds $5000. B)The understatement exceeds the greater of 10% of the tax required to be shown on the return or $5000. C) The understatement exceeds 10% of the tax required to be shown on the return. D) The understatement exceeds the lesser of 10% of the tax required to be shown on the return or $5000. |
B)The understatement exceeds the greater of 10% of the tax required to be shown on the return or $5000. |
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A six year statute of limitation rule applies if the taxpayer:
A. Understates taxable income by 25% B. Understates gross income by 25% C. Understates AGI by 25% D. None of the above |
B. Understates gross income by 25% |
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What are advantages to S corporations? |
Income is exempt from the corporate income tax. S corp income is only taxed to the shareholders. Losses pass to shareholders. Undistributed income taxed to shareholder is not taxed again. Deductions, losses, and tax credits are separately stated and retain their character when passed to shareholders. Shareholder is not subject to self employment tax. |
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What are the disadvantages to S corporations? |
S corporations earnings are taxed to shareholder even though they are not distributed. Dividends received are not subject to DRD. S corp are subject to an excess net passive income tax and a built-in gains tax. Allocation of ordinary income/loss and the separately stated items is based on stock owned on each day of tax year no special tax allocations permitted. Shareholders are limited to 100. Must use a calendar year as their tax year. Loss limitation for S corp shareholder is smaller than for a partner in partnership bc of the treatment of liabilities. |
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What are advantages of LLC? |
No restrictions are imposed on type/# of owners. Income and deduction allocations are based on the LLC agreement and not based on # of shares of stock owned. Thus special income, gain, loss and deduction allocations are permitted for an LLC. The basis of the LLC interest includes a ratable share of the LLCs liabilities. This amount can be greater than the basis provided for S Corp stock and permits a greater loss/deduction pass through. Not subject to the corporate level taxes. |
