A tax payer purchased and placed in service a 530,000 piece of equipment in a year with a maximum allowable secction 179 amount of 250,000 and a ceiling of 800,000 of qualifying property. The equipment is 7-year property. The first-year depreciation for 7-year property is 14.29%. Before considering any depreciation deduction, the taxpayer had 700,000 of taxable income. The taxpayer did not elect out of bonus depreciation. What amount is the mazimum alloable depreciation?
Equipment cost 530,000
179 deduction <250,000> +
Basis for Bonus D 280,000
Bonus D (280k * 50%) <140,000> +
Basis for Macrs 140,000
YR 1 Rate * 14.29%
MACRS D 20,006 +
Total D =410,0006
The Year 3 deduction by an individual tazpayer for interest on investment indebteness is
Limited to the taxpayer's net investment income for the taxable year. SS163(d)(1)
Parol evidence rule
The parol evidence rule, in general, does not allow the admission into evidence of written or oral ecidence to contradict a written contact which was intesnded to be the final written understanding of the parties. There are three exceptions to this rule.
1. explain an ambiguity
2. explain a subsequent agreement (not a prior or contemporaneous agreement)
3. Explain contrat stipulation exist due to lack of consideration, fraud, misrepresentation
How long must a C-Corp own stock to recieve a Dividends- Received Deduction?
SS243 NO DRD is allowed if stock is held for less than 46 days
100% for affiliated group
80% DRD for 20% to 80% percent ownership
70% DRD when less than 20%
DRD is limited to taxable ie 70% * taxable income = limit
SS246(b) wavies DRD in year with NOL
Recless disregard for the truth
CPA action is Scienter or its equivalent absent with?
Performance of substandard auditing procedures
S-Corp >2% share holder get fringe benefits is it included in income?
Not true for a C-Corp
Corp A/B for S/H
+Income for services
=A/B for S/H
SS357 (c) Gain on Liab > A/B = boot=gain
Corp A/B for Corp
+Gain to S/H
=A/B to Corp
Kay receives Jury Duty pay and returns the money to her company. This money will be?
Deducted from gross income to get to AGI
If Joe receives 100 for workers comp insurance and 100 for reimbursement for medical expenses not deducted and receives 100 in damages all resulting from injury on the job. What amount of income is excluded from income?
SS105(b) Workers Comp
SS213 Reimbursement for medical expenses not deducted
Damages recieved for injury
What is the basis of gifted property?
Lessor of FMV or A/B of donor in the case of a loss
A/B in the case of a Gain
If between the A/B and the FMV no gain or Loss
What is Joes net self-employment income?
Gross income 20,000
Yellow pages add 2,000
Calls for work 400
Charitable contributions 200
Net Self-employment is - Schedule C
Gross pay 20,000
50% FICA is take out on 1040 CC is taken out on Schedule A subject to a 2% floor.
What may make a independant contractor look like an employee of a company?
If service and pay are recurring.
An example is a weekly pay check would show regularity of employment
An injured plaintiff may sue under strict liab if he can prove?
The good was defective or unreasably dangerous.
He must also prove that good was sold in a defective condition
An action to recover personal property said or claimed to be unlawfully taken.
Revocation is the act of recall or annulment. It is the reversal of an act, the recalling of a grant, or the making void of some deed previously existing.
Has to deal with an offer
The act of rescinding; annulment or cancellation.
Company A contracted company B to produce a widget for A that is specific for A. On the date of delivery B delivered different type of widget. What is company A's options for remedy of the original contract?
Because the seller agreed to sell a unique good company A has rights for Specific performance or Dollar Damages.
Val and Pat both 45 years old, filed a joint return for 2010.Val earned 36k in wages and was covered by his employer's qualified pension plan. Pat was unemployed and received 4k in alimony payments. The couple had no other income. Each contributed 5k to an IRA. What is the allowable IRA deduction?
SS219(b) an employee and spouse may take a deduction for a qualified contribution up to the lesser of 5k or compensation.
AGI is only 36 + 4=40k well below any AGI limitations, so no reduction in deduction.
A CPA is liable when he negligently gives an opinion on an audit of a client's financial statements when?
Is liable to anyone in a class of third parties who the CPA knows will rely on the opinion.
Liable to the Client, 3rd parties in privity of contract, and anyone else whom would rely on the opinion.
What is needed for a instrument to be a draft
The instrument needs to contain a delayed payment, drawn on a bank. Look for 3 parties on draft if it is not payable on demand it is not a check.
A Trust reported distributable net income of 120k for the current year. The Trustee is required to distribute 60k to kent and 90k to LInd each year. If the trustee distributes these amounts, what amount is includable in Lind's gross income
Use pro rata share of distributable net income or 90k/150 = 60% * 120k = 72k Linds Gross income.
To qualify as an exempt organization other than a church or an employees' qualified pension or profit-sharing trust, the applicant cannot?
operate under the "lodge system" under which payments are made to its members for sick benefits.
In a "like-kind" exchange of an investment asset for similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if what requirements are met?
1. The form of the transaction is an exchange
2. Both the property transferred and the property received are held either for productive use in a trade or business or for investment and 3. the property is like-kind.
Biz for Biz, investment for Biz, Investment for Investment property. Does not include securities
What is the AGI Limit for a rental activity loss upto 25k?
AGI of 100k
An accountant will be liable for damages under section 10(b) and rule 10b-5 of the securities exchange act of 1934 only if the plaintiff proves that
For action brought under Section 10(b)
1.)There was a material misrepresentation or omission
2.) The plaintiff suffered damages
3.) The plaintiff relied on the fraudulent statement and
4.) existence of scienter
Both 10(b) and 10b-5 cover registered and unregistered securities, and not just original issuances.
Unconscionability is the doctrine wherein a court will deny enforcing a contract because of the unfair bargaining power held by one of the two parties to the contract.
An affirmation of fact or promise made by a seller that relates to the goods and becomes part of the basis of the bargain creates an express warranty that such goods will conform to the affirmation or promise.
Warranty of Fitness
The warranty of fitness for a particular purpose is created when the sell has actual or constructive knowledge of the particular purpose for which the goods are required, and also knows that the buyer is relying on the skill and judgment of the seller to select and furnish suitable goods. As this is an implied warranty, there is no requirement that it be in writing.
Warranty of Merchantability
The warranty of merchantability refers to the good that meet the minimum requirements including that they are fit for the ordinary purposes for which such goods are used.
Under the Negotiable Instruments Article of the UCC, which of the endorser's liabilities are disclaimed by a "without recourse" endorsement?
Contract Liability Only.
This disclaims the endorser's secondary liability to pay the instrument in the event it is dishonored. It does not impair negotiability or prevent the transferee from becoming a holder in due course and it does not change the warranty.
What are the six prerequisites to create a negotiable instrument
1.) The instrument must be in writing and signed by the maker
2.) Unconditional promise or order to pay
3.) The amount of money must be a fixed amount
4.) Must be made payable to order or bearer (except for checks)
5.) Must be payable on demand or at a definite time
6.) It may NOT contain any other promise, order, obligation
Under the UCC Secured Transaction article, which of the following condition must be satisfied for a security interest to attach?
A. The debtor must have title to the collateral.
B.The debtor must agree to the creation of the security interest.
C The creditor must be in possession of part of the collateral
D. The creditor must properly file a financing statement.
B) Attachment occurs when:
1) value is given by the secured party
2) The debtor obtains rights in the collateral
3) The debtor and creditor acknowledge the creation of a security interest by signed security agreement or by collateral in the possession of the secured part.
What amount of gain would be recaptured under section 1245?
1245 Gain is equal to the lessor of 1.) the total gain realized or 2.) the accumulated depreciation.
Rob had current-year adjusted income of 100k and potential itemized deductions as follows:
Medical exp(before %limit) 12,000
State income tax 4,000
Real estate taxes 3,500
Qualified Mortgage 10,000
HELOC (used for personal) 4,500
Charitable contributions 5,000
What is Rob's itemized deductions for AMT?
AMT uses 10% floor for Medical exp instead of 7.5%.
Med bills 2,000
A securities registration statement filed under the securities act of 1933 mist contain the following:
1: information about the nature of the issuers business, 2: description of the securities to be issued, 3: capital structure of the issuer, 4: an estimate of the amount of proceeds and their anticipated use, 5: underwriting arrangements, 6: certified financial statements, and 7: required signatures of the issuer.
What must be meet by an issuer of securities who wants to use a shelf registration?
The SEC rule 415 permits shelf registration of securities only to (established not first time issuers) the original registration statement must be continuously updated.
To be successful in a civil action under section 11 of the securities act of 1933 concerning liability for misleading registration statement the plaintiff must prove...
There is no requirement under the 1933 act section 11 to prove the defendants intent to deceive or the plaintiff reliance on registration.
What is needed to recover damages if there has been a material misstatement in a registration statement under the 1933 act if there was..
An act brought under the 1933 act does not that the injured party prove that he relied on the misleading info, but is required to prove that he incurred a loss.
The anti fraud provisions of rule 10 b-5 of the 1934 act
Require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange.
What is the standard that must be established to prove a violation of the anti fraud provisions of rule 10b-5 of the securities act of 1934
In rod to recover a loss, a seller or purchaser of a securities must prove the defendant acted with the intent to defraud(scientere). The SEC may base actions under section 10b on showing of reckless disregard of truth(gross negligence) rather than establish specific fraudulent intent. The rule 10b-5 standard is not negligence, criminal intent, or strict liability.
At Dec yr 5 Corp had accumulated earnings and profit of 9k. Corp distributed 9k in cash and land with an A/B of 5k and a FMV of 40k. What is the taxable divid income in year five?
Distribution of land is gptreated as if it were sold at FMV resulting in a gain of 35k. So accumulated E&P would = 9 +35 = 44. The taxable divid would equal 44k.
What is the foreign tax credit formula?
Tentative US tax X ( total foreign income / worldwide income)