Refundable credits
Earned income credit
American opportunity credit (up to $1,000 [40%])
Child tax credit ($2,000/child, max refund $1,400)
Revocable trust
A trust that the grantor may change or revoke.
Casualty loss deduction for federally declared disaster areas
Lower of decline in FMV or asset basis
Less: insurance reimbursement
Less: $100 per event
= Casualty loss before 10% AGI floor
Less: 10% AGI
= Casualty deduction on Sched A
In a common law suit, the plaintiff must prove:
Material Misstatement or omission in the FS
A loss has been suffered as a result
Information was relied upon by the plaintiff
Error or Scienter
Partnership basis
(cannot be reduced below 0)
Contributions by partner
+ Share of partnership income
+ Borrowings/other debts incurred by P/S
- Distribution of assets by P/S
- Share of P/S losses
- Distributive share of nondeductible expenses
ultra vires
A Latin term meaning "beyond the powers"; in corporate law, acts of a corporation that are beyond its express and implied powers to undertake.
Realized gain in like-kind exchange
FMV of new property - basis of property given up + (boot received - boot paid)
Basis in replacement property in like-kind exchange
Adjusted basis of relinquished property + excess debt assumed over debt relief + gain recognized on boot - boot received
Section 179 Property
tangible, depreciable personal property that is purchased for use in a trade or business
Unrelated business income
income obtained from regularly operated business activities which are not related to the organization's tax exempt purpose. excludes legal games of chance to raise funds.
AMT Calculation
...
Grantor trust
Trust where the grantor receives an economic benefit and therefore is responsible for taxation of the trust.
nonrefundable credits
child & dependent care credit
Lifetime learning credit
adoption credit
Child & dependent care credit
Available for children under 13 or a disabled dependent.
Eligible expenses: babysitter, nursery school, day care, preschool, after-school programs.
Max amount of credit is the lesser of actual expenses or $3,000 for one dependent and $6,000 for multiple or earned income of the lower paid spouse.
Subject to phase-out rules and varies b/w 20-35% based on AGI levels
Prizes/awards are nontaxable when
1) selection without any action on recipient's part
2) services not required of recipient
3) charity or government gets payment as assigned by the recipient
Distributable Net Income (DNI)
a tax concept that allocates taxable income between the trust and beneficiaries to ensure the trust income is subject to only one level of tax
preferential transfer (bankruptcy)
property transfer (1) of $6,225+ or more; (2) for or on account of an antecedent debt owed by the debtor; (3) to or for the benefit of a creditor; (4) made while the debtor was insolvent; (5) on or w/in 90 days before the date of bankruptcy filing; and (6) that enables the creditor to receive more than it would receive as a distributive share under a ch 7 liquidation.
American Opportunity Credit
includes first 4 years of post-secondary school
100% credit for first $2,000 of expenses, including tuition + books & supplies
25% credit (up to $500) for next $2,000 of expenses
$2,500 total available credit per student
40% ($1,000) is refundable
tax-free interest income
state & municipal bonds
US EE savings bonds
items not deductible on schedule K
foreign tax paid
investment interest expense
179 expense
charitable contributions
items not counted as income on schedule K
passive income
portfolio income
1231 gain/loss
PARTNERSHIP basis calculation
beginning basis
+ capital contributions
+ share of ordinary income
+ capital gains
+ tax-exempt income
- money distributed
- adjusted basis of property distributed
- share of ordinary losses
- partnership is relieved of a liability
+ partnership getting a loan
= ending basis
Personal holding company tests
1) 60%+ of corporate income must be comprised of passive types of income such as dividends, rent, royalties, or certain personal service income
2) 50%+ of the value of the o/s stock must be owned by 5 or fewer individuals at any time during the last half of the taxable year
Foreign tax credit limit
US tax liability x (foreign taxable income/foreign + us taxable income)
Circular 230
Regulations governing the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries, and appraisers before the IRS.
Installment sale gain recognition
payment received x ((sales price-basis)/total sales price)
Charitable Contributions (individuals)
Cash limitation is 60% AGI
Property limitation is 30% AGI. lesser of FMV or basis for donation amount, UNLESS long-term capital gain property is donated, then use FMV.
hot assets
assets used in the ordinary course of business and the sale of such assets would result in ordinary income to the business
Ultramares vs Touche
accountant is liable for negligence only to anyone in privity and intended 3rd party beneficiary
Express trust
Trust created on purpose, not imposed by a court. Will always have the following parties:
Grantor
Trustee
Beneficiary
an executor of a decedent's estate must file a fiduciary income tax return (form 1041) for the estate if it has
gross income for the tax year of $600 or more OR
a beneficiary who is a non-resident alien
Kiddie tax is applicable for
A child who is 17 years old or younger at year-end
A child who is 18yo at year-end and the child doesn't have earned income that exceeds half of their support
A child ages 19-23 at year-end who is a student and doesn't have earned income that exceeds half of their support
Kiddie tax is applicable if the child
Does not file a joint return
Has one or both parents alive
Has unearned income that exceeds the threshold ($2,200 for 2020)
Requirements for accountant to be liable under 1933 Act
Damages
Material Misstatements
NOT reliance or negligence
Accountant defenses under 1933 Act
Due diligence
Followed GAAS
Damages weren't caused by accountant's work
Plaintiff knew of the material misstatements
Regulation D: Rule 504
$1 mil/year max
Unlimited investors
Regulation D: Rule 505 (no longer a thing)
$5 mil/year max
35 unaccredited investors
Unlimited accredited investors
Regulation D: Rule 506
Unlimited $
Can solicit and advertise to accredited investors
Requirements for accountant to be held liable for fraud under the 1934 Act
Damages
Material misstatements
Reliance on FSs
Scienter
Legislative reenactment doctrine
a long-standing finalized regulation presumably has congressional approval if congress has not amended the relevant section of the internal revenue code
Deductible taxes
Up to $10,000
State & local income taxes
Foreign income taxes (could also be taken as a credit)
OR
Sales taxes
Real property tax paid on non-business real property owned by the TP.
Personal property tax paid on non-business personal property.
Nondeductible taxes
Federal income tax
Federal, State, Local, Estate or Gift tax
Social security taxes
Self employment taxes
Business taxes (sched C)
Foreign property tax
capital assets
assets held as investments and are non-business use assets
No part of a transfer for the benefit of a minor will be considered a gift of future interest if
the property and its income may be expended by or for the benefit of the minor before they reach age 21 and
any portion of the property and its income not so expended will pass to the minor upon reaching age 21
essential elements of a de facto corporation
1) a valid statute under which the business could have been incorporated legally
2) existence of a corporate charter
3) a good faith effort to incorporate
4) some good faith business dealings in the corporate name
AMT tax preference items
always add back, more income or less deductions being recognized for AMT vs. regular tax "PPP"
Private activity bond interest income
Percentage depletion the excess over adjusted basis of property
Pre 1987 accelerated depreciation
Debts not discharged by bankruptcy
alimony & child support
student loans
loans obtained by false representation
credit card debts for luxury goods of $675 or more within 90 days of filing
unpaid federal income taxes & tax penalties
ERISA requirements
(only applies to employers that are offering retirement plans)
1. covering employees in the same class
2. amounts paid in by employees to be vested immediately
3. pension funds to be managed by a trustee