Taxation of Entities
True or False. Charitable Contributions are required to be separately stated on a partnership's Form 1065 Schedule K.
True - Charitable contributions are separately stated items because different partners may have different personal limitation thresholds.
Matt received a settlement from a personal injury lawsuit. The settlement included $50,000 for compensatory damages for physical personal injury, $20,000 for emotional distress directly arising from that physical injury, and $30,000 for punitive damages. What amount must Matt include in his gross income?
Under IRC Section 104(a)(2), compensatory damages received for physical personal injuries or physical sickness (including emotional distress directly tied to those physical injuries) are excluded from gross income. However, punitive damages are always fully taxable and must be included in gross income.
Which business entity provides pass-through taxation while offering complete limited liability protection to all of its owners, regardless of whether they participate in management?
An LLC combines pass-through taxation with limited liability for all members, even those managing the daily operations.
Under MACRS, residential rental property is depreciated over what recovery period using which depreciation method?
27.5 Years using the straight-line method under mid-month convention
What day is International accountant day?
November 10th
Which of the following entities or individuals is eligible to be a shareholder of an S-corporation?
A. An Estate of a deceased individual
B. A domestic Partnership
C. A nonresident alien individual
D A C-corporation
A
Qualifying Surviving Spouse (Qualifying Widow/er)
A taxpayer can file as a Qualifying Surviving Spouse for the two tax years following the year of the spouse's death (Year 2 and Year 3), provided they maintain a home for a dependent child.
Which of the following scenarios best illustrates valid consideration to support a binding contract?
A. A promise to make a gift of money to a charitable organization without any expected return or condition
B. A promise by a homeowner to pay a contractor $5000 to paint their house and the contractor's promise to perform the painting.
C. A promise to refrain from doing something that the promisor already has a legal duty to refrain from doing.
DPerformance of an act that occurred entirely in the past, before the promise to pay was made.
B.
This represents a classic bilateral contract where both parties suffer a legal detriment and receive a legal benefit through a bargained-for exchange.
What is their basis and what is the gain if any (type and amount)?
C) Basis: $15,000; Long-term capital gain of $1,000
Who is the father of accounting?
Luca Pacioli
Sequence the following annual adjustments made to an S-corporation shareholder's stock basis?
1. Distributions
2. Loss/Deductions
3. Income Items
S-corp stock basis is first increased by income/gain items, then decreased by distributions, and finally decreased by non-capital/loss/deduction items.
Which of the following out-of-pocket expenses qualifies for the American Opportunity Tax Credit (AOTC)?
A. Room and Board Expenses for an enrolled student living off-campus
B. Graduate school tuition for a student pursuing a masters degree
C. Tuition, required enrollment fees and required course materials paid for an eligible undergraduate student
D. Transportation and parking costs incurred while commuting to classes.
C.
The AOTC allows expenses for tuition, required fees, and course materials (such as books and supplies needed for a course of study) for the first four years of higher education
Under the UCC, The Statue of Frauds applies only to the sale of goods priced at what amount or more?
$500
Under the Uniform Commercial Code (UCC), the Statute of Frauds requires contracts for the sale of goods priced at $500 or more
A corporation sells a piece of machinery used in its business for $120,000. The machinery was originally purchased for $100,000, and $30,000 of MACRS depreciation had been taken before the sale.
What is the amount of gain and what types of gains?
$30,000 Section 1245 ordinary income and $20,000 Section 1231 gain
True or False there is an accounting Hall of Fame at Ohio State university?
True
Partner A contributes land with a basis of $40,000 and an FMV of $100,000, subject to a $30,000 liability that the partnership assumes, in exchange for a 50% interest in AB Partnership. What is Partner A's initial basis in their partnership interest?
$25,000
Partner A's basis equals the adjusted basis of the contributed property ($40,000) minus the liabilities shifted to other partners ($15,000, which is 50% of the $30,000 total liability assumed by the partnership).
$50,000
Salary is fully taxable. Under the tax benefit rule, a state tax refund is only taxable if the taxpayer itemized deductions in the prior year. Workers' compensation, municipal bond interest, and scholarships used exclusively for tuition and books are all strictly excluded from gross income
An agent enters into a contract with a third party on behalf of an undisclosed principal. Which statement accurately describes the liability of the parties?
A. Only the principle is liable on the contract once disclosed, and the agent is entirely absolved from the start.
B. Neither the principal nor the agent is liable because the principal's identity was not revealted
C. Both the agent and the principal (once discovered) can be held liable by the third party on the contract
D. Only the agent is liable and the principal can never enforce of be bound by the contract
C.
When a principal is undisclosed, the third party can hold either the agent or the principal liable upon discovery.
What is the recongized gain on the likekind exchange and what is the new basis?
Recognized Gain: $40,000; Basis: $200,000
Realized Gain: FMV Received ($310,000) + Boot Received ($40,000) - Adjusted Basis Given ($200,000) = $150,000.
Recognized Gain: For Section 1031 exchanges, gain is recognized to the lesser of the realized gain ($150,000) or the boot received ($40,000). Thus, $40,000 is recognized.
New Basis: Adjusted Basis Given $200,000 - Boot Received $40,000) + Gain Recognized $40,000 $200,000
True of False. Farm animals can have different depreciation lives?
How are net operating losses (NOLs) generated by a C-corporation in tax years beginning after 2017 treated under current federal tax law?
Under the TCJA rules, post-2017 NOLs cannot be carried back, can be carried forward indefinitely, but are subject to an 80% taxable income limitation in the utilization year.
Julie has an AGI of $100,000. During the year, she made a cash contribution of $20,000 to a public charity and donated stock held for over two years with a fair market value of $40,000 and a basis of $15,000 to the same public charity. What is Julie's maximum charitable contribution deduction for the year (ignoring any carryovers)?
Cash contributions to public charities are deductible up to 60% of AGI ($60,000 limit, so $20,000 cash is fully deductible). Long-term capital gain property donated to public charities is limited to 30% of AGI ($30,000 limit for the $40,000 FMV stock). Total deductible is $20,000 + $30,000 = $50,000.
Which of the following transactions is exempt from the registration requirements of the Securities Act of 1933?
A. An initial IPO of common stock offered nationwide to the general public via general solication.
B Multi-million dollar interstate debt offering sold strictly to individual non-accredited retail investors with no disclosures.
C. Intrastate offerings where the issuer and all purchasers reside within a single state and the business is conducted in that state.
D. A secondary market transaction executed on the New York Stock Exchange between two ordinary investors.
C.
Intrastate offerings are exempt from federal registration under the Securities Act of 1933.
0 gain or loss
When the FMV at the date of the gift is less than the donor’s basis, a dual basis rule applies:
The accounting Rule of 9 helps catch what type of error?
transposition errors