Complete List of Terms and Definitions for CPA REG

Terms Definitions
is child support taxable? no
is section 1231 assets capital? no
is promising to performance existing duty sufficient consideration? no
does consideration have to be fair? no
to be excludable, tuition reductions must be offered on a ____ basis. nondiscriminatory
does gross income include property received from a gift or inheritance? no
is interest income from industrial development bonds taxable? yes
if an insolvent buyer has already received the goods, the seller may reclaim them within ___ days after the receipt 10
under the UCC, is warranty liability limited by privity? no
when youre suing for tort, does privity matter? no
are qualified benefits received from a roth IRA taxable? no
are mutual fund dividends for funds invested in tax-free bonds taxable? no
_____ means that the realized gain must be included on the tax return recognition
Corporate Gain/Loss Property Distributed in a non liquidating distribution The distributing corporation recognizes gain on the distribution of appreciated property as if such property were sold for its FMV. However, no loss can be recognized on the nonliquidating distribution of property to shareholders.
in a mutual mistake, if the subject matter of the contract is not in existence when the contract is made and neither party knows this, the contract is ___ void
a contract made by a party whose mental capacity is so deficient that he is not capable of understanding the nature and significance of the contract is voidable
can a true owner recover stolen goods from a 3rd party? yes
nonrecognition treatment is accorded to "like kind" exchange of property used in the trade or business or held for investment, EXCEPT: inventory, stock, securities, partnership interests, and real property in different countries
the ______ method is required to be used for Alternative Minimum Taxation, regardless of the method used for regular tax (except for home construction contracts) percentage-of-completion
Novation When one of the original parties to contract is released and a new party is substituted in his/her place
Special warranty deed Warranties are limited to defects which occurred during the time that the grantor owned the property
what are the limitations on monetary damages? forseeability and mitigation
what is replevin? the right to recover goods wrongfully in the hands of the seller. may be used if the goods are identified and the buyer cannot reasonably cover
where are charitable contributions reported? itemized deduction on schedule A
what is form 8322 written declaration that waives the right of a custodial parent to take the exemption for a child. must be attached to noncustodial parents return. custodial can revoke by giving one years notice and copy form 8322 claiming the revocation on their return.
Alimony Requirements 1. Payments must be made in cash
2. Payments must be to or for the benefit of the spouse
3. Lump-sum property settlements are not taxable
what is a tort? wrongful act, could be intentional or negligent
what is novation? when a new contract substitutes a new party for an old party in an existing contract. all parties must agree to the release
what are examples of non-taxable fringe benefits? life insurance proceeds; accident, medical, and health insurance; de minimis fringe benefits; meals and lodging; employer payment of employee's educational expenses; qualified tuition reductions; qualified employee discounts; qualified pension, profit-sharing and stock bonus plans; flexible spending arrangements stems; economic recovery payments
what is passive income? activity in which taxpayer did not actively participate.
even if the percentage-of-completion method is used for regular tax purposes, there are still likely to be differences in the calculation of taxable income because ___________ the calculation of alternative minimum taxable income must take into account not only the method of income recognition, but also other alternative minimum tax rules (e.g. depreciation methods)
how are losses dealt with in an involuntary conversion? losses are recognized!
Requirements to perfect a security interest Either:
-Filing a financing statement in the public records or appropriate office
-Taking physical possession
-(Neither is necessary for a purchase money security interest in consumer goods)
Firm offer requirements 1. Must be in writing
2. Must be signed by a merchant
3. The merchant must promise to keep the offer open
4. A firm offer must relate to the sale of goods
what is undue influence? a party's free will to contract is overcome by the defendant's abuse of a position of trust or confidence
what is uniform commercial code (UCC)? statutory law which governs contracts for sale of goods (moveable things)
what is an executory contract? duties remain to be performed under the contract
what is the mirror image rule? common law contracts require an acceptance to mirror the offer to be effective. (change anything and it's a counteroffer)
How much money can a child earn to be considered a qualifying child for dependency exemptions? any amount
when are punitive damages taxable? fully taxable as ordinary income if received in a business context or for loss of personal reputation. also if personal injury case, except in wrongful death cases
what are the three categories of dividends? 1. taxable dividends
2. tax-free distributions
3. capital gain distributions
in a ____ state, most of the income, deductions, credits, etc., are split 50/50. community property state
how is the kiddie tax calculated? child's total unearned income (from dividends, interest, rents, royalties, etc.( and subtracting $1,900 (the childs allowable 2010 standard deduction of $950 (or investment expense, if greater) + $950 (which is taxed at the child's rate))
if an event is taxable, what is the income and basis? fair market value
how are nondeductible PALs treated? passive activity losses can only be offset by passive income! carryforward forever--if still unused, suspended losses become fully tax deductible in the year the property is disposed of (sold)
Personal Holding Company 1. During anytime in the last half of the tax year five or fewer individuals own more than 50% of the value of the outstanding stock directly or indirectly
2. The corporation receives at least 60% of its adjusted gross income as "personal holding company income" (ex. dividends, interest, rents, royalties, and other passive income)
regarding elements of fraud, what does it mean to have an intent to induce reliance? the purpose in making the misrepresentation was to induce reliance
when does title pass under UCC? whenever the parties agree. if there is no agreement, title passes on delivery. (shipment vs. delivery)
what can specific performance damages be used for? land or unique items - not services!
what are the three exceptions to the general rule on an offeror's power to revoke an offer? 1. option contract
2. unilateral contracts
3. firm offer
what is the effect of delegation? both parties are liable unless there is a novation
"we hereby disclaim any and all warranties" claim means nothing! can't do that
what is the implied warranty of title? the seller implicitly warrants that they had the right to sell the goods. good title, no stated encumbrances, and no infringements
what is a unilateral contract? there is one promise, which is given in exchange for performance. not a contract until performance is completed
long term gains on ________ are taxed at 28% (for taxpayers not in the 10%, 15% or 25% tax brackets) collectibles, antiques, and small company (section 1202) stock
how are treasury and capital stock transactions by a corporation treated for tax purposes? sales of stock by corporation, repurchase of stock by corp, and reissue of stock are exempt from gain and losses are disallowed. essentially corporations are precluded from tax benefits or income taxes resulting from dealing in their own stock.
what is the general rule for interest? all interest is taxable, unless specifically excluded
how does the cash basis work for calculating farming income? inventories of produce, livestock, etc., are not considered. gross income includes the cash and the value of all other items received from the sale of produce, livestock that has been raised by the farmer, and for livestock or other items a farmer may have bought, profit is computed by subtracting the purchase price from the sales price.
in order for the manufacture of personal property to qualify as long-term contract, not only must the contract not be completed within the year it was started, but it also must be ____________ for the manufacture of a "unique" item (i.e., an item that is made specifically for a customer and could not be sold to others, is not generally part of a taxpayer's normal inventory, and requires significant pre-production costs)
what is the acronym for the qualifying child dependency exemption? Close Relative
Age Limit
Residency and Filing Reqs
Eliminate Gross Income Test
Support Test Changes
which individuals must file income tax returns even if their income is lower than the "general rule" requirement? 1. net earnings from self-employment are $400 or more
2. can be claimed as dependents on another taxpayer's return, have unearned income, and gross income of $950 (2010) or more
3. receive advanced payments of earned income credit
the proceeds of a life insurance policy paid because of the death of the insured re general excluded from the gross income of the beneficiary....except: the interest income element on deferred payout arrangements if fully taxable.
what is taxable in a traditional non-deductible IRA? principal - not taxable. accumulated earnings - taxable when withdrawn
promises not to compete in employment contracts and in the sale of a business are enforceable if they meet 3 tests of reasonableness: 1. reasonably needed to protect a legit bus interest
2. reasonable in duration
3. reasonable as to distance (geographically)
what does FAS Free along side mean? requires seller to deliver goods along side of a specific vessel. risk of loss passes to the buyer when the seller gets the goods
what is the minimum requirement for a third party? must be named or specifically described in the contract
is the UCC limited to merchants? no. it applies to all contracts for the sale of goods
what are de minimis fringe benefits? benefits that are so minimal that they are impractical to account for and may be excluded from income
what are the netting procedures for capital gains and losses for individuals? gains and losses are netted within each tax rate group, creating net short-term and long-term gains or losses by rate group. resulting short-term and long-term loses are then offset against short term and long-term gains (respectively) beginning with the highest tax rate group and continuing to the lower rates
what is the general rule for inherited property basis? for years after 2010, property acquired by the bequest or inheritance generally takes as its basis the step-up (or down) to FMV at the date of the decedent's death
who qualifies for the homeowner's exclusion from gross income for gain? taxpayer owns and used the property as a principal residence for two years or more during the 5 year ending period ending on the date of the sale or exchange. either spouse for a joint return must meet the ownership requirement, but both spouses must meet the use requirement with respect for the property. may not use exclusion more than once every 2 yrs (could get partial if other reasons though)
a gain is not taxed for the following: H - Homeowner's exclusion
I - Involuntary Conversions
D - Divorced Property Settlement
E - exchange of Like-Kind Business/Investment assets
I - Installment Sale
T - Treasury and capital Stock Transactions
what is the cost-to-cost method of calculating the percentage-of-completion? ratio of the total cumulative costs incurred to date at the end of the tax year divided by the total expected costs to be incurred under the contract.
if the divorce settlement provides for a lump-sum payment or property settlement by a spouse, that spouses gets ____ for payments made, and the payments are _____ of the spouse receiving the payment no deduction; not includible in the gross income
scholarships and fellowship grants are excludable only up to amounts actually spent on tuition, fees, books and supplies (not room and board) provided: 1. the grant is made to a degree-seeking student
2. no services are performed as a condition to receiving the grant
3. the grant is not made in consideration for past, present, or future services of the grantee
when can business meal and entertainment expenses be 100% deductible? when all proceeds go to benefit a charity
When to use mid-quarter convention? Is used if more than 40% of all personal property is placed in service in the last quarter of the taxpayer's tax year.
when does fraud in the execution occur? when a party is deceived into signing something that he does not know is a contract. void - no meeting of the minds.
who is liable if you assume a mortgage? what if you take subject to the mortgage? assumed mortgage - both assignor and assignee are liable

subject to the mortgage - only assignor is liable
what is a delegation of duties? if a party wants to have a third perform contractual duties
how do you modify a contract under the ucc? don't have to give extra consideration....everyone just has to agree on the new change
when does the risk pass for a noncarrier merchant seller? risk passes on actual delivery (when the buyer takes physical possession)
what is the general rule for third-party beneficiaries? only the parties to the contract have rights under the contract. an exception exists for INTENDED third-party beneficiaries.
at common low, if there has been a material or substantial breach, the non breaching party can _______. if the breach is only minor, the nonbreaching party is not discharged, but is ________. discharged from the contract.
but is entitled to damages
what are the conditions to be considered a real estate professional (so that the rental activities are not considered passive and the taxpayer can fully deduct losses from the rental activities against other income)? 1. more than 50% of the taxpayer's personal services during the year are performed in real property businesses
2. the taxpayer performs more than 750 hours of services in real property businesses during the year
what is the basic formula for the determination of net rental income or loss? gross rental income + prepaid rental income + rental cancellation payment + improvement in-lieu-of-rent --- rental expenses
how is the gain/loss calculated when you sell property that was gifted to you? if the fmv is higher, then selling price - basis. if fmv value is lower, then gain = selling price - basis and loss = fmv - selling price. anything inbetween is no gain or loss.
if a taxpayer performs services for a contractor that is required to account for a long-term contract entered into with a related party using the percentage-of-completion method, the taxpayer (even those providing engineering or design services) must also because of the related party impact. the exception is where over 50% of the 3-year average annual gross receipts of the same items stem from unrelated parties.
what is the special (lower) tax rate for those dividends that qualify? (2010 only) 15% most taxpayers, 0% low income taxpayers
what are conditions to be considered a "father or mother" under the head of household requirement? not required to live with the taxpayer, provided the taxpayer maintains a home that was the principal residence of the parent for the entire year. maintaining a home means contributing over half the cost of upkeep. This means rent, mortgage interest, property taxes, insurance, utility charges, repairs, and food consumed in the home.
what are the two requirements to have "qualifying widower (surviving spouse)" status? 1. two years after spouse's death
2. principal residence for dependent child
how are net capital losses for c corps treated? corporations may not deduct any capital loss from ordinary income. only use capital losses against capital gains. net capital losses are carried back 3 years and forward 5 years as a short term capital loss.
Requirements to attach a security interest 1. The debtor must have rights in the collateral.
2. The secured party must have given value.
3. A security agreement must exist.
what are the exceptions to the general rule that a true owner can recover stolen goods from a 3rd party? 1. entrusting. if the owner of goods entrusts them to a merchant
2. voidable title. tricked - bad check
when does the risk pass for a carrier destination contract? when the goods reach the destination and seller tenders delivery
what is a direct and indirect way for an offeror to communicate the end of an offer? 1. call them
2. sell to someone else
liquidated damages - if the buyer has made a down payment and breaches, the seller may keep the lesser of _____ lesser of $500 or 20% of the price
those injured by goods can sue negligent sellers. they must prove: 1. seller owed them a duty of care
2. seller breached the duty by failing to use due care
3. damages
4. causation
when does a creditor have the right to assign their receivable money to someone else? always, even if the contract prohibits assignment. just have to give notice
how to account for a stock dividend of the same stock. original basis is divided by total shares
when is interest of series EE bonds tax exempt? 1. used to pay for higher education (reduced by tax-free scholarships, of the taxpayer, spouse or dependents)
2. there is taxpayer or joint ownership (spouse)
3. the taxpayer is over age 24 when issued; and
4. the bonds are acquired after 1989
an adjustment to income is allowed for _______ of S/E tax (medicare plus social security) paid one-half (which is 7.65% of up to 106,800 of self-eplyment income in 2010 plus 1.45% of self employment income thereafter)
how can kissing cousins or foster beer be counted as an exemption? if they live with the taxpayer the entire year.
what are the ucc's rules for auctions? 1. the bid is the offer and the fall of the hammer is the acceptance
2. unless otherwise stated, all auctions are "with reserve"
3. in "without reserve" the goods must be sold to the highest bidder
a unilateral mistake as to a material fact is a defense if ________ if the other party knew or should have known of the mistake
what are the exceptions to the year requirement for writing a contract? if it is possible to perform in a year, or if one party has fully performed the contract.
what are the exceptions for the land requirement for writing a contract? 1. leases of land for less than a year
2. full or partial performance
[two of the following:
a. payment in whole or in part
b. making valuable improvements on the land
c. possession of the land
what is the holding period and tax rate for short term capital gains? one year or less, tax rate is treated as ordinary income.
what is the mom and pop exception of the passive activity loss disallowed net loss exception? taxpayers ay deduct up to $25,000 per year of net passive losses attributable to rental real estate annually if the individuals are actively participating/managing
Contracts that must be in writing to be enforceable -A promise to answer for the debts of another
-A contract to transfer an interest in real estate
-A contract which cannot, by its terms, be performed within one year from the date the agreement was made
-The UCC sale of goods of $500 or more
what do you need to add to your AGI to end up at MAGI? 1. income excluded for foreign earned income exclusion
2. exclusion or deduction claimed for foreign housing
3. interest income from series EE bonds that you were able to exclude bc you paid qualified higher education expenses
4. deduction claimed for student loan interest or qualified tuition and related expenses
5. any employer-paid adoption expense you excluded
6. any deduction you claimed for an annual (non-rollover) contribution to a regular IRA