CPA REG flashcards

40 cards. Read the term and the definition here. The deck at the top of this page is optional.

Circular 230 substantial authority

A practitioner may not sign a return or advise a position unless there is substantial authority, or a reasonable basis with adequate disclosure of the position.

Preparer penalty IRC 6694

A tax return preparer may be assessed a penalty for unreasonable positions on a return; willful or reckless conduct increases the penalty amount.

Statute of limitations assessment

The IRS generally has three years from the filing date to assess tax, six years if gross income is understated by more than 25%, and unlimited time for fraud.

Reasonable cause abatement

The IRS may abate penalties when the taxpayer demonstrates reasonable cause and acted with ordinary business care and prudence.

Claim for refund deadline

A refund claim must generally be filed within three years from the date the return was filed or two years from the date the tax was paid, whichever is later.

UCC perfect tender rule

Under UCC Article 2, a buyer may reject goods that fail to conform to the contract in any respect, subject to the seller's right to cure.

Surety versus guarantor

A surety is primarily liable on the obligation alongside the debtor, while a guarantor is secondarily liable and benefits from suretyship defenses.

Statute of Frauds categories

Contracts requiring a writing include those involving land, suretyship, marriage, performance over one year, and goods priced over $500.

Holder in due course

A holder who takes a negotiable instrument for value, in good faith, and without notice of defenses takes free of personal defenses but subject to real defenses.

Bankruptcy preference period

A trustee may avoid transfers to creditors made within 90 days before filing (one year for insiders) if the creditor received more than in a Chapter 7 case.

Agency termination by law

An agency terminates automatically upon the death, incapacity, or bankruptcy of the principal, or upon the destruction of the subject matter.

Gift basis carryover

Property received by gift takes the donor's adjusted basis, increased by gift tax paid attributable to appreciation, for determining gain on later sale.

Inherited property basis

Property acquired from a decedent generally takes a basis equal to fair market value on the date of death or the alternate valuation date.

Section 121 exclusion

A taxpayer may exclude up to $250,000 ($500,000 if married filing jointly) of gain on a principal residence owned and used for two of the prior five years.

Section 1245 recapture

Gain on sale of depreciable personal property is ordinary income to the extent of prior depreciation taken, with remaining gain treated as capital.

Wash sale rule

A loss on the sale of stock is disallowed if substantially identical stock is acquired within 30 days before or after the sale.

Like-kind exchange timing

Replacement property must be identified within 45 days and received within 180 days after the transfer of the relinquished property.

Above-the-line deductions

Deductions subtracted from gross income to arrive at adjusted gross income include traditional IRA contributions, HSA contributions, and self-employed retirement plan contributions.

Section 199A deduction

A 20% deduction for qualified business income from pass-through entities, subject to wage and property limits at higher income levels.

Kiddie tax

A child's unearned income above an indexed threshold is taxed at the parents' marginal rate to prevent income shifting.

Self-employment tax rate

Self-employment tax is 15.3% on net earnings up to the Social Security wage base, plus 2.9% Medicare and an additional 0.9% on high earners.

Head of household status

Filing status available to an unmarried taxpayer who maintains a household for a qualifying dependent for more than half the year.

S corporation eligibility

An S corporation may have no more than 100 eligible shareholders, only one class of stock, and must be a domestic corporation.

Partner basis adjustments

A partner's basis increases by contributions and distributive share of income and decreases by distributions and losses, limiting deductible losses.

Section 351 control requirement

A transfer of property to a corporation is tax-free if the transferors control the corporation immediately after the exchange and receive only stock.

Dividends received deduction

A corporate shareholder may deduct 50%, 65%, or 100% of dividends received depending on its ownership percentage in the distributing corporation.

Accumulated earnings tax

A penalty tax imposed on corporations that retain earnings beyond reasonable business needs to avoid shareholder-level taxation.

Installment sale gain

Gain is recognized as payments are received, computed by multiplying each payment by the gross profit percentage of the sale.

MACRS residential rental

Residential rental real property is depreciated over 27.5 years using the straight-line method and mid-month convention.

Section 179 expensing

An election allowing immediate deduction of qualifying tangible personal property up to an annual limit, phased out when purchases exceed the threshold.

Involuntary conversion deferral

Gain on property destroyed or condemned may be deferred if replacement property is acquired within two years, or three years for certain disasters.

Collection Due Process hearing

A taxpayer may request a hearing within 30 days of a notice of intent to levy or a notice of federal tax lien filing.

Offer in compromise grounds

A taxpayer may compromise a liability based on doubt as to liability, doubt as to collectibility, or effective tax administration.

Civil fraud penalty

A 75% penalty applies to the portion of an underpayment attributable to fraud, which the IRS must prove by clear and convincing evidence.

Failure-to-file penalty

A penalty of 5% per month of the unpaid tax, up to 25%, applies for failure to file, coordinated with the failure-to-pay penalty.

Innocent spouse relief

A spouse may be relieved of liability under traditional relief, separation of liability, or equitable relief, generally elected within two years of collection activity.

Business judgment rule

A legal presumption protecting corporate directors from liability for informed, good-faith decisions made with reasonable care and loyalty.

Automatic stay bankruptcy

Upon filing bankruptcy, collection actions against the debtor are halted; the court may grant relief from stay for cause.

Rule 10b-5

A securities rule prohibiting fraud, misrepresentation, and deceptive practices in connection with the purchase or sale of securities.

LLC charging order

A judgment creditor of an LLC member is generally limited to a charging order against distributions rather than direct ownership of the member's interest.