2013 REG Last Minute Study Notes (Bonus)

2013
LastMinute Study Notes
These notes are for your personal use only, please dont sell or forward to others. You can get the other parts from: http://cpa-exam.weebly.com/
Regulation LatsMinute Study Notes Index
Topic
Individual Taxation C Corporations S Corporations Exempt Organizations Gift Tax Estates and Trusts Ethics and Professional Responsibilities in Tax Services Contracts Sales Commercial Papers Secured Transactions Suretyship Debtor-Creditor Relationships Agency Bankruptcy Federal Tax Procedures and Legislative Process Regulations of Business Employment, Environment, and Antitrust
Page #
3 14 16 17 18 19 20 21 23 25 28 30 31 33 35 39 40
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Individual Taxation
1.
Above the line deductions
-taken from GI to get AGI. AGI important because it may affect the amount of allowable charitable contributions, medical expenses, casualty losses, and misc itemized deductions. -Includes: Business deductions of a self-employed person -Losses from sale or exchange of property -Deduction attributable to rents and royalties -One half of self-employment tax -Moving expenses -Contributions to self-employed retirement plans and IRAs -Deductions for interest on education loans -Penalties for premature withdrawals from time deposits -Alimony payments -Jury duty pay remitted to employer -Costs involving discrimination suits -Expenses of elementary/secondary teachers -Calendar year (Jan-Dec) or Fiscal Year -Taxpayer establishes accounting period by filing first tax return. A taxpayer who doesn't keep books must use calendar year -Adopting a taxable year C Corporations- May adopt any taxable year it chooses, but if personal service corp, must use calendar Sole Proprietor- same taxable year for business as personal return Partnership- Pass through, use same tax year as partners owning more than 50% of income/capital, unless substantial business purpose. S Corp- Pass through, calendar, unless substantial business purpose Estate-Any taxable year Trust-Calendar year unless charitable or tax exempt -Substantial business purpose and IRS approval required to change a taxable year. Business purpose met if taxpayer receives at least 25% of its gross receipts in the last two months of the selected year, and this 25% test has been satisfied for 3 consecutive years -Some changes require no approval: newly married, newly acquired subsidiary, etc
2.
Accounting Periods
3.
Accrual Method
-Must be used by taxpayers for purchases and sales when inventories are required to clearly reflect income. -Income recognized when all events have occurred that fix the taxpayer's right to receive the item of income, and amount is determinable. -Expense is deductible when all events have occurred that establish the fact of the liability and the amount can be determined. Economic performance must take place (property or services are actually provided to the other party) unless recurring items, in which case economic performance has to occur within 8.5 months after close of tax year. In order for a payment to be considered as alimony, the payment must:be made pursuant to a decree of divorce or written separation instrument, be made in cash and received by or on behalf of payee's spouse, terminate upon death of recipient. -Alimony recapture may occur if payments sharply decline in the second or third years (payor reports recaptured alimony from first and second years as income in the third year) -Recapture for the 2nd year occurs to the extent that the alimony paid in the second year exceeds the third-year alimony by more than 15,000 -Recapture for the first year occurs to the extent that the alimony paid in the first year exceeds the alimony paid in the second year and third year by more than 15,000 -Does not apply to payments that may fluctuate over 3 years due to something not within control of payor -Business start up costs: if in the same line of industry, then deductible in year paid or incurred. If not, then costs must be capitalized. May deduct up to $5000 (reduced by amount exceeding $50,000). Costs are amortized over 180 months. -Patents and copyrights may be amortized over useful life. 17 years for patents, life of author plus 50 years for copyrights -Research and experimental expenses may be amortized over 60 months or more, or be expensed at election of taxpayer -Anything else not specified by Code is amortized over useful life
4.
Alimony
5.
Amortization
Individual Taxation
6.
Annuities (exclude or deduct?)
-Excluded to the extent it represents a return of capital. - Net cost of annuity/expected total annuity payments* payment received -Amounts over the ROC is fully taxable -If taxpayer dies before total cost is recovered, unrecovered cost is allowed as a misc. itemized deduction on the final tax return. Guideline to determine deprecation class of property.
7.
Asset Depreciation Range (ADR) Averaging Convention
8.
Used to compute depreciation for the taxable year in which property is placed in service or disposed of under both regular MACRS and alternative depreciation system (straight line depreciation) -Half year convention: Personal property treated as placed in service at the midpoint of the taxable year. -Midquarter convention: Must be used if more than 40% of all personal property is placed in service during the last quarter of taxpayer's taxable year. Treated as placed in service in the middle of the quarter. -Real property is treated as placed in service or disposed of in the middle of the month, resulting in half moth of depreciation. Used to determine foreign earned income exclusion qualification Must be US citizen who is a foreign resident for an uninterrupted period that includes an entire taxable year 50% of the adjusted basis of qualified property is available if acquired after Dec 31, 2007 and placed in service before Jan. 1, 2013. -Tax Relief Act of 2010 increased the bonus depreciation percentage to 100% for qualified property acquired after September 8, 2010 and before January 1, 2012, and placed in service before January 1, 2012. -Cost of goods sold (Inventory is valued at LCM, Specific ID, FIFO, LIFO allowed, if LIFO used for taxes, must be used on books, LCM can't be used with LIFO) -Ordinary and necessary expenses incurred in a trade or business are deductible -Net Operating Loss -Some business use of home -Loss deductions incurred in a trade or business are limited to amount a taxpayer has at risk -Losses and credits from passive activities (usually only offset income from passive activities) -Receipts must be maintained for all lodging and for other expenditures of $75 or more expect transportation expenditures because receipts are not readily available. -Adequate records must be kept to detail who, where, when, why -Must be directly related to active conduct of a trade or business -food, beverage, and entertainment reduced by 50% unless full value of meal or entertainment is included in recipient's income or excluded as a fringe benefit, is reimbursed, traditional employer paid employee recreation expense, etc. -No dues are deductible unless for professional organizations, business leagues, trade associations, chambers of commerce, board of trade, civic and public service orgs. -Transportation/travel expenses deductible. 55.5c per gallon or actual cost. -A portion of home must be used exclusively and regularly as the principal place of business, or as a meeting place for patients, clients, or customers. -Deduction is limited to the excess of gross income derived from the business use of the home over deductions otherwise allowable for taxes, interest, and casualty losses. -All business expenses not allocable to the use of the home must be deducted before home use expense -Recognizes income when first received or constructively received(an item is unqualifiedly available without restriction), expenses deductible when paid. Not all receipts are income (loan proceeds, ROI) and not all payments are deductible (loan repayment, etc) -A capital expenditure or prepayment that results in a benefit that extends substantially beyond the end of the year cannot be immediately deducted, unless benefit does not extend beyond 12 months after the first date that the benefit is received, and the benefit does not extend beyond the end of the taxable year following the taxable year in which payment is made. Does not apply to prepaid interest. -Cannot generally be used if inventories are necessary to clearly reflect income, and cannot generally be used by C corps, partnerships that have C corps as partners, tax shelters, and certain tax-exempt trusts. -excluded from GI by payee, nondeductible by payee -if specified amount of alimony is to be reduced upon the happenings of some contingency relation to a child, then an amount equal to the specified reduction will be treated as child support rather than alimony.
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9.
Bona fide residence test Bonus Depreciation
10.
11.
Business Income and deductions
12.
Business meals, entertainment, and travel
13.
Business use of home deductions
14.
Cash method accounting
15.
Child Support
Individual Taxation
16.
Child support (exclude or deduct?) Contributions made to education IRAs
-Excluded from GI -Must be specified as Child support, or else may be considered alimony which is included in GI -Also called the Coverdell Education Savings Account -up to $2,000 per beneficiary (until the beneficiary reaches 18) are not deductible, but withdrawals to pay for education expenses are tax-free. -Any amount left in an education IRA before the beneficiary reaches 30 can be rolled over to another family member's education IRA without income taxes or penalties -Phased out for single taxpayers with mod AGI between 95,000 and 110,000 and for MFJ with mod AGI between 190,000 and 220,000. -Called HR10 or Keogh Plan -Max contribution and deductions is lessor of 49,000 or 100% of earned income for 2010 and 2011 -Earned income includes retirement plan and self employment tax deductions (must reduce by the retirement plan contribution and self employment tax deduction for purposes of determining max deduction) -Maximum of the lessor of $5,000 or 100% of compensation (including alimony), phased out if active participant in an employer-sponsored retirement plan or a Keogh plan proportionally for AGI between 90,000-110,000 for MFJ or 56,000-66,000 for singles -Taxpayer whose AGI is above the applicable phaseout range can make a $200 deductible contribution regardless of the proportional phaseout rule. -Can make nondeductible contributions, but total contributions cannot exceed $5,000 or 100% of compensation limit. -Catchup contributions of an additional $1,000 per year available for individuals at least age 50 -10% penalty tax on early withdrawals (pre 59.5 years) does not apply to amounts withdrawn for "qualified higher education expenses" and "first-time homebuyer expenses" (capped at $10,000), nor to distributions made to unemployed for health insurance premiums, and distributions to the extent that deductible medical expenses exceed 7.5% of AGI. -Cannot make contributions past 70.5 years old -Not deductible, but qualified distributions of earnings are tax-free. Can also contribute to IRAs, but total contributions to all IRAs cannot exceed $5,000 or $6,000 for >50 year olds -Eligibility for Roth IRA phased out for singles with AGI 107,000 to 122,000 and MFJ with AGI between 169,000 and 179,000. -Can make contributions past 70.5 years old -Qualified distributions are made after the 5 year period beginning with the first tax year for which a contribution was made and the distribution is made after the individual reaches 59.5 years old, to a beneficiary after the individual's death, after the individual becomes disabled, or for the first time homebuyer expenses of the individual, individual's spouse, children, grandchildren, or ancestors ($10,000 cap) -Nonqualified distributions are subject to tax on earnings, and to the 10% penalty. -Can convert assets in traditional IRAs to Roth IRA without paying the 10% penalty, although deemed distributions of IRA assets is included in income. -Individual is allowed to deduct up to $2,500 for interest on qualified education loans, unless individual is claimed as dependent on another taxpayer's return -Qualified = any debt incurred to pay the qualified higher education expenses of the taxpayer, spouse, or dependents, and the education expenses must relate to a period when the student was enrolled on at least a half time basis -Phased out for single with mod AGI between 60,000 and 75,000, and MFJ with AGI between 120,000 and 150,000 -For 2007-2011, individuals are allowed to dedcut qualified higher education expenses, limited to $4000 for individuals with AGI below $65,000 or 130,000 for joint. Limited to $2000 above $65,000-$80,000 (130,000160,000 for joint) -Deduction is allowed for expenses paid during the tax year, or in connection with an academic term beginning during the year or the first 3 months of the following year. -Not deductible if individual takes Hope credit or lifetime learning credit. -Employer payments to an employee for dependent care assistance are excluded if made under a written, nondiscriminatory plan -Maximum exclusion is $5,000 per year ($2,500 for a married filing separate)
17.
18.
Contributions of self employed to qualified retirement plans Contributions to IRAs
19.
20.
Contributions to Roth IRA
21.
Deduction for Interest on Education Loans Deduction for Qualified tuition and related expenses
22.
23.
Dependent Care Assistance (exclude or deduct?)
Individual Taxation
24.
Depletion
Allowed on timber, minerals, oil, and gas, and other exhaustible natural resources of wasting assets. -Two methods: Cost and percentage -Cost method divides the adjusted basis by the total number of recoverable units and multiplies by the number of units sold during the year -Percentage method uses a specified percentage of gross income from the property during the year. Deduction may not exceed 50% of the taxable income from the property, may be taken even after costs have been recovered and there is no basis, may be used for domestic oil and gas wells by independent producer or royalty owner; cannot be used for timber. Percentage is a statutory amount. Must be recovered over the MACRS recovery period of the underlying property without regard to the lease term. For qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property placed in service after October 22, 2004 and before January 1, 2012, cost is recovered over 15 year recovery period using SL method and half year convention (unless midquarter applies) -Upon expiration of lease, any unrecovered adjusted basis in abandoned leasehold improvement is treated as loss. Deduction for AGI -Depreciation = allowance for the exhaustion, wear and tear of property used in a trade or business, or property held for the production of income. -Depletion = Allowed on timber, minerals, oil, gas, and other exhaustible natural resources -Amortization =Depreciation of intangibles -Normally results in income to debtor but may be excluded if discharge of certain student loans pursuant to a loan provision for discharge if individual works in a certain profession for a specified period of time, discharge of a corporation's debt by a shareholder, gift, purchase money debt reduction, discharged in a bankruptcy proceeding, or debtor is insolvent both before and after discharge -can be excluded if: no additional cost services, nondiscriminatory employee discount, working condition fringes, de minimus fringes (small value like coffee, using copier, etc), transportation fringes (up to $230 per month for parking, transit passes, car fees, etc), moving expense reimbursement (directly incurred by individual) -Deductible by employer -Limited to 25% of compensation (up to compensation of $245,000) or 49,000 -Excluded from employee's GI
25.
Depreciation of leasehold improvements
26.
Depreciation, Depletion, Amortization
27.
Discharge of indebtedness (exclude or deduct?) Employee fringe benefits (exclude or deduct?) Employer's contribution to employee's simplified employee pension plan (SEP) Exclusion VS Deduction
28.
29.
30.
Exclusion: Income items that are not included in gross income. Must be specified by law. Deduction: Amounts that are subtracted from GI to arrive at AGI
Individual Taxation
31.
Exclusions from GI
-Child Support -Property Settlement in a divorce -Annuities that are a ROC -Life Insurance proceed (face amount of policy) -Certain employee benefits (group-term life insurance, accident/health plan insurance premiums paid by employer, accident and health benefits, employer contribution to Medical Savings Account (MSA), meals or lodging furnished for the convenience of the employer on the employer's premise, educational assistance program, dependent care assistance, qualified adoption expenses, employee fringe benefits, worker's compensation) -Accident/Health insurance benefits derived from policies purchased by taxpayer -Damages for physical injury or physical sickness -Gifts, bequests, devises, or inheritances -Stock dividends -Certain interest income (municipal bonds, qualified bonds issued for the benefit of schools, hospitals, and other charitable orgs, bonds used to finance certain exempt facilities such as airports, docks, wharves, mass commuting facilities, etc, qualified redevelopment bonds, student loan bonds, qualified mortgage and veterans' mortgage bonds) -Savings bonds for higher education (Series EE US savings bond) -Scholarships and fellowships -Political contributions received by candidates' campaign funds -Rental value of parsonage or cash rental allowance for a parsonage -Sometimes a discharge of indebtedness -Lease improvements unless in lieu of rent -Foreign earned income -an individual meeting either a bona fide residence test or a physical presence test may exclude up to 92,900 of income, and qualified taxpayers may elect to exclude additional amounts based on foreign housing costs -must be a US citizen who is a foreign resident for an uninterrupted period that includes an entire taxable year (bona fide resident test) or a US citizen/resident present in a foreign country for at least 330 full days in any 12-month period (physical presence test) All income from whatever source derived, unless specifically excluded Applied to gains (not losses) from the disposition of property where at least one payment is to be received after the year of sale (unless taxpayer makes a negative election to report the full amount of gain in the year of sale) -Cannot be used for property held for sale in the ordinary course of business (except time-shares, residential lots, and property used or produced in farming), and cannot be used for sales of stock or securities traded on an established securities market. -Amount to be reported in each year is: (GP/Total Contract Price) * Amount received in year -Contract price = Selling price - liabilities assumed to the extent not in excess of seller's basis -Any depreciation recapture under sections 1245, 1250, and 291 must be included in income in the year of the sale. Treated as an increase in the basis of the property for purposes of determining GP ratio. -Earnings from savings and loan association -Interest on bank deposits, corporate or US government bonds, and Treasury bills -Interest on tax refunds -Inputed interest from interest-free and low interest loans
32.
Foreign earned income (exclude or deduct?) Gross Income Installment Method
33.
34.
35.
Interest
37.
Itemized Deductions from AGI
-Below the line deductions -Itemize or take the standard deduction -Personal exemptions -Medical/Dental Expenses -Taxes (local/state income, real property, personal property) -Interest Expense -Charitable Contributions -Personal Casualty and Theft Gains and Losses -Misc Deductions
Individual Taxation
38.
Items to be included in GI
GI includes all income from any source except those specifically excluded, including -Compensation for services, including wages, salaries, bonuses, commissions, fees, and tips -Gross income derived from business or profession -Distributive share of partnership or S corp income -Gain from the sale or exchange of real estate, securities, or other property -Rent and royalties -Dividends -Interest -Alimony -Social security, pensions, annuities -Income in respect of a decedent -Employer supplemental unemployment benefits or strike benefits from union funds -Fees, including those received by an executor, administrator, director, or for jury duty, or precinct election board duty -Income from discharge of indebtedness unless specifically excluded -Stock options -Prizes and awards -Employment achievement awards (unless between $400-1600) -Embezzled or other illegal income -Gambling winnings -Unemployment compensation -Tax benefit rule -increase in value of property due to improvements made by lessee are excluded from lessor's income unless made in lieu of FV rent
39.
Lease improvements (exclude or deduct?) Life insurance proceeds (exclude or deduct?)
40.
-the face amount of policy is generally excluded if paid by reason of death -dividends received is excluded if it doesn't exceed cumulative premiums paid -use ratio if paid in installments -accelerated death benefits by a terminally ill or chronically ill are generally excluded from GI -if chronically ill, exclusion is limited to the amount paid by individual for unreimbursed long term care costs. $300 per diem excluded regardless of incurred costs -if proceeds are paid for reasons other than death or ill, all proceeds in excess of cost are taxable -if employer is beneficiary of policy of company owned life insurance, can exclude all of proceed if employee is notified in writing of the intent and amount to insure, provide written consent, be informed in writing that employer will be the beneficiary of proceeds, and was an employee at any time during the 12-month period before the insured's death. Otherwise, only return of premiums paid are excluded, rest is taxable Passive activity = any activity that involves the conduct of a trade or business in which the taxpayer does not materially participate, any rental activity, and any limited partnership interest. -Losses from passive activities can only offset income from passive activities, and can be carried forward for to the INFINITE future. -Credits from passive activities can only be used to offset the tax liability attributable to passive activity income. -Itemized Deduction -Expenses paid by taxpayer for himself, spouse, or dependent are deductible in year of payment if not reimbursed. A child of divorced/separated parents is treated as a dependent of both parents for this purpose -Unreimbursed expenses are deducted to extent in excess of 7.5% of AGI -No unnecessary medical expenses -Expenses for removal of structural barriers in residence is deductible
41.
Losses and credits from passive activities Medical/Dental Expenses
42.
Individual Taxation
43.
Modified Accelerated Cost Recovery System (MACRS)
Mandatory for most depreciable property placed in service after 1986. -No salvage value -Method of cost recovery and recovery period for new and used items are the same. -Recovery property include anything that isn't land, intangible assets, and property the taxpayer elects to depreciate under a method not using years (eg per unit of output) -3 year, 200% class: Property with an ADR midpoint of 4 years or less (except autos and light trucks) and certain horses -5 year, 200% class: Property with an ADR midpoint of more than 4 but less than 10, includes autos and light trucks, computers, and peripheral equipment, office machinery (typewriters, calculators, copiers) -7 year, 200% class: Property with an ADR midpoint of at least 10 and less than 16 years, including property with no midpoint, office furniture, and fixtures (desks, files, etc) -10 year, 200% class: Property with an ADR midpoint of at least 16 and less than 20 years -15 year, 150% class: ADR midpoint of at least 20 years and less than 25 years -20 year, 150% class: ADR with midpoint of 25 years or more, other than real property with midpoint of 27.5 years or more. -27.5 year, straight line: residential rental property -39 year, straight line: Any property that is neither residential real property nor property with a class life of less than 27.5 years -Taxpayers can elect to use straight line rather than declining balance on property with 3-20 year class, class by class selection, or use 150%.
44.
Moving Expenses
-Distance between former residence and new job must be at least 50 miles farther than from the former residence to the former job. -Must be employed at least 39 weeks out of the 12 months after move. Self employed = 78 weeks out of 24 months. -Can deduct cost of moving household goods and personal effects from the old to new, cost of traveling (including lodging). -Can't deduct meals, househunting trips, temporary lodging in the general location of new work site, expenses incurred in selling old house or buying new house, etc. -Carried back two years and carried forward 20 years to offset taxable income -Things that cannot be be included as NOL: Any NOL carryforward or carryback from another year, excess of capital losses over capital gains, excess of nonbusiness capital loss over nonbusiness capital gain even if overall gains exceed losses, personal and dependency exemptions, excess of nonbusiness deductions over nonbusiness income. -Deducted from GI -Nothing illegal -Business expenses must be reasonable (no absurd salaries... compare with other companies) -First telephone line for an individual is not deductible -Uniform Capitalization Rules (UNICAP) -Business meals/entertainment/travel -Business gifts are limited to $25 per recipient per year, unless for employee award for length of service or safety. Then, $400 for regular, $1600 limit for qualified plan that is written and nondiscriminatory, and average cost of all items awarded under plan must not exceed $400. -Bad debts deducted in the year they become worthless. Business bad debts can deduct when become partially or completely worthless, nonbusiness bad debt can only be deducted when completely worthless and as a short term capital loss. -No net loss can be deducted for hobby activities, but expenses can be deducted as itemized deduction in the order of taxes, interest, casualty losses pertaining to hobby, then other hobby expenses (out of pocket, depreciation). Subject to 2% of AGI floor. -Used for contracts that are not completed within the year they are started. -Recognizes income each year based on the percentage of the contract completed that year -Taxpayer may not elect to recognize income or account for costs from a contract for a tax year if less than 10% of the estimated total contract costs have been incurred as of the end of the year. Used to determine foreign earned income exclusion qualification Must be a US citizen/resident present in a foreign country for at least 330 full days in any 12 month period
45.
Net operating loss
46.
Ordinary/Necessary expenses
47.
Percentage of Completion Method
48.
Physical presence test
Individual Taxation
49.
Prizes and awards
-generally taxable, but if received for religious, charitable, scientific, educational artistic, literary, or civic achievement, can exclude if not required to render future service and designates that prize is to be transferred by payor to government unit or tax-exempt charitable, educational, or religious org. Then, recipient can exclude, but cannot deduct for charitable contribution. -employee achievement awards are excluded if the cost to the employer is between $400-$1600). Must be for length of service or safety achievement and must be in the form of tangible personal property (not cash) -Attributable expenses are deductible above the line. -Rental of vacation home: if any personal use, amount deductible is prorated -If used as residence, amount deductible is further limited to rental income less deductions otherwise allowable for interest, taxes, and casualty losses. Residence if personal use exceeds greater of 14 days or 10% of days rented. -If used as residence and rented for less than 15 days, income therefrom is not reported and rental expenses deductions are not allowed. AGI + tax-exempt income + 50% of SS benefits -$13,360 per eligible child can be excluded for payments from employer to employee -Ratably phased out for mod AGI between $185,210 and $225,210
50.
Property held for the production of rents or royalties Provisional Income Qualified adoption expenses (exclude or deduct?) Qualified educational assistance program (exclude or deduct?) Receipt of stock dividends (exclude or deduct?) Reimbursed employee business expenses
51.
52.
53.
-Employer paid expenses excluded up to maximum of $5,250 per year for payment of tuition, books, fees for undergrad/graduate classes
54.
-Excluded, but FMV of stock received will be included in income if on preferred stock, is payable at the election of any shareholder in stock or property, results in the receipt of preferred stock by some common shareholders, and the receipt of common stock by other common shareholders, or results in the receipt of property by some shareholders, and an increase in proportionate interest of other shareholders in earnings or assets of the corporation. Depends on whether the employee makes an adequate accounting to the employer and returns amount in excess of substantiated expenses. -Per diem reimbursements at a rate not in excess of federal rate and 55.5c per mile are deemed to satisfy the substantiation requirement if employee provides time, place, and business purpose of expenses -If employee makes an adequate accounting to the employer and reimbursements equal expenses, or if the employee returns excess reimbursement, reimbursements are excluded from GI and expenses are not deductible. -If employee does not make adequate accounting, total amount of reimbursement is included in GI and related expenses are deductible as misc itemized deduction subject to 50% limitation for business meals and entertainment and the 2% of AGI floor. Although passive activity, a special rule permits an individual to offset up to $25,000 of income that is not from passive activity by losses or credits from rental real estate if the individual actively participates in the rental real estate activity. -Actively participate = taxpayer personally operates the rental property or if rental agent operates the property, and taxpayer participates in management decisions or arranges for others to provide services. -Has to have at least 10% interest in activity throughout year -$25,000 offset reduced by 50% of AGI in excess of $100,000 and fully phased out when AGI exceeds $150,000. AGI here is computed before including taxable SS, before deducting IRA contributions, and before the exclusion of interest from Series EE bonds -If they meet certain eligibility requirements, losses and credits from rental are not subject to passive activity loss limitation. They must perform more than half of all personal services for the property, and perform more than 750 hours of service per year. For corps, 50% of their gross receipts must be from rental activities. -Degree candidate can exclude scholar/fellowship that is used for tuition and course related fees (room/board not included) -Amount received as a grant or a tuition reduction that represent payment for teaching, research, or other service are generally not excludable
55.
56.
Rental Activity
57.
Scholarships and fellowships (exclude or deduct?)
Individual Taxation
58.
Sec 197 Intangibles
-Most acquired intangible assets are amortized over 15 year period -Amortizable 197 intangible is any qualifying intangible asset which is acquired by the taxpayer and which is held in connection with the conduct of trade or business. Includes goodwill, going concern value, workforce, information base, know-how, customer-based intangibles, government licenses and permits, franchises, trademarks, and trade names. -Excluded are many types of financial interests, instruments, and contracts, interests in a corporation, partnership, trust, or estate, interest in land, sports franchises, leases of tangible personal property. -No loss can be recognized on the disposition of Sec 197 intangible if taxpayer retains other 197 intangibles acquired in the same transaction or a series of transactions. Any disallowed loss is added to basis of remaining 197 intangibles and recovered through amortization. -May annually elect to treat the cost of qualifying depreciable property as an expense rather than a capital expenditure. -Qualifying property is recovery property that is new or used tangible property acquired by purchased from an unrelated party for sue in the active conduct of a trade or business. Off-the-shelf computer software with a useful life of more than one year is treated as qualifying property that may be expensed. -Maximum cost that can be annually expensed is $500,000 for the years beginning in 2010 and 2011, but reduced dollar for dollar by cost of qualifying property that is placed in service during the year that exceeds $2 million -if property converted to nonbusiness use, must recapture excess of expensed over MACRS deductions that would have been allowed as ordinary income. -Can deduct 100% of premium for individual, spouse, and dependents for AGI -Cannot exceed net earnings from the trade or business with respect to which the plan providing for health insurance was established. -No deduction is allowed if eligible to participate in an employer's subsidized health plan. -Excluded to the extent that the aggregate redemption proceeds (principal plus interest) are used to finance the higher education -Must be issued after Dec 31, 1989 to an individual age 24 or older at bond's issue date -Purchaser of bond must be sole owner unless joint owner with spouse -If redemption proceeds exceeds the qualified higher education expenses, only a pro rata amount of interest can be excluded -Subject to phase out MFJ (106,650-136,650) Single or HH (71,100-86,100) computed as excess agi/15,000 (30,000 for joint) * otherwise excludable interest = reduction Any trade or business (including one conducted by a corporation, partnership, or SP) with annual gross receipts of $5 million or less for the 3 year tax period preceding loss year -Up to 50% of SS retirement benefits may be included in gross income if taxpayer's provisions income (AGI + tax-exempt income + 50% of the social security benefits) exceeds a threshold that is $32,000 for a joint return, $0 for MFS, $25,000 for all other taxpayers. -Amount to be included is lesser of 50% of SS benefits or 50% of the excess of taxpayer's provisional income over the base amount. -85% of SS retirement benefits if higher than 2nd threshold of $44,000 for joint, $0 for MFS, and $34,000 for all other. -Rule of thumb: SS retirement benefits are fully excluded by low-income taxpayers (provisional income <$25000); 85% of benefits must be included in gross income by high income taxpayers (provisional income >$60,000) -Rent/Royalty received in advance are included in gross income in year received under both cash and accrual. -Security Deposit included if not returned, or to be used as final payment of rent -Dividends included in GI in year received -No advanced deduction generally allowed for estimated or contingent expenses... obligation has to be fixed and determinable.
59.
Section 179 expense election
60.
Self employed individual-Medical insurance premiums Series EE US Savings bonds (exclude or deduct?)
61.
62.
Small business definition Social Security, Pensions, annuities (other than excluded recovery of capital)
63.
64.
Special rules regarding methods of accounting
11
Individual Taxation
65.
Standard Deduction
-May be more for old/blind -MFJ, Widow $11,600 -MFS $5,800 -HH $8,500 -Single $5,800 Single (not survivor) who is either 65 or older or blind receives additional standard deduction of $1,450 ($2,900 if both) Married, $1,150 each ($2,300 for both) Dependents: Standard deduction is lessor of $5,800 or greater of $950 or dependent's earned income plus $300.
66.
Stock Options
-Incentive stock option receives favorable treatment: must meet certain technical requirements, but no income in recognized by employee when option is granted or exercised. -If employee holds the stock acquired through exercise of the option at least 2 years from the date of the option was granted, and holds the stock itself at least one year, then the employee's realized gain will be LTCG. If requirement not met, FMV at date of exercise over cost = ordinary income, remainder is STCG or LTCG -Nonqualified stock option is included in income when received if option has determinable FMV A recovery of an item deducted in an earlier year must be included in gross income to the extent that a tax benefit was derived from the prior deduction of the recovered item. -Itemized Deduction -Deductible as a tax in year paid if they are imposed on taxpayer: Income tax (state, local, foreign), Real Property Tax (State, local, foreign), personal property tax (state, local). -Deductible as expense incurred in a trade or business or in the production of income (above the line): SS and employment tax paid by employer, federal excise taxes on autos, tires, phone service, air transportation, customs duties and gasoline taxes. -Not deductible: Federal income tax, federal/state/local estate or gift tax, SS or other employment tax paid by employee (including SE tax) -If <$20 in one month, tips do not have to be reported to the employer but must be included in the individual's GI when received -If >$20 in one month, the individual must report the total amount of tips to the employer by the 10th day of the following month for purposes of withholding of income tax and social security tax. Then the total amount of tips must be included in the individual's GI for the month in which reported to the employer. -Must be included -In 2009 only, up to $2,400 of unemployment compensation could be excluded from GI -Require that all costs incurred (both direct and indirect) in manufacturing or constructing real or personal property, or in purchasing or holding property for sale, must be capitalized as part of the cost of the property. -Cost become part of the basis of the property and recovered via depreciation or amortization. -Included in inventory and recovered via COGS as an offset to selling price -Includes indirect cost such as general, administrative, and overhead costs -Unless small retailers and wholesalers, then must include in inventory all costs including wages of employees responsible for purchasing inventory, handling, processing, repackaging and assembly, off site storage costs, etc. -Does not apply to advertising, selling, and research/experimentation expenditures, mine development and exploration costs, property held for personal use, and freelance workers whose personal efforts create the product -If due to beginning or ending of taxpayer's existence, exemptions and credits are not prorated. -If due to change in taxable year, taxable income generally must be annualized (unless new subsidiary). Cannot use the tax tables and must itemize deduction, prorate personal exemption. -Return of capital (if I loan $500 and get back $500, then that's not included) -Unrealized Income
67.
Tax benefit rule Taxes
68.
69.
Tips
70.
Unemployment compensation UNICAP (Uniform Capitalization Rule)
71.
72.
What happens if accounting period is less than 12 months? What is excluded from gross income?
73.
12
Individual Taxation
74.
Worker's Compensation (exclude or deduct?)
Fully excluded if received for an occupational sickness or injury and is paid under a worker's compensation act or statute
13
C Corporations
1.
Accumulated Earnings Tax Adjusted Current Earnings (ACE) Affiliated Group
C corps whose accumulated earnings are in excess of $250,000 (15% tax) Muni interest income Increase CSV life insurance Non S/L depreciation Dividends received deduction a. 80% or more of the voting power of all outstanding stock and b. 80% or more of the value of all outstanding stock of each corp goodwill and other intangibles are amortized straight line over 15 years
16.
2.
Business losses or casualty losses related to business Business losses or casualty losses related to business (fully destroyed) Business losses or casualty losses related to business (partially destroyed) Business meals and entertainment Capital loss carryover Capital losses Charitable contributions Corporation tax consequences: basis of property corp receives
100% deductible
17.
loss is the adj basis of the property
3.
18.
4.
Amortization, depreciation, and depletion AMT Adjustments
loss is limited to the lesser of: 1. the decline in value of the property or 2. the adj basis of the property immediately before the casualty 50% deductible 3 back 5 forward only offset capital gains 10% limit, accrual must be paid within 2.5 months of taxable year end the greater of: 1. adjusted basis (NBV) of the shareholder (plus any gain recognized by the shareholder) or 2. debt assumed by corp (transferor may recognize gain to prevent a negative basis) No gain or loss is recognized to the corp issuing stock in exchange for property in the following transactions: 1. formation - issuance of common stock 2. reacquisition - purchase of treasury stock 3. resale - sale of treasury stock 100% (own 80-100%, consolidate) 80% (own 20-80%, large investment) 70% (own under 20%, small investment, "unrelated") 9% deduction of the lesser of: 1. qualified production activies income (QPAI) 2. taxable income 1. Personal service corps 2. Personal holding companies 3. (Personally taxed) S corps a publicly held corp may not deduct compensation expenses in excess of $1,000,000 paid to the CEO or the four most highly compensation officers
19.
5.
Add or minus: Long term contracts Installment sale dealer Excess depreciation Foreign tax credit $40,000 less 20% of AMTI in excess of $150,000 Add: Percentage depletion Private activty tax exempt interest income Pre 1987 ACRS excess depreciation 20% Specific charge-off method (direct write-off method): 1. accrual basis - deduct when specific A/R is written off 2. cash basis - not allowed a tax deduction bonuses paid by an accrual basis taxpater are deductible in the tax year when all events have occured, provided they are paid within 2.5 months after year end may not file consolidated returns $25 per person/per year Tax deductible
20.
21. 22.
6. 7.
AMT Credits AMT Exemption Amount AMT Preferences
23.
8.
9. 10.
AMT Tax rate Bad debts
24.
Corporation tax consequences: gain/loss recognized
11.
Bonus Accruals
25.
Dividends Received Deduction
12.
BrotherSister corps Business gifts Business interest expense (general) Business interest expense (prepaid)
13. 14.
26.
Domestic production deduction Entities for which the DRD does not apply Executive compensation deduction
27.
15.
prepaid interest expense must be allocated to the proper period to which it relates
28.
14
C Corporations
29.
General Business Credit Formula Half-year convention Life insurance premiums
The credit may not exceed "net income tax" less the greater of: 1. 25% of regular tax liability above $25,000 or 2. "Tentative minimum tax" for the year Machinery and equipment a. corp named as a benificiary (key person) - not deductible b. insured employee named as beneficiary (fringe benefit) - deductible not deductible
44.
Section 1231 loss treatment Section 1231 property Shareholder tax consequences: basis of common stock
ordinary loss depreciable personal and real property used in the taxpayer's trade or business and held for over 12 months Adj basis of transferred property + FMV of services rendered + gain recognized by shareholder - cash received - liabilities assumed by the corp - FMV of non-money boot received = Basis (if below zero, gain) No gain or loss recognized if: 1. 80% control 2. boot not received (cancellation of debt - the amount of the liabilities assumed that exceeds the adj basis of the total assets transferred to the corp is not boot byt does generate gain. NBV Assets - Liab = Excess liab = boot) Noncorporate shareholders who hold qualified small business stock for more than 5 years may exclude 50% of the gain on the sale or exchange of the stock state and local taxes and federal payroll taxes are deductible when incurred on property or income relating to business. federal income taxes are NOT deductible 1 back 20 forward ordinary loss up to 50,000 (100,000 MFJ)
45.
30.
46.
31.
32.
Lobbying and political expenditures Mid-month convention Mid-quarter convention Minimum tax credit (MTC) Net Operating Losses Nonresidential depreciation Organizational expenditures and start-up costs
47.
33.
real estate, taken in month placed into service machinery and equipment, if more than 40% of depreciable property is placed into service in the last quarter of the year carryforward indefinitely 2 back 20 forward 39 years straight line
49. 48.
Shareholder tax consequences: gain/loss recognized
34.
35.
36.
Small business stock - exclusion of some or all Taxes
37.
38.
$5,000 expense maximum/180 months amortization of remainder. Excluded costs include costs of issuing and selling the stock, commissions, underwriter's fees, and costs incurred in the transfer of assets to a corp. not deductible
50.
Unused credit carryover Worthless stock - Section 1244 stock (small business stock)
51.
39.
Penalties and illegal activities Personal Holding Company
40.
corps more than 50% owned by 5 or fewer individuals and having 60% of adjusted gross income consisiting of: Net rent Interest that is taxable Royalties Dividends from an unrelated domestic corp DOMESTIC production gross receipts - COGS - Other directly allocable expenses or losses - proper share of other deductions = QPAI 27.5 years straight line Long term capital gain
41.
Qualified Production Activities Income (QPAI) Residential depreciation Section 1231 gain treatment
42.
43.
15
S Corporations
1.
Accumulated Adjustments Account (AAA) Electing S Corp status Eligibility ?
distributions may not reduce AAA below zero, however, AAA may be negative from S corp losses by March 15, retroactive to beginning of the year. All shareholders must consent to a valid election
2. 3.
Eligibility Criteria for S-Corporations A corporation may choose to be taxed as an S-Corporation if it meets the following criteria. 1. 2. 3. 4. 5. 6. The company is (a) a domestic corporation, or (b) a domestic entity eligible to elect to be treated as a corporation that timely files Form 2553 and meets all the other tests listed below. If Form 2553 is not timely filed, see Rev. Proc. 2004-48, 2004-32 I.R.B. 172. The company has no more than 100 shareholders. (A husband and wife and their estates are treated as one shareholder for this test. A member of a family can choose to treat all members of the family as one shareholder for this test. All other persons are treated as separate shareholders.) The only shareholders are individuals, estates, certain exempt organizations, or certain trusts. The company has no nonresident alien shareholders. (That is, the only shareholders are US citizens and resident aliens.) The company has only one class of stock. Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation's stock confer identical rights to distribution and liquidation proceeds. It is not one of the following ineligible corporations: o A bank or thrift institution that uses the reserve method of accounting for bad debts under section 585. o An insurance company subject to tax under subchapter L of the Code. o A corporation that has elected to be treated as a possessions corporation under section 936. o A domestic international sales corporation (DISC) or former DISC. It has or will adopt or change to one of the following tax years. o A tax year ending December 31. o A natural business year. o An ownership tax year. o A tax year elected under section 444. o A 52-53-week tax year ending with reference to a year listed above. o Any other tax year (including a 52-53-week tax year) for which the corporation establishes a business purpose. Each shareholder consents to the S-Corporation election.
B.A.S.E. initial Basis + income items (Additions) - distributions - Subtractions = Ending basis 1. holders of a majority of the corporations stock consent to a voluntary revocation 2. corp fails to meet any or all the eligibility requirements for S corp status (corp or foreign owner) 3. more than 25% of the corps gross receipts come from passive investment for 3 consecutive years and the corp had C corp E&P at the end of each year.
7.
8.
4.
Shareholder Basis
5.
Termination
16
Exempt Organizations
1.
501(c)(3) Prohibited Activities: 1. influencing legislation 2. directly participating or interveing in any political campaign (endorsing candidates or engaging in fund raising for political candidates) Not Required to file Form 990: $50,000 or less fross receipts Churches High schools - religous Religious orders Internal support activites Societies - missionary related Tax exempt - organized by Congress
2.
3.
Section 501(c)(1) - Act of Congress: corp is organized under an Act of Congress and a US instrumentality. Does not require an application (almost all other exemot orgs must make written application for exempt status, be approved by IRS) Section 501(c)(2) - Application Form 1024: corp is organized for the exclusive purpose of holding title to property, collecting income from that property, and turning over the net income to an exempt org Section 501(c)(3) Corporation: corp must apply and be approved by the IRS.. charities Section 509 Private Foundations: includes all 501(c)(3) corps other than those specifically excluded. Could be a foreign corp Section 509 Private Foundations - Involuntary Termination: private foundations will terminate when they become public charities Section 509 Private Foundations - Required Returns: An annual information return, Form 990-PF, that discloses substantial contributors and amounts of contributions received is required Section 509 Private Foundations - Voluntary Termination: achieved by notifying the IRS Taxation of UBI: Subject to regular corp tax on income from a business enterprise that is not related to its tax exempt purpose UBI Annual Return Requirement: Form 990 - due by the 15th day of the fifth month following the close of the tax year UBI Excluded Items of Income: royalties, dividends, interest, annuities, rents from real property, gains/losses on sale of property, activites limited to exempt orgs by state law (bingo games) UBI Specific Deduction: $1,000 deduction from UBI, thus, only UBI in excess of $1,000 is subject to tax Unrelated Business Income (UBI): 1. Derived from an activity that constitutes a trade or business 2. Regularly carried on 3. Not substantially related to the org's tax exempt purpose (unpaid workers make the business or activity "related" an not taxable)
4.
5. 6. 7. 8.
9.
10. 11. 12.
13. 14.
17
Gift Tax
1.
Annual, InflationAdjusted Exclusion Comple gifts Conditional gifts Form 709 Future Interest Gifts Generation Skipping Transfer Tax Incomplete Gifts Present Interest Gifts Recepients Revocable gifts Unlimited Exclusion
$13,000 per person/per year (to anyone)
2. 3.
qualifies for the annual exclusion a gift is conditional if it is subject to conditions precedent and will not be provided until the conditions have been met Paid by person giving the gift Does not qualify for the annual exclusion
4. 5.
6.
designed to prevent an individual from escaping an entire generation of gift and estate tax. This is a separate tax that is imposed in addition to federal estate and gift tax. The tax applies when individuals transfer property to a person who is two or more generations younger than the donor or transferor. Either the trustee or the transferor pays the tax. does not qualify for the annual exclusion. It is not considered complete if it is conditional or revocable qualifies for the annual exlusion
7.
8.
9. 10.
Nontaxable - takes orginial basis + gift tax paid due tot the appreciation in value inherent in the gift A gift is revocable if the donor reserves the right to revoke the gift or change the beneficiaries. The gift is complete when those rights terminate by reason other than the donor's death 1. payments made directly to an educational institution 2. payments made directly to a health care provider for medical care 3. charitable gifts 4. marital deduction
11.
18
Estates and Trusts

1.
Annual Estate Income Tax Estimated Payments Annual Estate Income Tax - Tax Year Annual Estate Income Tax Return (Form 1041) Annual Trust Income Tax - DNI Annual Trust Income Tax (Form 1041) - Tax Year Charitable Contributions Complex Trusts
Required for its first 2 tax years
14.
Gross Estate
2.
Calendar year or Fiscal year
1. FMV of property owned (alt. valuation date is earlier of date property is distributed or 6 months after date of death) 2. insurance proceeds 3. incomplete gifts (joint accounts) 4. revocable transfers 5. all property entitled to be received retains the same character as the income had at the fiduciary level
3.
required when annual income exceeds $600
15.
Income Distributed to the Beneficiaries Income Distribution Deduction Simple Trusts
4.
trust may deduct amounts distributed to beneficiaries up to the DNI Calendar year
16.
Lesser of: 1. Actual distribution to beneficiary or 2. DNI 1. can only make distributions out of current income 2. required to distribute all of its income currently 3. cannot take a deduction for a charitable contribution 4. $300 exemption
5.
17.
6.
unlimited deduction if in the will 1. may accumulate current income 2. may distribute principal (corpus) 3. may deduct charitable contributions 4. $100 exemption Estate (Trust) Gross Income (includes cap gains) - Estate (trust) deductions = Adjusted Total Income + Adjusted Tax-Exempt Interest - Capital gains = DNI 1. unlimited charitable deduction 2. unlimited martial deduction
7.
8.
Distributed Net Income (DNI)
9.
Estate Deductions: Discretionatry Expenses Estate Deductions: Nondiscretionatry Expenses
10.
1. medical expenses (income return or estate return) 2. administrative expenses (income return or estate return) 3. outstanding debts of decedent 4. claims against the estate 5. funeral costs 6. certain tax Form 706 must be filed within 9 months after the decedents death (transfer tax, NOT income tax) Form 706 if the gross value of the estate plus historical taxable gifts by the decedent exceed $5,000,000 in 2011 1. foreign death taxes 2. prior transfer taxes (prior gift taxes paid)
11.
Estate Tax - Filing Deadline Estate Tax - Filing Requirement
12.
13.
Estate Tax Credits
19
Ethics and Professional Responsibilities in Tax Services

AICPA Statements on Standards for Tax Services 1. Tax return positions 2. Answers to questions on returns 3. Certain procedural aspects of preparing returns 4. Use of estimates 5. Departure from a position previously concluded in an administrative or court hearning 6. Knowledge of error - return preparation and administrative proceedings 7. Form and content of advice to taxpayers any written or electronic advice by a practitioner concerning one or more federal tax issues 1. Allowable disclosures (disclosures allowed by any provision of the IRC and disclosures pursuant to a court order) 2. Allowable uses (preparation of state and local tax returns and preparation of declaration of estimated tax) 3. Disclosures and uses permitted by US Treasury regulations (quality and peer reviews, computer processiong, and admin orders) advice that will be used to promote, market, or sell a partnership, investment plan, or arrangement when there is a greater than 50% likelihood of a tax position being upheld by the courts Any tax return preparer who endorses or otherwise negotiates an IRS refund check issued to a taxpayer other than the tax return preparer shall pay a penalty of $500 with respect to each check. A practitioner cannot advise a client to take a tax return position unless the position is not frivolous states relatively high standard of tax reporting; this standard is significantly higher than not firvolous or not patently improper. The reasonable basis standard is not satisfied by a return position that is merely arguable or that is merely a colorable claim. written advice concluding at a confidence level of at least more likely than not greater than 50% likelihood that the significant federal tax issue would be resolved in the taxpayer's favor (covered opinion, rely upon to avoid penalties) Tax Return Preparer Unreasonable position Requirements for a Covered Opinion (Reliance opinion) 1. practitioner's opinion cannot be based upon unreasonable factual assumptions and/or factual representations 2. the opinion must relate applicable law to the facts 3. the opinion must set forth the likelihood that the taxpayer will prevail on the merits with respect to each significant federal tax issue Should win less stringent than the "more likely than not" standard. There is substantial authority for the tax treatment of an item only if the weight of the authorities supporting the treatment is substantial in relation to the weight of the authorities supporting the contrary treatment. Not always required to obtain supporting documentation unless the preparer has reason to suspect the accuracy of the information provided by the taxpayer. However, the preparer must make reasonable inquiries if the information provided by the taxpayer appears incorrect or incomplete any person who prepares for compensation A position is deemed unreasonable unless: 1. there is substantial authority for the position 2. the position is disclosed, there is reasonable basis for the position, and the position does not involve either a tax shelter or a reportable transaction, or 3. with respect to a tax shelter or a reportable transaction, it is reasonable to believe that the position would more likely than not be sustained on its merits A willfull attempt to understate the tax liability or a reckless or intentional disregard of tax rules and regulations Would win
1.
11.
12.
Should opinion (Fin. 48) Substantial authority
2.
Covered Opinion Exceptions to Wrongful Disclosures
13.
3.
14.
Supporting Documentation
4.
Marketed Opinion More likely than not Negotiation of IRS Refund Check Not frivolous Power to License Reasonable basis
5.
15.
6.
16.
7.
8.
9.
17.
Willfull or Reckless Would opinion (Fin. 48)
18.
10.
Reliance Opinion
20
Contracts
1.
3 Questions of an Offer
1. Was there a manifestation of intent to contract? 2. Was there definiteness and certainty in the essential terms? 3. Was there communication of the above to the offeree? Express (oral or written) or implied (conduct). Only the person to whom the offer was made may accept (not assignable, except option contracts) an agreement to substitute one contract for another. Accord and satisfaction discharges the orignal duty occurs when one person unequivocally indicates in advance of performance to another that he will not perform contractual duties when the time comes. if a party wants to give contract rights to a third party Two promises, a promise is exchanged for a promise. Contract is formed as soon as the promises are exchanged. material or substantial breach, the nonbreaching party can be discharged. minor breach, the nonbreaching party is not discharged, but is entitle to damages non-sale of goods: Real Estate Insurance Services Employment To have the power to accept, the offeree must have knowledge of the offer the price of contracting. Both sides of the contract must be suppoerted by legally sufficient consideration intended to put the nonbreaching party in as good a position as he would have been had there been no breach make a contract unenforceable. innocent party's duty to perform is discharged Must include: 1. identity of the offeree 2. price 3. time of performance 4. quantity 5. nature of work to be performed if a party wants to have a third party perform contractual duties
15.
Duress
if the harm threatened is physical force - VOID. if the harm threatened is economic or social - VOIDABLE 1. An ageement make up of an offer and acceptance; 2. An exchange of consideration; and 3. A lack of defenses 1. There must be something of legal value given by each party 2. There must be a bargained for exchange a detriment ot the promisee or a benefit to the promisor. The promisor's porimse is supported by consideration only if the promisee agrees to do something he or she is not already obligated to do the offeror can state that the acceptance to the offer must be received to be effective all the duties under the contract have been performed duties remain to be performed oral or written Misrepresentation of material fact Actual and justifiable (reasonable) reliance by the plaintiff on the misrepresentation Intent to induce plaintiff's relaince on the misrepresentation Damages Scienter (knowing that the statement was false or made with a reckless disregard for the truth) one party deceives another into signing something he does not know is a contract. VOID defrauded party is aware he is making a contract, but terms are materially misrepresented. VOIDABLE based on conduct has all the elements of fraud except scienter (MAID) obvious joke is not an offer. would a reasonable person believe the offer is serious? acceptances are generally effective when they are dispatched. It is irrelevant if a properly addressed acceptance is lost or delayed
21
16.
Elements of a Contract
2.
Acceptance
17.
Elements of Consideration
3.
Accord
18.
Elements of Legal Value
4.
Anticipatory Repudiation
5.
Assignment of Rights Bilateral Contract Brach of Contract
19.
Exception to the Mailbox Rule Executed Contract Executory Contract Express Offer Fraud
6.
20.
7.
21.
22. 23.
8.
Common Law
9.
Communication Consideration
10.
24.
11.
Damages
Fraud in the Execution Fraud in the Inducement Implied Offer Innocent Misrepresentation Intent to Contract
25.
12.
Defenses Definite and Certain
13.
26. 27.
28.
14.
Delegation of Duties
29.
Mailbox Rule
Contracts
30.
Mirror Image Rule Novation Offer Offeree Offeror Rejection by Offeree Revocation by Offeror Six Contracts Requiring a Writing
requires an acceptance to mirror the offer to be effective. An attempted acceptance that changes some of the terms or adds new terms is not a valid acceptance, but rather is a counteroffer occurs when a new contract substitutes a new party for an old party in an existing contract. All parties must agree to the release. Communication must create a reasonable expectation in the offeree that the offeror intends to make a contact receives offer makes offer Once the offer is rejected, it cannot be accepted (expressly or counteroffer). Effective when received Offeror can revoke an offer any time before acceptance except if there is an option or a firm offer (UCC). Effective when received Marriage Year - contracts which by their terms cannot be performed within a year Land Executors to pay estate debts out of personal funds Goods - sale of goodes for $500 or more Surety (pay the debt of another) 4 to 6 years Automatic termination by death or insanity of parties (except an option contract is not terminated by the death of a party), destruction of subject matter, or illegality To create a contract, an offer must be accepted before it is terminated. 3 ways: 1. Revocation 2. Rejection 3. Operation of law sale of goods (movable things) One promise, which is given in exchane for performance. Contract is not formed until performance is completed
31.
32. 33. 34. 35. 36.
37.
38.
Statute of Limitations Termination by Operation of Law Termination of Offer
39.
40.
41. 42.
UCC Unilateral Contract
22
Sales
1.
C.I.F. - Cost, Insurance and Freight: risk of loss is on buyer during shipment Carrier - Destination Contract: risk of loss passes to the buyer when the goods reach the destination and seller tenders delivery
17.
Firm Offer: 1. seller must be a merchant 2. offer must be in writing and signed by the merchant 3. offer must give assurances it will be kept open for a certain time
2.
18.
Firm Offer - Time Irrevocable: max. 3 months, if no time stated, 3 months For Risk of Loss to Pass: Goods must be identified Implied Warranty of Fitness for Particular Purpose: Made wehn seller selects goods suitable for buyer. Fitness requires the goods to be fit for the buyer's specific purpose. Can be made by any seller. Can be disclaimed by selling the goods "as is" or "with all faults."
3.
Carrier - Shipment Contract: risk of loss passes to the buyer when the goods are delivered to the carrier (in the truck)
19. 20.
4.
Carrier Cases: if a common carrier is involved, the contract is either a shipment contract or a destination contract Consideration: quantity only essential item Defenses - Statute of Frauds: Four exceptions to the sale of goods for $500 or more must be evidenced by a writing signed by the party being sued: Sprecialty manufactured goods Written merchant's confirmatory memo Admission in court Performance
5. 6.
21.
Implied Warranty of Merchantability: Merchants promise goods fir for ordinary purpose. Made only by merchants. Disclaimed by "As is" sale or by stating no merchantability. "We hereby dislcaim any and all warrantues" is ineffective.
22.
Implied Warranty of Title: Implied in every sales contract is the warranty that the seller has good title and the right to transfer that title and there are no unstated encumbrances. Can only be disclaimed by specific language or by circumstances that indicate the seller is not guaranteeing he has title (judicial sale). No general disclaimers can discllaim title ("as is" or "with all faults")
7.
Defenses - Statute of Limitations: 4 years from the time the contract was breached Delivery and Risk of Loss: the seller's basic duty is to hold conforming goods for the buyer and give the buyer reasonable notice to enable the buyer to take delivery.
8.
9.
Entrusting: if the owner of goods entrusts them to a merchant who deals in goods of the kind sold, and the merchant sells them in the ordinary course of business to a bona fide purchaser for value, the purchaser gets good title even though the merchant did not have good title.
23.
Modifications Enforceable without Consideration: a modification of a contract for the sale of goods is enforceable, even without consideration, as long as the modification is sought in good faith
10.
Entrusting and Voidable Title: true owner can recover stolen goods from third parties Exception to Quantity Only: Output and requirements contracts (valid if reasonable)
24.
Negligence: 1. Duty of care 2. Breach of duty 3. Damages 4. Causation
11.
25.
Noncarrier - Merchant Seller: risk of loss passes only upon actual delivery to the buyer (when the buyer takes physical possession)
12.
Exception to Shipment of Nonconforming Goods: Notice of accomodation - if the seller reasonably notifies the buyer that nonconforming goods are shipped only as an accomodation to the buyer, the shipment is not an acceptance. It is a counteroffer. (only if shipment is used as the means of acceptance)
26.
Noncarrier - Nonmerchant Seller: risk of loss passes to the buyer upon to seller's tender of delivery of the goods to the buyer Noncarrier Cases: seller has no duty to deliver. The place of delivery is seller's place of business, if he has one, otherwise, the seller's home
13.
Express Warranties: oral or written. The express warranty is that the goods will conform to the statement of fact, to the description or to the sample or model. Statements of value or opinions do not generally create an express warranty. The UCC requires that the express warranty be a part of the basis of the bargain. Any seller can make an express warranty and it is very difficult to disclaim.
27.
28.
Remedies of Buyer: Right to reject for any nonconformity (seller must make a "perfect tender" - delivery free from any defects) Right to canel or rescind (for any defect) Right to sue for damages Right to specific performance (unique) or replevin (right to recover goods wrongfully in the hands of the seller) Rights on Seller's Insolvency (if buyer has paid part or all of the price and seller is insolvent, buyer may recover the goods from the seller if the goods are identified)
14.
F.A.S. - Free Along Side: risk of loss passes to the buyer when the seller gets the goods along side the vessel F.O.B. - Buyer's Place: destination contract - seller must get the goods to the destination and tender delivery for risk of loss to pass
15.
16.
F.O.B. - Seller's Place: shipment contract - seller must get the goods to the carrier for risk of loss to pass
23
Sales
29.
Remedies of Buyer or Seller: Anticipatory Repudiation - sue or wait Right to Demand Assurances if Reasonable Ground Exist Punitive damages - not available in sales (fraud only) Duty to Mitigate - Avoid Damages
30.
Remedies of Seller: Right to cancel and sue for damages Right to withhold delivery and stop goods in transit (for buyer's insolvency. Can reclaim delivered goods within 10 days after receipt) Right to resell and sue for damages (difference between the contract price and the resale price) Right to full contract price Liquidated damages - must be reasonable (if buyer has made a down payment and breaches, the seller may keep the lesser of $500 or 20% of the price)
31. 32. 33.
Seller Sends Nonconforming Goods: risk of loss remains on the seller regardless of shipping terms Shipment of Nonconforming Goods: Acceptance and breach of contract Strict Products Liability: 1. Product was defective 2. Defect caused injury 3. Defect made the product unreasonably dangerous 4. Seller was in the business of selling this type of good 5. Product reached the user without substantial change in condition
34.
Title: Title (ownership) generally can pass as parties agree, but before title can pass, the goods must be identified to the contract. If the parties do not afree, title passes upon delivery. If the buyer rejects the goods (rightfully or wrongfully), title revests in the seller Valid Acceptance: promise to ship or prompt shipment Voidable Title: If the owner of goods is defrauded into givinga thief title, the owner ordinarily can rescind the contract and recover the goods from the defrauder. However, if the defrauder has since sold the goods to a bona fide purchaser for value, the purchaser gets good title.
35. 36.
24
Commercial Papers
1.
"pay to smith, if smith washes my car" or "pay to smith only"...what do these translate to if they were the on the face of the instrument? If they were endorsements?: If they are on the front, then it becomes a nonnnegotiable instrument (unconditional and payable to the order violated) If they were endorsements, then it just becomes translated as "pay to the order of smith". Endorsements cannot prohibit further negotiations.
13.
Exceptions to the forged endorsement rule: 1) Imposter Rule- If maker issues instrument to an imposter and imposter signs payee's name, subsequent holders can collect from maker 2) Fictitious payee rule-If someone submits a draft for a fictitious person and is created by drawee and the endorsement is forged, subsequent holders can cash 3) Negligence contributes to forgery
14.
If checks has statement that it is nonnegotiable, is it?: Nope. For any other instrument it is, but not for checks. Money order: Draft purchased by one party to pay payee in which the third party is typically post office, bank, or company. Name some personal defenses: -Breach of Contract -Lack or failure of consideration -Prior Payment -Unauthorized completion -Fraud in inducement -Nondelivery, usually with bearer instruments -Ordinary duress or undue influence -Mental incapacity- personal if transaction is voidable. Only diminished capacity apply. -Illegality-personal if voidable
2.
Can a CP be payable to two people without being nonnegotiable?: Yes. It has to be payable to: any person, two persons together or alternatively, or any entity.
15.
3.
Can an instrument be payable to the order of more than one person?: Can an instrument be payable to the order of more than one person?
16.
4.
Can instruments be payable in golds/stocks?: No, payment must be in money. Foreign currency is OK. Can Payee's name be misspelled?: Yes, and he/she can endorse in proper spelling or misspelling, or both. Compensation difference between contractual liability and warranty liability: Contractual liabilities entitles wronged party to entire face value of the instrument while a successful warranty entitles wronged party to what they paid to acquire the instrument.
17.
5.
6.
Name some real defenses: -Forgery- forged maker or drawer's signature. Forger becomes liable. -Bankruptcy -Fraud in execution -Minority (or infancy)-Minorities aren't liable for negotiable contracts -Mental incapacity, illegality, or extreme duress. -Material alteration of instrument-If dollar amount is changed, HDC can still collect original amount, same with incomplete instruments that were completed without authorization. Cannot collect if change in amount, rate of interest, or days, addition/removal of certain things, completion of instrument without authorization... only a real defense if maker or drawer didn't contribute (substantially) to the alteration due to negligence.
7.
Conditions to hold secondary party liable: -Presentment of instrument to primary party -Dishonor of instrument by PP -Timely notice of dishonor to endorsers... Banks by midnight of next banking day, others 30 days.
8.
Contractual Liability: Pay the instrument's face value, applies to any party who signs the negotiable instrument (unless with recourse)
9.
Difference in requirements to recover from secondary parties under Contractual Liability and Warranty Liability: CL- has to present, be dishonored, and then notify secondary parties of dishonor in timely fashion WL-Good title is necessary
18.
Oral vs Written stop payments: Oral- good for 14 days Written- good for 6 months Presentment Warranty: 1) Warrantor has good title. If for unaccepted draft, then they must warrant: 2) warrantor has no knowledge that drawer's signature is forged 3) The instrument could not have been altered.
19.
10.
Does an ordinary holder of a negotiable instrument have the same rights as an assignee?: Yes. They are subject to all personal defenses of the maker/drawer of the instrument
11.
Does having a variable interest rate still retain negotiability?: Yes, only the principle amount must be indicated on the face. Interest rates can be expressed, or derived from other sources like legal/judgment rates, indices, etc.
20.
Primary Liability: Maker of note, acceptor of draft. Holder/HDC has to seek payment this party first.
12.
EFT act and Reg E: Electronic Fund Transfer For stolen/lost debit cards, customer liable for up to -$50 if notifies within 2 days -$500 if after 2 days but within 60 days
21.
Secondary Liability: If primary party doesn't pay, holder may sue primary party or seek payment from secondary party. Includes endorsers, drawers on a draft (unless accepted by drawee)
22. 23.
Sight Draft: Payable upon presentation to drawee Time Draft: Payable at specified date by drawee
25
Commercial Papers
24.
Transfer Liability: 1) Good title- no missing or unauthorized endorsements 2) All signatures are genuine or authorized 3) Instrument has not been materially altered 4) No personal defense is good against transferor 5) Tranferor has no notice of insolvency of maker, drawer, or acceptor
35.
What does it mean to give value (requirement to be considered HDC)?: -Someone must pay or perform agreed consideration. It HAS to be performed; promises do not count. -Take as satisfaction of previous existing debt -Give another negotiable instrument -Acquire a security interest in the instrument (take as collateral) Value does not have to be full amount of instrument.
25.
Two types of Warranty Liability: Transfer Warranties and Presentment Warranties. Necessary to seek payment from secondary parties.
36.
What happens when a check is certified with regards to liability?: If it gets certified, drawers and all previous endorsers are discharged
26.
UCC requires that negotiable instruments need to be ...: Written, lend itself to permanence, and be easily transferable.
37.
What is a defense against "take without notice that any person has a defense or claim of ownership to the instrument"? What is NOT a defense?: Defense: Obvious signs of forgery or alterations, incomplete or irregular instrument, notice of any party's claim, or that all other parties have been discharged. Not a defense: Ante/Postdated, knows of default in payment of interest, purchased at a reasonable discount.
27.
What are some valid restrictive endorsements?: Collection endorsements, endorsements in trusts What are the 6 requirement to make an instrument negotiable?: 1) Be written 2) Be signed by drawer or maker 3) Have principle amount of the instrument 4) Due on demand or on a definite date 5) Be payable to the order of or bearer 6) Contain an unconditional promise or order to pay
28.
38.
What is a qualified endorsement?: Signed "Without recourse" which disclaims liability of dishonored instruments. What is the hierarchy of interpretation of ambiguous terms in CP?: Words over figures, handwritten over typed/printed, typed over printed.
29.
What are the main differences with negotiable and nonnegotiable instruments?: Nonnegotiable instruments can only be assigned, and it bears only the rights that the transferor had. It is also subject to any defense that can be asserted against assignor. Negotiable instruments are negotiable and may have more rights than the endorser of the instrument.
39.
40.
What is the one type of CP that allows it being payable to a person (instead of payable to the order of) without destroying negotiability?: Checks. Anything else would destroy negotiability.
30.
What are the requirements to become a HDC?: Be a holder of the instrument, give value for the instrument, take in good faith, take without notice that instrument was invalid or that any person has a defense or claim of ownership in instrument.
41.
What is the shelter rule? (Holder through HDC): HDC washes an instrument o that any holder thereafter can be a holder through HDC, and obtains all rights of a HDC. Holders through the shelter rule are NOT HDCs, but they do have the same rights as HDCs The exception is when a previous non HDC holder reacquires the instrument from a HDC, the shelter rule does not apply. Also, people who were involved in fraud or illegal activity with regards to the instrument may not use the shelter rule.
31.
What are the two general types of liabilities on negotiable instruments?: Contractual liabilities and warranty liabilities.
32.
What are the two types of negotiable commercial paper?: Drafts and Notes. Drafts are instruments involving three parties (drawer, drawee, and payee). E.g. Checks Notes are instruments that involve two parties (maker and payee). Most common form is the promissory note.
42.
What makes a CP payable to a bearer?: If CP states payable to: bearer, cash, a person or bearer, order of bearer, order of cash, or if left blank.
43.
When are parties discharged of liabilities?: 1) Once primary party pays, all endorsers are discharged 2) Cancellation of prior party's endorsement discharges that party from liablity- has to be written 3) Intentional destruction of instrument by holder
33.
What are the two ways of transferring instruments?: Assignment and negotiation. Assignment = nonnegotiable instruments, while negotiations are for negotiable instruments.
34.
What can be omitted from a CP without destroying negotiability?: Basically anything other than the 6 requirements. Includes date (of the inception of the CP unless it is necessary to determine the due date), interest rate, where the instrument was made or is to be paid.
44.
When does a domestic check become overdue?: 90 days after its date.
26
Commercial Papers
45.
When does the FTC rule apply?: CREDIT SALES -Consumer signs installment sales contract containing waiver of defenses -Consumer signs sales contract containing promissory note -Retailer arranges financing with a separate party for consumer financing Payments via checks NOT covered by FTC
46.
Who is liable for forged signatures?: If by "primary party", then forger is liable If on endorsement, it does NOT transfer title; transferee cannot collect UNLESS exceptions
47.
Why was the Federal Trade Commission rule (FTC rules) created?: To take precedence over UCC rules and protect consumers from retailers who abuse HDC to avoid liability of defective goods.
27
Secured Transactions
1.
After-acquired property clause (floating lien): Allows secured party to acquire a security interest in good that the debtor acquires in the future. -Can't use against consumer goods, but typically used for equipment/inventory
19.
Requirement for Filing financial statements (perfection requirement): Requires -Name of debtor and the secured party -Indication of collateral covered Can be done electronically, lasts for five years but can be continued with statement filed within 6 months of expiration
2.
Attachment: The moment when security interest is enforceable against a debtor by the secured party.
20.
Requirement for physical possession/control (perfection requirement): -Actual physical possession of the collateral -Control applies to collateral that cannot be physically possessed (Edocs, deposit accounts, IP)
3.
Automatic Perfection: Perfection accomplished by completing attachment with no further steps IF: -Purchase money security interest in consumer goods. Seller retains security interest in same item sold on credit to secure payment.
21.
Requirements of a valid security agreement: -Must be in writing unless creditor has physical possession of collateral -Must be signed by debtor (but not by creditor) -A reasonable description of the collateral
4.
Automatic Perfection vs Bona Fide purchaser: -If purchase did not know and bought for consumer use, then seller/creditor cannot use automatic perfection
22.
Requirements of attachment: -Secured party gives value (could be preexisting claim) -Debtor has rights in collateral (does not have to have actual legal title, but rather have ownership interest) -A valid security agreement
-Can, if filed or if the purchaser knew.

5.
Chattel paper: Writing that provides evidence of the monetary obligation and the security interest in the good. A piece of paper that recites the indebtedness
6. 7.
Consumer Goods: Goods that were purchased for personal use Debtor can reclaim collateral by:: paying the entire debt and for secured party's expenses Distribution of collateral sale proceeds: 1-secured party's expenses 2-secured party's debt 3-junior security interests 4-any remainder goes to debtor
23.
Rights of Parties upon default-claims (receivables): Secured parties have right of collection from third parties -Notify third party to pay secured party directly, must account for any surplus and debtor is liable for any deficiency, may deduct reasonable expenses
8.
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Rights of parties upon default-possessed goods: -Can repossess if not possessed without breach of peace, use judicial process to foreclose on collateral. -If so, send written notice to debtor -Notify other secured parties -May sell collateral using commercially reasonable practices, within a reasonable time, and with notice unless perishable or otherwise may diminish in value
9.
Documents of title: Bills of lading, warehouse receipts, etc Equipment: Goods purchased for use in a business Fixtures: Goods that have been attached permanently or relatively permanently to real property Indispensible paper: Collateral evidenced by a writing. Includes negotiable instruments, stock, bonds, and other investment securities
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10. 11.
12.
Secured Creditor vs other creditors: Possessor of negotiable document of title has priority over other creditors Secured creditors vs subsequent buyers of collateral: A buyer in the ordinary course of business take free of any security interest whether perfected or not. Ordinary course of business = buying from inventory of a person or company that normally deals in those goods.
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13.
Intangibles: AR, commercial tort claim, Intellectual Property Rights, goodwill, etc Inventory: Goods purchased for sale or lease to a third party Lien Creditors vs other security interests: Priority over security interests unless perfection occurs before lien or its a PMSI perfected within 20 day grace period.
27.
14. 15.
Secured Party: Person/bank that provides credit to the debtor and takes an interest in the debtor's collateral to help assure repayment of the debt.
16.
Other automatic perfection: Promissory notes, assignment of health care insurance to health care provider Perfect Security Interest: Gives notices to other parties that the perfecting party claims an interest in the certain collateral. PMSI (Purchase money security interest): When seller/bank retains security interest in same item sold. PMSI in consumer goods except motor vehicles and trailers= automatic perfection, while PMSI in equipment/inventory does not have automatic perfection
28.
Secured Party Priorities: -If neither perfected, then interested that attached first prevails -Perfected over unperfected -First to perfect over other perfected UNLESS PMSI, in which case PMSI wins over prior perfected interests. -If equipment or consumer goods, PMSI has 20 days after the debtor receives possession of collateral to perfect PMSI -If inventory, perfection must occur prior to or simultaneously to the debtor receiving the inventory, and written notice must be give to all holders of prior perfected security interest in collateral.
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Secured Transactions
29.
Three primary ways attached security interest can be perfected: -Filing financial statements in the appropriate state office -Secured party takes possession of collateral, or in certain cases takes control -Automatic perfect can occur, but only with consumer goods
30.
To perfect his/her interest, a cosignor must:: File a financial statement under secured transaction law and give notice to the cosignee's creditors who have perfected security interest in the same good. Notice MUST describe goods and be given before the cosignee receives the goods.
31.
Trustees in bankruptcy as a lien creditor: Trustee has the rights of a lien creditor from the date of filing of petition for bankruptcy Also takes the position of any existing lien creditor Types of collateral: Goods, indispensible paper, intangibles.
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Suretyship
1. 2. 3.
Co-Sureties: 2 or more sureties on the same obligation. joiuntly and severally liable Compensated Surety - Paid: material change increasing risk releases surety Contribution: after payment (of more than his share), a surety is entitled to contribution from his co-sureties on their share of the payment (pro rata share of solvent sureties if not specified). Defenses of Surety: Creditor's a bad guy Payment is made (by someone other than the surety) Release of principal debtor Surety is incapacitated or bankrupt
4.
5.
Exoneration: suit to compel payment. if the principal fails to pay the creditor, the surety may bring a suit for exoneration in equity to compel the principal to pay. occurs before surety pays creditor. Fair Debt Collection Practices Act (FDCPA): curbs abuses by collection agencies in collecting consumer debts. the Act does not apply to a creditor attempting to collect its own debts Garnishment: debtor has propety in the hands of a third party (wages, money in bank accounts, debts owed to the debtor) Gratuitous Surety - Not Compensated: any variation of surety's risk releases surety Judicial Lien: if a debtor is adjudged to owe a creditor money and the judgement has gone unsatisfied, the creditor can request the court to impose a lien on specific property owned and possessed by the debtor. Reimbursement: suit against principal after payment. the surety is entitled to reimbursement from his principal for any amount the surety paid on behalf of the debtor. Subrogation: enforcement of creditor's right against principal. after having paid the principal's obligation, the surety steps into the shoes of the lender and may enforce any rights that the creditor had against the principal. Surety: one who is directly liable for the debt or obligation of another The Parties: the creditor (lender) the principal (debtor) the surety
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Debtor-Creditor Relationships
1.
Artisan's lien: When one repairs or improves personal property for another and retains possession for payment. Terminates when creditor receives or is offered payment, or when s/he gives up possession. Usually has priority over other liens as long as they retain possession
13.
Fair Debt Collection Practices Act: -Can't contact at inconvenient hours, inconvenient places, or at work if employer objects -No methods that are abusive or misleading -Must provide debtor with written notice of amount of debt and to whom owed within 5 days of first communication -If debtor contests debt, collectors must cease until collector sends verification -Debt collectors must bring suit near debtor's residence or jurisdiction in which the contract was signed -If debt collector violates Act, s/he is liable for actual damages plus other damages like lawyer fees -Federal Trade Commission enforces this Act, and can use cease and desist to collector -Only applies to collection agents collecting for another, not for primary creditor
2.
Assignment for the benefit of creditors: Where debtors transfers all of his assets to an assignee who sells it for the benefit of creditors
3.
Attachment: Court ordered seizure of property due to lack of payment prior to court judgment for past-due debt Bond: A contract involving a compensated surety Composition agreement with creditors: Where two or more creditors creditors agree with debtor to accept less than full amount of debt as full satisfaction of debt. New consideration must be given to be enforceable
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4. 5.
Fidelity Bonds: Forms of insurance that protects an employer against losses sustained due to acts of dishonest employees Fraudulent Conveyance: Debtors try to prevent creditors from satisfying a judgment by: -Transferring assets (secretly, to family members, for inadequate consideration, etc) -Maintaining use/possession of property
15.
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Contribution: When a cosurety pays more than its proportionate share of the debt it can demand payment from the other cosureties so that each surety is paying its proportionate share of the debt
16.
Garnishment: Seizure of debtor's property possessed by third parties such as banks or employees. State and federal laws limit amount of wages that can be garnished.
7. 8. 9.
Conveyance: The transfer of property from one to another Cosurety: Two or more sureties are guaranteeing the same debt Equal Credit Opportunity Act: Prohibits discrimination in consumer credit transactions based on marital status, sex, race, color, religion, national origin, age, or receipt of welfare -If creditor denies or revokes credit or worsens terms, must provide notice to debtor of specific reasons for adverse action
17.
Guarantor: Similar to a surety, but a guarantor is secondarily liable to the creditor. Thus, in the event that the debtor defaults the creditor must at least ask the debtor to pay, but in the event the debtor says no, then the creditor may seek payment from the guarantor.
10.
Fair Credit and Charge Card Disclosure Act: Requires disclosure of annual percentage rates, membership fees, etc for credit card solicitations or applications Credit card holder's liability is $50 for unauthorized charged due to lost or stolen cards, unless reported to issuer in which case the holder is not liable
18.
Homestead exemption: Unsecured creditors and trustees in bankruptcy cannot satisfy debts from equity in debtor's home, unless it's a mortgage lien or an IRS tax lien
19.
Innkeeper's lien: Allows hotels to keep possession of guest's baggage until hotel charges are paid Judgment lien: A party is awarded damages by a court and the party files a lien against property to secure payment Liens: Creditors' claims on real or personal property to secure payment of debt or performance of obligation Mechanic's lien or materialman's lien: A statutory lien on real property (real estate) to secure payment for debts of services or materials to improve real property. IE Worker puts new roof on building, can put a lien on the building to secure payment and foreclose property in event of nonpayment
11.
Fair Credit Billing Act: Allows consumer to complain of billing errors and requires creditor to either explain or correct
20.
12.
Fair Credit Reporting Act: Prohibits consumer reporting agencies from including in consumer reports any inaccurate or obsolete information.
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Reimbursement: If the surety pays the debt, the surety is entitled to receive whatever it paid to the creditor from the debtor
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Debtor-Creditor Relationships
24.
Subrogation: After the surety has paid the debt, it acquires the rights of the creditor and may now exercise those rights against the debtor. Thus, if the debtor had given the creditor collateral, the surety would have rights against the collateral. Surety: A party who promises to pay the debts of another party. Sureties are primarily liable to the creditor.` Truth in lending Act: Requires lenders and sellers to disclose credit terms on loans to consumers or debtors -Finance charges/annual percentage rate of interest charged -Consumer has right to rescind within three days -Consumer lenders required to make additional disclosures in credit card statements relating to minimum payments, late fees, and introductory rates, and provide a number that consumers may call for that information -Required o make disclosure on tax consequences of home equity loans and internet based credit card solicitations
25. 26.
27.
Variance in terms and conditions of contracts subsequent to surety's undertaking: -Accommodation (noncompensated) surety is completely discharged for any change in contract -Commercial (compensated) surety is completely released if modification in principal debtor's contract materially increases risk to surety. If not material, then obligation reduced by amount of loss due to modification
28.
Writ of attachment: Writ- a formal written document, usually by judicial/government Allows creditors to take possession of personal property to satisfy debt pursuant to successful legal action
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Writ of execution: Remedy in which court order directs sheriff to seize debtor's property which can then be sold at judicial sale to pay off creditor
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Agency
1.
Actual authority: The power given by a principal to an agent that allows the agent to enter into contracts upon the principal's behalf
14.
Express actual authority: Explicit power that the principal gives to the agent to enter into a contract. Fiduciary duties: The obligations that an agent owes to a principal that require the agent to act in the best interests of the principal.
15.
2.
Agency by estoppel: Agency can be implied by the conduct or lack of conduct by either the principal or the agent that allows third parties to reasonably believe an agency exists
16.
General vs restricted: General agent has a broad range of powers, a special (restricted) agent is one that engages in only one specific type of transaction
3.
Agency coupled with interest: Agent has an interest in subject matter through a security interest, like mortgagee with right to sell property on default of mortgagor
17.
Implied actual authority: Arises from express authority, but not explicit Independent contractor.: A party who works for another party, but is not subject to the control of the other party; therefore an independent contractor generally does not create liability for the other party.
4.
Agent: A party who works on behalf of another party known as the principal.
18.
5.
Agent's contract liability to third parties: -If principal is disclosed and agent has authority, agent has no liability -If principal is partially disclosed or undisclosed, the principal is personally liable, regardless of authority -If agent acts without authority, then the agent is personally liable -Always personally liable for tort
19.
Joint and several liability: When a principal and agent can both be held liable by the third party or the third party may choose to sever liability and only hold either the principal or the agent liable.
6.
Agent's duties to principal: -Fiduciary -Carry out instructions on principal exercising reasonable care and skill -Account to principal profit and property that rightfully belong to the principal and not to commingle funds
20.
Notice of termination to third parties: -Constructive notice (publishing in a newspaper or a trade journal) is sufficient to third parties who have not previously dealt with agent -Actual notice (orally informing or sending a letter) must be given to third parties who have previously dealt with agent unless third party learns of termination from another source. -Notice NOT required when termination occurs due to operation of law
7.
Apparent authority: When a third party reasonably believes that an agent has actual authority even though the agent lacks actual authority.
8.
Capacity of Agent: -Must have sufficient mental and physical ability to carry out instructions of his/her principal -Can bind principal even if agent is a minor or legally unable to act for self -Principal will be responsible for contract that minor agent entered into on principal's behalf and cannot use minor's lack of capacity as defense.
21.
Partially disclosed principal: When the third party knows of the existence of the principal, but does not know the principal's identity
22.
Power of attorney: A person authorizes another person to act as his/her representative Principal: The party for whom the agent acts. Principal's contract liability to third parties: -If agent acts with authority (either actual or apparent) the principle is liable, regardless of disclosure status. -If agent acts with no authority, then the principle is not liable, unless the principal ratifies the contract.
23. 24.
9.
Capacity of Principal: -Must be able to give legal consent. -Minors may appoint agents, but can disaffirm agency -If act requires some legal capacity (legal age to sell land, etc) principal must meet this requirement. -CAPACITY CANNOT BE INCREASED BY APPOINTMENT OF AGENT
25.
Principal's duties to agent: -Most determined by agreement contract that principal/agent entered into -Compensating agent -Reimburse reasonable expense unless agreement says otherwise, indemnify agent against loss/liability for duties within scope of employment -Cooperate with agent -Inform agent of risks -Have remedies of discharging agent, restitution, damages, and accounting, or an injunction
10.
Cases in which independent contractors can hold principal liable: -Employed to do something inherently dangerous -Employer was negligent in hiring IC -When they serve as agents in certain cases, like an attorney
11.
Del credere: A sales agent who, prior to the creation and as a condition of the agency, guarantees the accounts of the customers to his/her principal (if the customers fail to pay)
12.
Disclosed principal: A principal who is known by the third party. Estoppel: A bar or impediment preventing a party from asserting a fact or a claim inconsistent with a position that the party previously took, especially where representation has been relied or acted upon by others.
13.
Agency
26.
Principal's liability for agent's tort: -Whether or not tort was committed under scope of employment. If so, respondeat superior -Intentional torts which are foreseeable and relate to the job are normally in the scope of employment -If agent commits a tort in the scope of employment, then the principal and agent are jointly and severally liable.
27.
Ratification: When a principal approves of a contract that was entered into by an agent lacking authority. Ratification means that the principal is now liable for the contract. Requirements to grant authority to agent: -In writing (unless falls within Statute of Fraud. This is not the case if the contract cannot be completed within a year) -Signed by principal -Agent must have capacity to be an agent
28.
29.
Respondeat Superior: "Let the master answer" Literally means that the superior should be held responsible. When an agent commits a tort in the scope of employment, then the principal is liable for the agent's tort. Scope of employment: Agent's actions that occur substantially in the work environment Termination by operation of law: The law automatically ends the relationship -Subject of agreement becomes illegal or impossible -Death, insanity, or court determined incompetence of either party -Bankruptcy of principal (bankruptcy of agent does not affect unless insolvency deters performance)
30. 31.
32.
Termination of agent/principal relationship: -By agreement -If no time is specified in agency, then either party may terminate without liability -Agency coupled with an interest is irrevocable
33.
Third Party: Term in principal/agent law that applies to a party who is interacting with either the principal or the agent. The principal and agent are the first two parties. Tort: A wrongful act that results in injury to another person, property, reputation, or the like, and for which the injured party is entitled to a compensation Undisclosed principal: When the third party to a contract does not know that a principal exists.
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Bankruptcy
1.
Acts that bar discharge of ALL debts
-Improper actions during bankruptcy proceedings including making false claims against estate, concealing property, transfer of property after filing with intent to defeat the law, false entry in or on any document of account relating to bankrupt's affair. These also punishable by fines/imprisonment -Failing to satisfactorily explain any loss of assets -Refusing to obey court orders -Removing or destroying property within 12 months prior to filing with intent to hinder, delay, or defraud -Destroying, falsifying, concealing, or failing to keep books of account or records -Abuse
2.
Approval of reorganization plan Chapter 7 Bankruptcy Chapter 11 Bankruptcy Chapter 13 Bankruptcy Chapter 13 BR requirements
-Over 1/2 of creditors in each committee owed at least 2/3 of the total debt in that class -Acceptance of stockholders holding at least 2/3 in amount of the stock -Vetos can be overridden by courts via "cram down" power Debtor liquidates all assets, except exempt assets, to pay creditors Debtor reorganizes debts to pay creditors; primarily used by businesses Debtor reorganizes debt to pay creditors; primarily used by individuals -Have regular income -Owe unsecured debts of less than $360,475 -Owe secured debts less than $1,081,400 -Only voluntary -Debtor has exclusive right to propose plan to be confirmed or denied by court without approval of unsecured creditors -Unsecured creditors must receive as much as they would get under Ch 7 and have all debtor's disposable income committed to plan -If unsecured does not get paid in full, plan must commit to payments for three years -Court must appoint trustee A group of unsecured creditors who essentially function as the bankruptcy trustee in Chapter 11 cases -Taxes within 3 years -Loans for payment of federal taxes -Unscheduled debts unless creditor had actual notice of proceedings -Alimony, separate maintenance, child support -Liability due to theft or embezzlement -Willful/malicious injuries to a person or property (intentional torts) -Harder for student loans to be discharged unless undue hardship -Government fines/penalties within 3 years -Liability incurred while operating a vehicle, vessel, or aircraft while legally intoxicated -consumer debts to a single debtor under specified condition for luxury goods or services made within 60 days of filing -cash advances made within 60 days -any debt from violation of security laws including Sarbanes-Oxley Act -Debts owed to pension plans, profit sharing plans, or similar employee plans -Homeowner association, condo, or cooperative fees After debtor completes bankruptcy, debtor is relieved of all previous debt except debts that are nondischargeable. This allows debtor to get a financial fresh start. -Liquidate/sell assets, pay creditors based on priorities, examine property claims by creditors -Makes interim reports and presents final accounting of the administration to court -Consumer filers must receive credit counseling by approved agency within 180 days prior to filing -Unless incapacitated, disabled, or on active duty in military zone -Also attend an approved financial management course or else discharge will be denied
3. 4. 5. 6.
7. 8.
Creditor's Committee Debts not discharged
9.
Discharge Duties of trustees under Chapter 7 Educational requirements subsequent to filing bankruptcy
10.
11.
Bankruptcy
12. 13.
Estate Execution of reorganization plan (payment) Exempt Property
The debtor's assets that are used to pay the creditors -Must be consistent for each class of claims -May provide stock in place of debt
14.
-$21,625 equity in principal residence -$3450 equity in one motor vehicle -$2175 in books and tools of one's trade -$550 per item qualifying as personal, family, or home use (aggregate ceiling of $11525) -Life insurance up to $11525 -Unmatured life insurance contracts -Social security benefits -Unemployment compensation -Disability, illness, or unemployment benefits -Alimony and child support -Veteran's benefits -prescribed health aides -public assistance -pensions and retirement benefits needed for support and ERISA qualified -lost earnings payments -wages up to specific formula (75% of disposable income or 30 times federal minimum wage) Chapter 11 BR which provides small business with debts less than $2,190,000 to cut out much of red tape of bankruptcy proceedings A party who has a close relationship with the debtor. relevant in the area of preferential transfers. Transactions with insiders are examined by the trustee for 1 year prior to the filing of the bankruptcy petition. Debtor is sued by creditors and forced into bankruptcy The process of turning assets into cash to pay creditors Granted, in most cases, the debtor upon the filing of the bankruptcy petition. Allows debtor to stop paying creditors until the bankruptcy can be finalized. -Any legal action necessary to carry out duties -With court approval, may employ professionals to assist where it required (trustee may act in professional capacity if approved by court) -Set aside liens -Set aside transfers made within one year prior to filing if made with intent to hinder, delay, or defraud any creditor, or debtor received less than a reasonably equivalent value in exchange for such transfer and debtor was insolvent or became insolvent as a result -Set aside preferential transfers made within 90 days prior to the filing (unless to insiders, in which time is extended to a year prior) When the debtor provides payment or security to a creditor, which would allow creditor to collect more than the creditor would have under Chapter 7 bankruptcy. If such a transfer took place 90 days prior to the filing of the bankruptcy petition, the trustee may set the transaction aside. This is done to assure all creditors are treated fairly.
15.
Fast tracking Insider Involuntary petition Liquidation Order for relief Powers of trustees under Chapter 7
16.
17.
18. 19.
20.
21.
Preferential transfer
36
Bankruptcy
22.
Priority of claims
-Secured, then unsecured -Secured gets entire value of collateral to the extent of the debt. Excess goes to paying off junior security interests, deficiency is categorized as general obligation -Domestic support obligations -Administration costs -Claims arising from ordinary course of business after petition is filed but before order of relief is entered -Wages, salaries, and commissions up to $11,725 per employee earned within 180 days before petition -Contributions to employee benefit plans within the prior 180 days limited to $11725 -Storage of grain or fish up to 5775 per individual -Consumer deposit for undelivered goods or services limited to $2600 per individual -Taxes -Obligations to banks -Debts arising from motor vehicle accidents while under influence -General creditors that filed timely proofs of claim When a debtor voluntarily chooses to repay a debt that otherwise would be fully discharged under the Bankruptcy Code A claim against specific property by a person claiming it to be their own property A debtor retains assets, as opposed to liquidating the assets, and agrees to pay creditors out of future earnings under Chapter 11 or 13 of the Bankruptcy Code Allows for continued operation of business, unless stated otherwise by court. Provides payment of part or all of debts over extended period, primarily from future income. Committee will create one, but debtor may submit own within 120 days after order of relief -If less than 12 creditors, anyone can file if own undisputed claim aggregates $14,425 in excess of any security -Or more than one can combine to have debts more than $14,425 of unsecured claims -If 12 or more creditors, 3 having claims over $14,425 must sign petition -May need to post bond that indemnifies debtor for losses caused by contesting petition -Debtors may be awarded damages including lawyer's fees if successfully defends BR, and even punitive damages if petition were made in bad faith. -Filing requirements are met -Petition is uncontested -Petition is contested and debtor is generally not paying debts as they become due or during the 120 days preceding the filing, a custodian was appointed or took possession of substantially all of the property of the debtor A court order that prevents further collection actions by creditors. The stay is issued upon the filing of the bankruptcy petition, but does not apply to family law issues. to substitute -pertains to voluntary chapter 7 BR -law is trying to assure that debtors with the ability to repay their debts are not declaring bankruptcy -presumes abuse unless debtor's monthly income exceeds certain dollar limits. -special circumstances such as medical conditions/service in armed forced considered -if found to be abusing, then proceed with chapter 13 instead of 7 All claims must be filed within 6 months after first creditors' meeting The bankruptcy trustee presides over the bankruptcy estate and organizes the estate for the court. The trustee determines what the assets and liabilities of the estate are. Assigned if debtor's management is not considered capable of running business, or if in the best interest of creditors A debtor chooses to file bankruptcy, as opposed to being forced into bankruptcy by the creditors Legal proceeding where an employer garnishes employee's wage to repay employee's debt to creditors. Usually last resort for creditors in lieu of forcing bankruptcy
23.
Reaffirmation Reclamation Reorganization (rehabilitation) Reorganization plan
24. 25.
26.
27.
Requirement to force Chapter 7 BR
28.
Requirements for order of relief under Chapter 7?
29.
Stay Subrogation The Bankruptcy Abuse and Protection Act of 2005 Timing to file claims Trustee Trustee under Chapter 11 Voluntary Petition Wage Garnishment
30. 31.
32. 33.
34.
35. 36.
37
Bankruptcy
37.
What claims are not allowed if creditor objects?
-unenforceable claims -unmatured interest as of date of filing -claims that may be offset -property tax claim in excess of property value -insider or attorney claims in excess of reasonable value of services -alimony, maintenance, and support claims for amounts due after bankruptcy petition is filed -landlord's damages for lease termination in excess of specified amounts -damages for termination of an employment contact in excess of one year's wage -certain employment tax claims -Debtor gives list of assets and liabilities, their locations, and a list of creditors -Claims of debtors are allowed unless disputed, and if filed within 6 months of first creditors' meeting -trustee may be elected Deceased person's estate is not available for Ch 7 BR, but if a person dies during petition, continues -property received within 180 days in the following manners: inheritance, life insurance, property settlement with spouse -Income from property owned by estate -Persons (or partnerships, corporations) who owe less than $14,425 -Farmers -Charitable organizations Railroads, banking institutions, insurance companies. Stockbrokers/Commodity brokers
38.
What happens at the first creditor's meeting?
39.
What happens when death is involved with Chapter 7 BR? What properties obtained subsequent to the filing date are considered part of the estate? Who are exempt from forced chapter 7 BR?
40.
41.
42. 43.
Who are NOT allowed to file Chapter 7 BR? Who are NOT allowed to file Chapter 11 BR?
38
Federal Tax Procedures and Legislative Process

Burden of Proof Failure to File Penalty Failure to Pay Penalty General Avoidance of Penalties
1.
Taxpayer has burden of proof (most cases). The IRS has burden of proof in any court proceedings on income, gift, estate or generation-skipping tax 5% of the amount of the tax due for each month, not to exceed 25% of the amount of tax due .5% per month up to a maximum of 25% of the unpaid tax 1. Had reasonable cause to support the tax return position (relied upon advice of CPA or tax attorney) 2. Acted in good faith and 3. Did not have willful neglect 1. IRC 2. IRS Regs 3. Tax Court Decisions 4. IRS Agents' Reports position that has more than a 50% chance of succeeding transfer pricing 90-day letter is issued. the taxpayer has 90 days to file a petition with the US Tax Court position that has at least 20% chance of succeeding position that has more than 33% chance of succeeding but less than 50% chance Most individual returns are audited within 2 years from the date of filing the return. Large corporations are subject to annual audits. three judge panel (no jury) general trial courts of the US federal court system. Taxpayer must first pay disputed tax liability and then sue IRS for refund highest court in the nation and is the last level of appeal only hear Federal tax cases
2. 3. 4.
5.
Hierarchy of Authority in the Tax Law
6. 7.
More Likely than Not Standard Multi-Jurisdictional Tax Issues on Federal Taxation Notice of Deficiency Reasonable Basis Standard Substantial Authority Standard Timing of Audits US Court of Appeals US District Courts US Supreme Court US Tax Court
8. 9. 10. 11.
12. 13.
14. 15.
39
Regulations of Business Employment, Environment, and Antitrust

Age discrimination -Employers with 20 or more employees, unions, employment agencies, federal government -Generally apply to individuals at least 40 years old -Discriminated based on age Law that prohibits discrimination against people who are 40 and older -Added prohibition of the acquisition of assets of another corporation where the effects might lessen competition -Both assets and stock acquisition covered -Forbids companies and most other entities from discriminating against qualified persons with a disability -Reasonable accommodations: acquiring new equipment, modifying facilities, restructuring jobs, modifying work schedules, etc unless causes undue hardship on employer -Enforced by attorney general or private legal action Prohibits discrimination against differently abled persons. Includes both physical and mental disabilities. -Promote the production and distribution of goods and services in the most economical and efficient manner by preserving free, competitive markets -Regulated by federal laws -Old age insurance -Survivor's and disability insurance -Hospital Insurance (Medicare) -Unemployment insurance An employer's defense to a claim of employment discrimination based on title VII. The employer is claiming to have a legitimate reason, usually related to job qualifications, for what appears to be discrimination. Yes, but must show proof of financial responsibility to carry own risk Establishes air quality standards that states enforce. -National Ambient Air Quality Standards (NAAQS) by EPA -Protect public health and welfare -States must submit SIP (state implementation plan) on how to achieve NAAQS -New stationary sources must show they are using the best technological system of emissions reduction -Regulate various toxic pollutants, including those that affect acid rain and ozone layer -Private citizens may sue violators and federal/state officials who fail to take action -Federal government may force recall autos violating emissions regulations -EPA can assess civil penalties per violation: companies violating clean air act can be penalized equal to benefit company receives by not complying, hit with felony, and can hold corporate officers criminally liable -Companies can trade rights to pollute Establishes water quality standards that states enforce. -Reduce, eliminate, prevent pollution of rivers, seas, ponds, wetlands, etc -EPA creates framework, states responsible for making sure they are met -Provides fines and prison for neglect or knowing violations or endangerment Creates a strict liability system for the cleanup of hazardous waste sites and spills
1.
2.
Age Discrimination In Employment Act (ADEA) Amendment of 1950 to the Clayton Act of 1914 Americans with disabilities (ADA)
3.
4.
5.
Americans with Disabilities Act (ADA) Antitrust Law
6.
7.
Basic programs of the Federal Security Act
8.
Bona fide occupational qualification (BFOQ) Can employers not opt for workers' comp insurance? Clean Air Act Clean Air Act
9.
10. 11.
12. 13.
Clean Water Act Clean Water Act
14.
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) Conglomerate mergers
15.
Companies merging together who are not in the same industry, IE food and radio

16.
Consolidated Omnibus Budget Reconciliation Act (COBRA) Contracts in restrain that are legal Contracts in restraint that are illegal Defense against Title VII of 1964 Civil Rights Act?
Allows former employees, at their own expense, to continue coverage of their group health plan for up to 18 months after losing their job. -Seller of business agrees not to compete with buyer for reasonable time and geographic area AND if proper business interest is sought to be protected -Unenforceable by the parties, in addition to possible criminal or civil penalties and injunctions -Vertical restraints/Horizontal restraints
17.
18.
19.
-If discrimination is bonafide occupational qualification reasonably necessary to the normal operation of that particular enterprise -Bona fide seniority/merit system -Professionally developed employment testing and education requirements -National security reasons NO BFOQ exist for discrimination on the basis of race or color. Elective = election to accept/waive, compulsory = mandatory Most states have compulsory workers' compensation statutes
20.
Elective vs Compulsory Statutes Employee Retirement income Security Act (ERISA) Employer's duties for FICA
21.
Regulates pension plans for companies that choose to have pensions.
22.
-Withhold FICA from wages, match dollar for dollar, submit to government -Can be fined for failure to make timely deposits, failure to supply tax ID # -Will be liable if he did not withhold employee's share. Can collect from employee afterwards -Furnish employee with written statement of wages paid and FICA contributions withheld A voluntary review by a company to ensure that it is in compliance with with the various environmental laws. A report required for any federal action that will significantly impact the environment. Primary enforcer and administrator of environmental laws and regulations -Parties may be liable under doctrine of nuisance, must prove that using property in manner that unreasonably interferes with another's right to use, and that their injury is distinct from harm to public in general. -Businesses may be liable for negligence or under strict liability if involved in ultra hazardous activities -Enforce federal environmental laws using administrative orders/civil penalties, and refer criminal/civil actions to Department of Justice -Adopts regulations and conducts research on effects of pollution -Most environmental statutes provide for criminal liability, but EPA uses civil suits more than criminal prosecutions because civil suits require preponderance of evidence to win but criminal convictions require proof beyond a reasonable doubt -Private citizens may sue violators or EPA to enforce compliance with laws Requires equal pay for equal work for both sexes, difference must be based on merit, quality of work, seniority, shift differentials -Enforced by EEOC -Remedy = backpay
23.
Environmental compliance audit Environmental impact statement Environmental Protection Agency (EPA) Environmental Regulation under Common Law EPA
24.
25.
26.
27.
28.
Equal Pay Act
41

29.
ERISA
-Employee Retirement Income Security Act -Employers NOT required to set one up -But if he does, then: Employee contribution vest immediately Employee's rights to employers' contribution vest from 5-7 years after beginning employment, based on formulas in law Standards on investment of funds Covered plans must give annual reports to employees in plan Plan must be in writing Plan manager must be named, who becomes fiduciary -Maximum punishment for violations of Act by individuals: imprisonment of 10 years and fine of $100,000 -Max punishment by entity, fine $500,000 -Sarbanes Oxley act requires administrators of employee benefit and profit sharing plans to provide participants and beneficiaries thirty day advance notice of blackout periods when their rights are temporarily suspended to make changes in plan -Labor unions unless they join with nonlabor group and act in violation -Patents (20 years unless design patent, in which case 14) -Copyrights (author's life + 70 years, for publishers 95 years after publication or 120 years after creation) -Trademarks (indefinite number of renewals -Insurance business that is covered by state regulations -US exporters -State allowed to have quotas on oil marketed for interstate commerce -Agricultural cooperatives -State government actions -Legislative activities such as lobbying -Professional baseball Federal law that regulates minimum wage, employment hours, and child labor. Allows employees to take up to 12 weeks of unpaid leave to deal with family and medical issues. -Covered employees employed for at least 12 months for at least 1250 hours by employer having at least 50 employees -Employees can take up to 12 work weeks of leave during a 12 month period for: Serious Health Problem Care for serious health problem of parent, spouse, or child Birth and care of baby Child placed with employee for adoption or foster care -When employee returns, must get back same or equivalent position -Returning employees cannot lose benefits due to leave -COBRA -When employee quits, he may keep same group health insurance coverage for 18 months for him and his spouse if he pays for it, and the employer had 20 or more employees -Private employers may not require employees to take lie detector test or make adverse employment decision based on tests/refusal to take test -Security issue, national defense, drug manufacturer/distributors can use lie detector -Private employer may use lie detector as part of investigation of economic loss when there is reason, limited to questions pertaining to the topic -Preemployment drug testing ruled legal -If employer has reasonable suspicion, may test current employees
30.
Exceptions to antitrust laws
31.
Fair labor Standards Act (FLSA) Family and Medical Leave Act Family and Medical Leave Act
32.
33.
34.
Federal Consolidated Omnibus Budget Reconciliation Act Federal Employee Polygraph Protection Act and Drug Testing
35.
42

36.
Federal Fair Labor Standards Act
-All businesses that affect interstate commerce must pay employees minimum wage (unless under 20 can be hired for less for 90 calendar days) -Employees working over 40 hours per week must be paid 1.5x -Employees not covered by FFLSA: professionals, executives, outside salesperson, etc -Employees covered by minimum wage but not overtime: taxi drivers, railroad employees -Enforced by Department of Labor and may include fines/prison Law that requires employers and employees to each pay half of the social security tax. Self-employed individuals must pay the entire tax. -Created FTC -Prohibits unfair methods of competition and deceptive practices involving advertising, telemarketing, electronic advertising -Enforces sanction Provides temporary payments to workers who have lost their jobs through no fault of their own. Only up to base amount that is changed frequently -If employee pays more FICA tax than on base amount, entitled to refund (usually happens when employee works two jobs) UNLESS for Medicare, in which there is no earnings cap for the Medicare portion. Pays tax on all wages earned.
37.
Federal Insurance Contributions Act (FICA) Federal Trade Commission Act of 1914
38.
39.
Federal Unemployment Tax Act (FUTA) FICA payments
40.
41.
FTC powers
-authority to enforce most of the antitrust laws, but not criminal violations -exclusive authority to enforce Act's prohibitions (individuals cant enforce) -authority to determine what practices are unfair or undesirable -Federal Unemployment Tax Act -Provide unemployment compensation benefit to workers who lose jobs and cannot find replacement work -Must be paid by employer if employer employs one or more persons covered by act (deductible) -Cant exclude preexisting conditions in employer sponsored group health insurance policies
42.
FUTA
43.
Health insurance portability and accountability act Horizontal restraint How to treat cost of Workers' compensation? Identity Theft Landrum Griffin Act
44. 45.
An agreement among competing economic entities that limits competition Expense of production -Increased penalties for identity theft -FTC is appointed to help victims to restore credit and minimize impacts Amended NLRA to regulate union abuses against its own members -Requires extensive financial reporting involving unions -Civil and criminal action against misdeeds of union officers -Bill of rights for union members Two separate economic entities that combine into one company. Only mergers that will result in a substantially lessening of competition violate the antitrust laws. When a firm has monopoly power in the relevant market and keeps others out of the market through methods other than legitimate competition. A firm has the ability to exclude competitors and control prices in the relevant market. -Require all federal agencies to consider environmental factors in all major decision, and to prepare environmental impact statement (EIS) when proposing action/laws that significantly affect environment -Natural, aesthetic, cultural, etc -Private parties must also submit EIS -If EIS not warranted, then submit public document called Finding of No Significant Impact
46.
47.
48.
Merger Monopolization Monopoly power National Environmental Policy Act
49.
50. 51.
43

52.
National Labor Relations Act (NLRA)
-Employees may join, assist, form labor orgs -NLRB (board) runs and supervises union elections -Management and union must collectively bargain -MUST: wages, hours, conditions of employment (benefit, safety, seniority rules, etc) -CANNOT: featherbedding (require employer to pay employee for work not actually performed), involving other parties not directly involved in labor dispute -Allows for strikes, but can only be about a mandatory bargaining subject -Not protected by NLRA: employees of government, agriculture, management level, railroad Legislation that regulates the union/management relationship. Creates workplace standards of health and safety. Availability of benefits depends upon attainment of insured status by working certain length of time -Average monthly earnings -Relationship of beneficiary to retired, deceased, or disabled -Cost of living -Time of retirement (delayed = increased, early = decreased) Occupational Safety and Health Act. -Applies to all employees except federal/state government, and certain other industries who are subject to other safety regulations -Promote safety standards and job safety -Occupational Safety and Health Administration administers this law
53. 54.
National Labor Relations Act (NLRA) Occupational Safety and health Act (OSHA) Old age, survivor's, and disability insurance - how to get Old age, survivor's, and disability insurance- amount of benefit depends on... OSHA
55.
56.
57.
58.
OSHA duties
-Develop and enforce standards in work place on health and safety -Investigate complaints and makes inspections of workplace. May need warrant, can get warrant via high employee complaint rate -Require employers to keep records of job related injuries and to report serious accidents to OSHA -Prohibit employers from discriminating against or discharging employees who exercise OSHA rights -Assess civil penalties for violations Applies to inherently anticompetitive activities that are automatically illegal -Various cases now generally hold that 70% of the relevant market is presumption of monopoly power -Less than 50% of the market is presumption of no monopoly power -A much lower percentage will suffice if the charge is attempting to monopolize rather than holding monopoly power Sellers charging different buyers different prices for the same product This for that, as in exchanges. -Acquisitions tending to create monopoly are violations, even if they don't actually create a monopoly. Use percentage of market (product and geography) test Refers to the meaningful areas of competition both geographically and by product -Back pay -Job or Promotion -Retroactive seniority -Compensatory damages, and in extreme cases punitive damages for cases involving intentional discrimination An agreement that limits competition -Employees have no expectation of privacy using employer's email systems, even without warning
59. 60.
Per se rule Percentage share of the relevant market to determine whether monopoly
61. 62. 63.
Price discrimination Quid pro quo Reduce the potential for monopoly through mergers Relevant market Remedies for successful claimants under Title VII
64. 65.
66. 67.
Restraint of trade Rights to Email

68.
Robinson-Patman Act of 1936 Rule of reason Safe Drinking Water Act
Prohibits price discrimination unless there is cost justification If a restraint of trade does not fall under the per se rule, then it is analyzed under the rule of reason, which balances the procompetitive effects of the agreement versus the anticompetitive effects. Regulates safety of tap water supplied to homes -EPA prepares new list every 3 years that identifies contaminants, most recent threat is terrorism -Prohibits discharge of waste into wells for drinking water Cease and desist Civil penalty Each day continued violation is separate offense FTC may use CaD orders for Sherman/Clayton Act -Injunctions, forced divisions, forced divestiture (by individuals, corporations, or government) -Criminal penalties (by government) -Treble damages (by individuals and corporations) -Self employed can deduct half of FICA tax paid on his income tax form
69.
70.
71.
Sanctions under FTCA
72.
Sanctions under Sherman Act Self Employment Contributions Act tax deductions Social Security Act Sources of financing for Social Security Programs
73.
74. 75.
Provides income/benefits to retirees, disabled workers, and dependents of deceased workers. -Old age, survivor's, disabilities, and hospital insurance programs are financed out of taxes paid by employers, employees, and self-employed (FICA and SECA) -Unemployment insurance programs are financed out of taxes paid by employers under FUTA and other state laws. Plan submitted by a state to show the EPA how the state will achieve the environmental standards set by the EPA -Employers must pay -Entitled to credit against federal unemployment tax for state unemployment taxes paid -May be raised or lowered according to number of claims against employer -If employer pays low rate because of good employment records, entitled to additional credit against federal unemployment tax -Employer may deduct taxes paid on tax return, but employee may not -Forbids discrimination in employment based on race, color, religion, sex, or national origin in hiring, promoting, transferring, firing, compensating employees. Prohibits discrimination on the basis of race, color, religion, national origin, or gender in all aspects of employment. One of the remedies for a private party who successfully proves an antitrust violation; the private party receives three times its actual damages Seller of a desired product forces a buyer to purchase an additional product if the buyer wants the desired product -Where seller forces buyer to take one or more other products as a condition to acquiring the desired product -3 elements must be met to be considered illegal two separate products there must be economic power in the tying market, meaning 30% market share or more in tying market, or that the product is unique Substantial commerce in the tied market -Depends on state laws (eligibility, benefits) -Self employed not included -Generally only for people who are unemployed through no fault of their own -Not available for seasonable workers if paid on yearly basis -One must have worked for a specified time and/or earned specified amount of wages
76.
State implementation plan State unemployment tax
77.
78. 79.
Tax deductions for FICA Title VII of 1964 Civil Rights Act Title VII of the 1964 Civil Rights Act Treble damages Tying Arrangement Tying arrangements
80.
81.
82.
83.
84.
Unemployment benefits
45

85.
Vertical restrain of trade Vocational rehabilitation act of 1973 What are employer's common law defenses against injuries or disease sustained in the workplace? What are the main purposes of the Clayton Act of 1914?
An agreement between separate economic entities in the chain of distribution that limits competition. Any employer with federal contracts over $2,500 must take affirmative action to employ and advance qualified handicapped individuals Assumption of risk, negligence of a fellow employee, contributory negligence. These are NOT allowed under the workers' compensation act -Supplement the Sherman Act to prohibit a corporation from acquiring the stock of a competing corporation (merger) where the effect MIGHT substantially lessen competition or create a monopoly -Prohibit interlocking directorates -Prohibits tying arrangements if meets certain conditions -If employee sues and recovers, employer or insurance is entitled to compensation for workers' comp paid to employee -If employee accepts workers' comp, employer or insurance is subrogated to rights of employee, so can sue third party -Can't sue employer unless harm was intentionally done by employer -Can sue insurance company if they refuse payment -Sole remedy against employer is that provided for under appropriate workers' compensation act Makes contracts, combinations, conspiracies, or agreements in restrain of trade illegal under Section 1. Makes monopolization illegal under Section 2 Allows for sanctions (both civil and government prosecutions available) -All employees who are injured on the job or in the course of employment -Occupational diseases and preexisting diseases that are aggravated by employment -Does not cover employees travelling to and from work -Employee may sue in common law for damages, employer cannot resort to common law defenses -State fund can pay employee, and then state can sue/penalize employer Workers' compensation is a form of strict liability where the employer is liable, so no fault need be shown. Payment automatic upon satisfaction of requirements -It means that the restrain is automatically illegal- so inherently anticompetitive that there can be no valid justification to engage in such activities -Usually, per se applies to horizontal restrains of trade: price fixing, joint boycotts, territorial limitations -Percentage share -Intent: if monopoly is thrust upon the defendant, then not illegal Balances procompetitive effects of the agreement vs the anticompetitive effects of agreement to determine legality -All vertical restrains are subject to rule of reason: resale price maintenance, interbrand and intrabrand competition, vertical territorial limitations are only illegal if unreasonable -Must be between two economic entities -Has to be unreasonable (per se and rule of reason) -Agreement is necessary Before completion (preliminary injunction) After completion (forced divestiture)
86.
87.
88.
89.
What can an employer do against a third party in a work related injury?
90.
What can/can't an employee who is eligible for workers' comp legally do?
91.
What does the Sherman Act of 1890 do?
92.
What does the workers' comp cover?
93.
What happens if employer fails to provide workers' comp or if coverage is inadequate? What is necessary for payment under workers' compensation? What is per se?
94.
95.
96.
What is required to violate Section 2 of SA? What is rule of reason?
97.
98.
What makes restrain on trade illegal under Section 1 of SA? When can a suit be filed?
99.
46

100.
When can an employee NOT recover from workers' compensation act?
Intentional self infliction or intoxication can bar recovery. Negligence, gross negligence does not bar or even affect determination of amount of benefit awarded Does not matter if employee did not follow employer's rules
101.
Whistle-Blower Protection Act
-Federal law that protects federal employees from retaliation by employers for reporting employer legal violations -Most states have it too -DoJ: enforces Sherman Act and Clayton Act, may seek criminal penalties -Federal trade commission (FTC): enforces Clayton Act and Federal Trade Commission Act, may only pursue civil enforcement -Private parties: entitled to treble damages and reasonable attorney fees, only pursue civil enforcement -Equal Employment Opportunity Commission (EEOC), a federal government administrative agency -individuals may also sue Any employers and labor unions having 15 or more employees whose business affects interstate commerce, and government employers and employment agencies. -Employs one person or more for some portion of a day for twenty weeks, or pays $1700 or more in total wages in any calendar quarter States, unless federal government employees, who are covered by federal statute Businesses with 100 or more employees must give 60 day notice before closing a plant or having mass layoffs to employees, state, and local officials Shorter notice for emergencies or failing companies Provides payment to workers for injuries that are sustained at work or that arise out of work. There is a no-fault system.
102.
Who enforces antitrust laws?
103.
Who enforces title VII of 1964 Civil Rights Act? Who is subject to Title VII of 1964 Civil Rights Act? Who qualifies as an "employer" for FUTA? Who regulates workers' compensation act? Worker Adjustment and Retraining Notification Act Worker's Compensation
104.
105.
106.
107.
108.
47

2013 REG Last Minute Study Notes (Bonus)

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LastMinute Study Notes

Regulation LatsMinute Study Notes Index

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Above the line deductions

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Annuities (exclude or deduct?)

Asset Depreciation Range (ADR) Averaging Convention

Bona fide residence test Bonus Depreciation

Business Income and deductions

Business meals, entertainment, and travel

Business use of home deductions

Cash method accounting

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Child support (exclude or deduct?) Contributions made to education IRAs

Contributions of self employed to qualified retirement plans Contributions to IRAs

Contributions to Roth IRA

Dependent Care Assistance (exclude or deduct?)

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Depreciation of leasehold improvements

Depreciation, Depletion, Amortization

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Foreign earned income (exclude or deduct?) Gross Income Installment Method

Itemized Deductions from AGI

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Lease improvements (exclude or deduct?) Life insurance proceeds (exclude or deduct?)

Losses and credits from passive activities Medical/Dental Expenses

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Modified Accelerated Cost Recovery System (MACRS)

Net operating loss

Percentage of Completion Method

Physical presence test

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Prizes and awards

Scholarships and fellowships (exclude or deduct?)

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Sec 197 Intangibles

Section 179 expense election

Special rules regarding methods of accounting

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Tax benefit rule Taxes

Unemployment compensation UNICAP (Uniform Capitalization Rule)

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Worker's Compensation (exclude or deduct?)

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Accumulated Earnings Tax Adjusted Current Earnings (ACE) Affiliated Group

loss is the adj basis of the property

Amortization, depreciation, and depletion AMT Adjustments

AMT Credits AMT Exemption Amount AMT Preferences

AMT Tax rate Bad debts

Corporation tax consequences: gain/loss recognized

Dividends Received Deduction

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General Business Credit Formula Half-year convention Life insurance premiums

Shareholder tax consequences: gain/loss recognized

Small business stock - exclusion of some or all Taxes

Penalties and illegal activities Personal Holding Company

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Accumulated Adjustments Account (AAA) Electing S Corp status Eligibility ?

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10. 11. 12.

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$13,000 per person/per year (to anyone)

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