ACCT 553 Study Guide
Economic benefit doctrine – Occurs when one receives a tax benefit from deduction and later receives reimbursement, it must be picked up as income (taxable) {Chapter 4} (will be on Homework ES and needs multiple questions)
Applies to cash basis taxpayer; Income is taxable to the recipient when it is set aside on his behalf, made available to him, or is used to satisfy some of his indebtedness . A very narrow exception exists if to take possession of that income would result in undue hardship.
Exam example – Cash basis landlord; tenant that hasn’t paid December rent until December 30th in the form of a check to the building superintendent who stamps, places in mail to landlord. When should the rent be taxed? Prior year because of agency theory (cash was handed to landlord agent in prior year.
Another tenant comes up, and gives the landlord an interest bearing note of $1,000 with a FMV $950. Check is treated as property. The note should be picked up at FMV ($950)
Business Bad Debt - Ordinary deduction;
Intangibles: Amortization over 15 yrs, including Goodwill (SS197)
Non Business Bad Debt - Short term capital loss
Cash vs. Accrual Basis for tax purposes
What is tax evasion – completed transaction and failing to discl.ose information by understating income or overstating expenses
Which is subject to federal income tax
Cancellation of debt - any debt that is forgiven is required to be reported as income with the exception of bankruptcy or solvency
Assignment of income – Income is taxable to the owner of the underlying property even if he assigns the income to an outside third party. If ownership is given away, tax is the third party’s responsibility.
Ownership interest taxes
Joint tenancy – Joint tenants have an equal, undivided interest in property and the income from that property can be taxed to either joint tenant
Tenants in common – Income is taxed to tenants in common according to their ownership interest in the property
Compensation vs
Applies to cash basis taxpayer; Income is taxable to the recipient when it is set aside on his behalf, made available to him, or is used to satisfy some of his indebtedness . A very narrow exception exists if to take possession of that income would result in undue hardship.
Exam example – Cash basis landlord; tenant that hasn’t paid December rent until December 30th in the form of a check to the building superintendent who stamps, places in mail to landlord. When should the rent be taxed? Prior year because of agency theory (cash was handed to landlord agent in prior year.
Another tenant comes up, and gives the landlord an interest bearing note of $1,000 with a FMV $950. Check is treated as property. The note should be picked up at FMV ($950)
Business Bad Debt - Ordinary deduction;
Intangibles: Amortization over 15 yrs, including Goodwill (SS197)
Non Business Bad Debt - Short term capital loss
Cash vs. Accrual Basis for tax purposes
What is tax evasion – completed transaction and failing to discl.ose information by understating income or overstating expenses
Which is subject to federal income tax
Cancellation of debt - any debt that is forgiven is required to be reported as income with the exception of bankruptcy or solvency
Assignment of income – Income is taxable to the owner of the underlying property even if he assigns the income to an outside third party. If ownership is given away, tax is the third party’s responsibility.
Ownership interest taxes
Joint tenancy – Joint tenants have an equal, undivided interest in property and the income from that property can be taxed to either joint tenant
Tenants in common – Income is taxed to tenants in common according to their ownership interest in the property
Compensation vs