1. Direct clients about the advantages and disadvantages associated with sole proprietorships, and clarify the formation requirements so that start-up expenses and withdrawals are dealt with properly. 2. Explain not-for-profit activities particularly how they relate to Schedule C businesses and advise on the various requirements permitting such businesses to complete the C-EZ form or request an automatic filing extension. 3. Warn clients about the taxes imposed on self-employed persons emphasizing compliance with payment requirements and determine how sole proprietorship assets are characterized on disposition. Summarize the income splitting and estate planning devices available for such owners and their bearing on entity choice. After studying the materials in this chapter, answer the exam questions 1 to 14. Chapter 2 Partnerships Definition of partnership Partners taxed as individuals Partnership tax return Year taxable Transactions between partner & partnership Contributions of property Inside basis of contributed assets Basis of partner s interest outside basis Sales & exchanges of partnership interests Partnership distributions 1. Define partnerships under 761(a) including the status of joint ventures, cotenancy, publicly traded partnerships, and the special benefits of family partnerships listing several advantages and disadvantages of each and identifying how partners share tax items. 2. Describe the taxation of partners and partnerships and its affect on the preparation of individual returns and K-1s. Then, for those wishing to avoid such partnership treatment, identify the exclusion requirements showing tax rate and 1031 exchange impact. 3. Name at least four separately stated items explaining the relationship of deductions to outside basis, partnership versus partner deductions, allocation of deductions, and related filing requirements to improve accurate tax reporting.
4. Identify the closing of a partnership year, the events that terminate a partnership and the events that do not close the year to insure proper tax allocation. 5. List two types of transactions between a partner and the partnership that can influence the treatment of the transaction, and characterize contributions of property according to 721. 6. Compare and contrast inside and outside basis, including complications caused by the contribution of services, indicating their interplay with the at risk & passive rules, their impact on the disposition of partnership interests, and their effect on partnership distributions. Explain how such distributions and liquidations effect gain or loss for partnership and partners. After studying the materials in this chapter, answer the exam questions 15 to 31. Chapter 3 Limited Liability Companies Advantages of LLCs over C corporations Advantages of LLCs over S corporations Advantages of LLCs over limited partnerships Advantages of LLCs over general partnerships Disadvantages Uses Federal tax consequences Conversion to LLCs from other entities Local taxes on conversion California Limited Liability Company Act 1. Identify the characteristics of limited liability companies (LLCs) distinguishing them from other entities, particularly C corporations, and list four benefits of an LLC and their effect on choosing a form of entity. 2. Analyze reasons for choosing an LLC over S corporations, limited partnerships, and general partnerships and contrast these with the drawbacks of LLCs to assist clients in entity selection. 3. Outline several ways to use the LLC form effectively and thereby fit client objectives and expand business-planning opportunities. 4. Explain the varying tax consequences of forming or converting to an LLC including possible state tax differences using the California Limited Liability Company Act as an example to better identify overall LLC tax issues. After studying the materials in this chapter, answer the exam questions 32 to 46. Chapter 4 Corporations
Corporation defined PSC corporations Incorporation Small business stock exclusion Start-up & organizational expenses Alternative minimum tax Capital gains & losses Accumulated earnings Accounting periods & methods Inventories 1. Define corporation, for tax purposes, differentiating regular corporations from other entities so that entity choice fits business owners objectives. 2. Clarify personal service corporations and small business investment companies, their requirements & tax treatment and when and how clients can engage or avoid such classification for their benefit. 3. Direct clients about the transfer of money, property or both by prospective shareholders to a corporation and the basic requirements associated with corporate formation under 351. 4. Explain the requirements of 1244 stock and the small business stock exclusion so that clients can take advantage of these tax benefits, and differentiate start-up expenses from organizational expenses in order to account for these expenses appropriately. 5. Analyze corporate pitfalls and dangers emphasizing tax recognition of the entity, tax rates, AMT computation, capital gains & losses under 1212 and the dividends received deduction under 243. 6. Assist clients in corporate operations by making allowable corporate charitable contributions, benefiting from the repeal of 341, and avoiding tax penalties under 541 and 531. 7. Describe available corporate accounting periods and methods analyzing the treatment and impact of tax-exempt income, inventory identification & evaluation, multiple corporations, and corporate liquidations and distributions. After studying the materials in this chapter, answer the exam questions 47 to 68. Chapter 5 S Corporations
Advantages & disadvantages S corporation status Termination Income & expense Built-in gain Passive income Basis of stocks & debts Distributions Form 1120S Fringe benefits 1. Describe S corporations under the Code and advise clients about the advantages and disadvantages associated with them. 2. List at least five variables that impact whether a business can choose S corporation status, and summarize three ways that an S corporation may be terminated and the related procedures that must be followed. 3. Explain S corporation tax treatment including such special areas involving income and expenses, pass-through items, built-in gain, passive income, tax preference items, LIFO recapture tax, capital gains tax, investment credit recapture, estimated tax payments, and basis of S corporation stock. 4. Describe and contrast, with other entity forms, S corporation owner compensation and distribution options by explaining reasonable compensation requirements, related party rules, S corporation distribution taxation, tax year choices, fringe benefits, and when the Form 1120S must be filed. After studying the materials in this chapter, answer the exam questions 69 to 80. Chapter 6 Basic Fringe Benefits Benefit mechanics Employee achievement awards Group term life insurance Self-insured medical reimbursement plans Medical insurance Meals & lodging Cafeteria plans Employer-provided automobile Adoption assistance program Interest-free & below-market loans
1. Assess basic fringe benefit planning by defining income under 61, and distinguishing former nonstatutory and current statutory fringe benefits created by recent cases, rulings, and tax law changes. 2. Analyze the basic mechanics of typical fringe benefits, calculate the fair market value of a fringe benefit under the general valuation rule or the special valuation rules, and apply the general accounting rule and the special two-month pour-over accounting rule to assist taxpayer compliance and improper reporting. 3. Define employee achievement award under 274, and discuss the rules of group term life insurance under 79 noting how to implement proper coverage. 4. Explain the mechanics of self-insured medical reimbursement plans under 105, and clarify the requirements of medical insurance of 106 contrasting the differences between the two Code sections. 5. Elucidate the rules for excluding the value of meals and lodging under 119, and define cafeteria plan and how it operates. 6. Describe the requirements and limits of employee educational assistance programs and dependent care assistance explaining how to obtain each type of assistance. 7. Define no-additional-cost services and identify what property or services are excludable from income as qualified employee discounts under 132(c), and list examples of and exceptions to working condition fringes and de minimis fringes. 8. Outline the requirements for qualified transportation fringe benefits under 132(f), summarize the four valuation methods for employer-provided automobiles, help clients qualify for the popular physical fitness exclusion, and describe the requirements and benefits of adoption assistance programs. 9. Discuss planning services available under 132, 212 and 67, analyze interest-free and below-market loans, summarize child care benefits and corporate funded educational savings accounts, identify S corporation fringe benefits, and outline ERISA compliance requirements. After studying the materials in this chapter, answer the exam questions 81 to 99. Chapter 7 Retirement Plans Qualified deferred compensation Basic requirements of a qualified pension plan Basic types of corporate plans Types of defined contribution plans Self-employed plans Keogh