CPA Exam Complete Review Notes – Tax, Contracts,
UCC, Bankruptcy, and Audit Liability Principles
Disclosure of taxpayer information to other is permissible under 3 ways: ✔✔1. computer
processing 2. peer review process 3. Through an administrative order.
Itemized deductions not limited to limitation: GIMIC ✔✔Gambling losses (to the extent of
gambling winnings) 2. Investment Interest expense 3. Medical Expenses 4. Casualt Losses (non-
business)
non-deductible taxes ✔✔Federal Income Taxes 2. Inheritance tax 3. Business Taxes (deductible
on Sch. E)
Altertrnative Minimum Tax: Adjustments (+/-) PANIC TIME ✔✔Passive activity Losses, Acc.
Dep., NOL's, Installment Income of a Dealer, Contracts (% complet vs. completed) Tax
deductions, Mtg. Interest not used 4 house, Medical(limited to 10% of AGI) Misc. deductions
are NOT allowed, Exemptions (personal) and standard deduction
Tax Preferences ✔✔Always ADD BACK PPP Private activity bond interest income Percentage
depletion the excess over adj. basis of property, pre- 1987 acceleateraed depreciation
Organizational & Start-up expenses ✔✔Tax: 5000 expense maximum remainder amortized
over 180 months GAAP- expensed when incurred
Capital Losses for corportations ✔✔Corps can only use to offset Cap gains. Carryback/over=
3/5 applied only to cap gains. carryback/forwards are always treated as a S/T Cap. LOSS
NOL for Corps ✔✔carryback/forward= 2/20 No Charitable contribution deduction or DRD
allowed before calculatiting a NOL
Rule 504 under 1933: ✔✔1. Exempts issuance up to $1 million 2. General solicittion is ok 3.
must be sold w/in 12 mnths 4. sold to any # of investors (seed capital) 5. resell is ok
Rule 506 under 1933: ✔✔1. Private placement of unlimited dollar amount 2. 35 non-accredited
sales to unlimited accredited
Rule 505 under 1933: ✔✔1. Exempts issuances of up t
, Punitive Damages ✔✔intended to reform or deter the defendant and others from engaging in
conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive
damages is not to compensate the plaintiff, the plaintiff will in fact receive all or some portion
of the punitive damage award. Not available UCC.
suing for NEGLIGENCE- MUST PROVE 4 THINGS: DBCI ✔✔dUTY OF CARE, BREACH (Lack of Due
Care), CASUALITY AND INJURY
Prefrential Transfer ✔✔The transfor of debtors property made fro the benefit of a creditor on
account of an antecedent debt while the debtor was insolvent. 1 yr for an insider and 90 days
for others.
Chapter 7 ✔✔provides for liquidation of a debtor's estate. n a liquidation proceeding, after the
petition is filed, a trustee will be appointed and an automatic stay against creditor collection
proceedings goes into effect.
Chapter 11 ✔✔is for debt reorganization and is available to family farmers with regular
income.
Co Insurance ✔✔[FV of Policy / (co-ins. % x FMV of Property)] Loss
For TAX purposes Amortized Goodwill is: ✔✔Amortized over 15 years
Life Ins. Prem on Key Employee: ✔✔NOT DEDUCTIBLE when directorly or indirectorly is bene
The Accrual Method for tax purposes must be used for: ✔✔1) accounting for the purchase and
sales of A/R & Inv. 2) Tax Shelters 3) Certain Farming 4) C-corps that have over $5M in avg.
Gross receipts for last 3 yrs.
AMT exemption amount for Corps: ✔✔40,000 less 25% if AMTI in excess of $150,000
Corp. Distributes Property as a Div: The treatement: ✔✔It is a gain as if the prop was sold.
FMV- NBV = GAIN to E&P The gain increases E&P
Losses on sales/exchanges are not recognized for tax purposes with: ✔✔Related parties:
Brothers, sisters, husband, wife and lineal decendents & entities that are more than 50%
owned by indiv. trusts and pships and corps.
UCC, Bankruptcy, and Audit Liability Principles
Disclosure of taxpayer information to other is permissible under 3 ways: ✔✔1. computer
processing 2. peer review process 3. Through an administrative order.
Itemized deductions not limited to limitation: GIMIC ✔✔Gambling losses (to the extent of
gambling winnings) 2. Investment Interest expense 3. Medical Expenses 4. Casualt Losses (non-
business)
non-deductible taxes ✔✔Federal Income Taxes 2. Inheritance tax 3. Business Taxes (deductible
on Sch. E)
Altertrnative Minimum Tax: Adjustments (+/-) PANIC TIME ✔✔Passive activity Losses, Acc.
Dep., NOL's, Installment Income of a Dealer, Contracts (% complet vs. completed) Tax
deductions, Mtg. Interest not used 4 house, Medical(limited to 10% of AGI) Misc. deductions
are NOT allowed, Exemptions (personal) and standard deduction
Tax Preferences ✔✔Always ADD BACK PPP Private activity bond interest income Percentage
depletion the excess over adj. basis of property, pre- 1987 acceleateraed depreciation
Organizational & Start-up expenses ✔✔Tax: 5000 expense maximum remainder amortized
over 180 months GAAP- expensed when incurred
Capital Losses for corportations ✔✔Corps can only use to offset Cap gains. Carryback/over=
3/5 applied only to cap gains. carryback/forwards are always treated as a S/T Cap. LOSS
NOL for Corps ✔✔carryback/forward= 2/20 No Charitable contribution deduction or DRD
allowed before calculatiting a NOL
Rule 504 under 1933: ✔✔1. Exempts issuance up to $1 million 2. General solicittion is ok 3.
must be sold w/in 12 mnths 4. sold to any # of investors (seed capital) 5. resell is ok
Rule 506 under 1933: ✔✔1. Private placement of unlimited dollar amount 2. 35 non-accredited
sales to unlimited accredited
Rule 505 under 1933: ✔✔1. Exempts issuances of up t
, Punitive Damages ✔✔intended to reform or deter the defendant and others from engaging in
conduct similar to that which formed the basis of the lawsuit. Although the purpose of punitive
damages is not to compensate the plaintiff, the plaintiff will in fact receive all or some portion
of the punitive damage award. Not available UCC.
suing for NEGLIGENCE- MUST PROVE 4 THINGS: DBCI ✔✔dUTY OF CARE, BREACH (Lack of Due
Care), CASUALITY AND INJURY
Prefrential Transfer ✔✔The transfor of debtors property made fro the benefit of a creditor on
account of an antecedent debt while the debtor was insolvent. 1 yr for an insider and 90 days
for others.
Chapter 7 ✔✔provides for liquidation of a debtor's estate. n a liquidation proceeding, after the
petition is filed, a trustee will be appointed and an automatic stay against creditor collection
proceedings goes into effect.
Chapter 11 ✔✔is for debt reorganization and is available to family farmers with regular
income.
Co Insurance ✔✔[FV of Policy / (co-ins. % x FMV of Property)] Loss
For TAX purposes Amortized Goodwill is: ✔✔Amortized over 15 years
Life Ins. Prem on Key Employee: ✔✔NOT DEDUCTIBLE when directorly or indirectorly is bene
The Accrual Method for tax purposes must be used for: ✔✔1) accounting for the purchase and
sales of A/R & Inv. 2) Tax Shelters 3) Certain Farming 4) C-corps that have over $5M in avg.
Gross receipts for last 3 yrs.
AMT exemption amount for Corps: ✔✔40,000 less 25% if AMTI in excess of $150,000
Corp. Distributes Property as a Div: The treatement: ✔✔It is a gain as if the prop was sold.
FMV- NBV = GAIN to E&P The gain increases E&P
Losses on sales/exchanges are not recognized for tax purposes with: ✔✔Related parties:
Brothers, sisters, husband, wife and lineal decendents & entities that are more than 50%
owned by indiv. trusts and pships and corps.
