G/L recognized in Like Kind exchanges: Lesser of: Realized gain OR Boot Received (net relief from liabilities)

Basis for Like-Kind exchanges: Basis of old property +Gain Recognized/ -Loss recognized (dont recognize loss on like-kind exchange) -Boot Received / +Boot Paid New basis S/T Capital G&L: 1. If any s/t capital losses (incl s/t capital loss carryovers), they are offset against any s/t gains taxable at ordinary income rates 2. Remaining s/t capital loss is used to offset L/T capital gains from 28% rate group (collectibles) 3. Remaining s/t capital loss is used to offset L/T gains from 25% rate group (unrecaptured sec 1250) 4. Remaining s/t capital loss is used to offset L/T capital gains at lower (15%) rate L/T Capital G&L: 1. If any L/T capital losses (incl carryovers) from 28% group, they are offset against any net gains from 25% group then from 15% group 2. If there are any L/T capital losses (incl carryovers) from 15% group, they are offset against any net gains from 28% group then against any net against from 25% group Partial Wash Sale 100s = 18000 2/1/Y2: Sell 50s $7000 (140/s) 2/16/Y2: Purchase 25s $3750 (within 30 days) Basis $9000 (180*50) +Wash sale loss $1000 (180-140 *25) Realized L $2000 (40/s L) Basis of 25s $4750 Guaranteed payment is a salary or payment to partner not calculated with respect to partnership income. Guaranteed payments to partners are taxable to recipient Partners are taxed on their share of partnership income NOT distributions Interest on federal government obligations is taxable. Interest on US treasury bonds is included in GI. Interest on federal tax refund is taxable. Interest on state government obligations is not taxable. Municipal bond interest is not taxable

Installment sales: Revenue reported over period in which payments are received. Amount of cash * GP% on sale to determine revenue Sales Price 600K GP% 180000 Cost 500K 600000 = 30% A/D 80K Gain rec in yr of sale: 120,000 cash Adj. Basis (420K) X30% Realized Gain 180K 36,000 Only medical and hospital insurance premiums are deductible as itemized deductions (not personal disability insurance) Medical expenses are deductible after 7.5% of AGI limitation

Misc itemized deductions are deductible after 2% of AGI limitation Mortgage interest paid on commercial property is not included in itemized deductions No AGI limitation on deductibility of qualified interest Casualty=sudden and unexpected deductible after 10% of AGI limitation and $100 floor Losses resulting from sale/exchange of worthless stock are ordinary losses up to 50,000 to the original owner only Liquidation: gain to shareholder= FMV of assets basis in stock Sec 1245= lesser of depreciation or gain recognized (sale adj. basis) Amortize period for intangibles = 15 years Sec 1231 assets are depreciable personal & real property used in trade or business and held for over 12 months Exempt organization must comply with code provisions regarding installment payments of estimated income tax by corporation (make payments if expect > $500 in tax) Exempt = not a private foundation organized to influence legislation Articles of organization must limit purpose of the entity to the charitable purpose. Annual into returns are not required for all exempt organization S Corps report both separately stated & non-separately stated (net business) items of income. Dividend income is separately state and not included in net business income calculation 40% interest in S corp Beginning basis is 2K Corp distributes 100K and had op income of 200K What amount does shareholder include in GI? Op inc 200K*40%=80K Shareholder must include their share of each separate pass thru item even if items have not been distributed to them during the year BIG 1) C Corp elects S corp status 2) FMV of corporate assets > adj basis Net unrealized BIG=excess of FMV over adj basis

Determining Shareholders basis in S Corp: Initial basis (or beg year) + Income items (sep & non-sep stated items) +Additional shareholder investments in corp stock -Distributions to shareholder -Loss or expense items Ending Basis S corp cannot distribute appreciated property to shareholders without gain VS Partners can distribute appreciated property tax-free to its partners L/T capital loss & charitable contribution not included in ordinary income -> separately stated items that are passed through to shareholders

Determining partners initial basis in Partnership Cash +Property (adjusted basis) -Liabilities incoming partners liabilities assumed by other partners (what we give up) +Services (FMV and taxable to partner) +Liabilities that we take on (our percentage) Initial Basis

Determining partners end basis in partnership Contribution +Pro-rata income allocation -Distribution Received End basis Partner does not ordinarily recognize income on non-liquidating partnership distributions of property other than cash received in excess of basis

REGULATION 3.1 Losses resulting from worthlessness of section 1244 qualified stock (small business stock) are treated as ordinary losses up to $50,000/year. Loss is only available to original owners. 2nd owners can deduct the worthless stock as capital loss under personal capital loss rules using transfer basis (FMV if inherited) Personal holding company = over 60% of AGI of closely held (>50% owned by 5 or fewer) corp consists of NIRD A gain from illegal activity is included in income. Deduction is permitted for cost of merchandise. Business expenses for operating illegal business are not permitted Federal income tax expense is added to BV to reconcile M-1 Goodwill: GAAP=not amortized; test for impairment TAX: amortized over 15 years. Bought corp with goodwill of 300K In CY deducted 7500 goodwill impairment on books Book income 239000 300,000/15=20,000 -Excess of tax amort 12500 -7500 book impairment - over book impair 226,700 12500 (On books ded GAAP impairment of 7500 -> have to reconcile to tax so need to deduct the remaining goodwill as if you amortized the entire year) If surrender shares (back to C corp) for cash (or corp liquidates) gain recognized by ex-SH = cash received & FMV of distributed assets basis in stock = capital gain To qualify for Sect 179 exp, property must be tangible personal property acquired by purchasing from unrelated party for use in the active conduct of a trade or business (limits 500K/2M) Real property (buildings) subject to mid-month Personal property (machinery & equip) subject to half year &/or mid-quarter convention DRD of unrelated (<20% at 70%) is lesser (except if would make negative then take greater) of: 1)taxable income (70%*TI) or 2)Dividends received (70%*div rec) If own 80% of corp -> file consolidated F/S & do not include dividends from members of group Partnership & personal holding company not liable for accumulated earnings tax Corps are liable regardless of the number of stockholders they have A dividend paid in property (other than money) is taxable to the taxpayer to the extent of the propertys FMV, but not in excess of CE & AE & profits of distributing corp College matching contributions are a deductible charitable contribution Distributed property by corp is treated as if it were sold to the shareholder at its FMV at distribution Corp recognizes gain to the extent of the FMV over adjusted basis SOL for assessments runs from the date of filing the return or if later, due date of return. Returns due 3/15 SOL starts next day 3/16 If transfer property to corp to organize it -> transaction qualifies as nontaxable therefore, no gain recognized. IF transfer services -> receipt of stock is taxable at FMV of services

Corporate Alternative Minimum Tax Regular taxable income Long term contracts Installment sale dealer +/- Adjust for LIE Excess depreciation (post 86) ---------------------------------------------------------------------------------------------------------Percent depletion Private activity issued post 86 tax-exempt int inc Add back preferences Pre-87 ACRS excess depreciation -----------------------------------------------------------------------------------------------------------Municipal interest income tax-exempt int inc Increase CSV life insurance Adjusted Current Earnings (ACE) Non-straight line depreciation Dividend received deduction (under 20% own) ------------------------------------------------------------------------------------------------------------<AMT NOL Deduction> Minimum taxable income Exemption <AMT Exemption> 40K - 25% of min tax inc over 150K MTI 210K AMT Allowed 150K X20% 60K *25% Depreciation recapture Equipment SP 50,000 Cost 20000 Dep (4000) (16,000) Gain 34,000 Ord. Inc 1245* 4000 L/T Cap gain 1231 30,000 *Lesser of dep taken or gain recognized

40K

15K=25K

Real Estate Building SP 50,000 Cost 20000 Dep (4000) 16000 Gain 34,000 If Sole P -> all G is 1231 G 34000 If Corp-> Sec 291 G (20% of dep) 800 ord inc Sec 1231 L/T cap gain 33200

In corporate formation, corps basis in transferred assets is the carryover adj basis from SH SH treats property received in a complete liquidation as full payment for stock SH must recognize capital g/L =to difference between FMV of property received and basis of stock surrendered Accumulated earnings tax: TI Fed income tax min. accumulated earnings credit (250K) for manufacturing companies NOL deduction available for individuals, estates, trusts, and C corps Fortune 500 corp controlled 0% to <20% = 70% DRD NO G/L recognized by parent corp or subsidiary when parent (owns at least 80%) liquidates its subsidiary. Parent assumes unused NOL carryover, capital loss carryover and charity carryover Cash purchases & payments on account during year =455000 BB A/P 64000 EB A/P 50000 BB 64000 +Purchases 441000-PLUG -Cash pmts 455000 =EB 50,000 If received distribution of land with a mortgage, the debt does not affect the basis of the land land=FMV

Basis of property received from SH is the greater of 1) Adjusted net book value + any gain recognized by SH or 2) debt assumed by corp A non-corp taxpayer can exclude from GI 50% of any gain from sale or exchange of qualified small business stock held for >5 years Services to form corps are recognized income. IF give land recognize FMV basis as income and if pay cash for stock no gain Corps making charitable contributions are allowed max deduction of 10% of TI: TI is calculated before ded of 1) charitable contributions 2) DRD 3) NOL carry back 4) capital loss carry back 5) production activities deduction

REGULATION 3.2 Tax exempt and taxable interest income increases a shareholders basis in S Corp stock A distribution or sale of s corp assets may result in a tax on BIG at corp level Unrealized BIG results when 1) C corp elects S corp status 2) FMV of assets > adj basis The net unrealized BIG is the excess of the FMV over the adj basis at beginning of s corp status L/T capital loss, charitable contribution & foreign income taxes are not included in S corp ordinary income -> separately stated items and passed through to SH and retain tax attribute REGULATION 3.4 Personal residence and personal furnishing = capital assets things part of trade or business =sec 1231 Proceeds from life insurance policy on death of officer where corp is beneficiary are not includible in TI of corp. Group term life insurance policies paid on employees with employees depended as owners and beneficiaries are considered fringe benefits and would be deductible by corp State income taxes are deductible. Interest earned on US treasury bonds are taxable Interest expense on bank loans to purchase US treasury bonds are deductible since interest income earned on the bonds is taxable Foreign income taxes paid by a corp may be claimed as a deduction OR a credit -> corps choice Dividend paid deduction taken to arrive at PHC income includes consent dividends & actual dividend distributed Both personal service companies & PHC must include 100% of dividends received from unrelated taxable domestic corps in GI in computing regular tax No G/L recognized if stock or securities in a corp which is a party to a reorganization are exchanged solely for stock in that corp or in another corp which is a party to a reorganization. The exchange must be made pursuant to a plan of reorganization After a corps S status is revoked, corp is required to wait 5 years before making new election A corp that has always been an s corp may have both passive and non-passive income and SH must be: individuals, estates, a voting trust, a grantor trust, &/or a bankruptcy estate REGULATION 4.1 Partnership: non-liquidating distribution of land, use adjusted basis of land No G/L recognized on contribution of property to partnership Basis of partnership interest is the basis of the property in the hands of the partner at contribution. Partnership takes on the contributors basis however, if the FMV of the property differs from basis, amount of unrealized G/L at the date of contribution is specifically allocated to the contributing partner upon sale of property

Partner who sells interest in partnership has recognized G/L -> difference between amount realized for the sale & the adj basis of partnership interest. If liabilities allocated to the interest and transferred to the buyer, liabilities are considered part of the amount realized. Any gain that represents a partners share of hot assets (unrealized receivables of appreciated inventory) is treated as ordinary income if cash is taken (If no hot assets gain is capital gain) In a liquidating partnership distribution, interest is first reduced by monies received, Partner will recognized gain ONLY to the extent that money received > partners basis If give services in exchange for interest in partnership, services are valued at FMV of what is received (pship interest) regardless of what you would normally bill for the services rendered If a person receives interest in the capital of a partnership as a results of prior services, FMV of interest acquired represents ORD INC to the recipient and is his basis in the property If one partnership breaks into two, the new partnership w/ >50% of the old partnership constitutes a continuation of the original partnership Interest in a partnership is generally a capital asset Any gain resulting from sale of partners share of unrealized receivables &/or appreciated inventory is treated as ORD INC Partner must include his allocated share of partnership income, even if not received in cash, in his tax result for his taxable year Upon dissolution of partnership, the basis of property distributed will be partners adj basis net any cash distributions ( NOT FMV of property distrib) Partners basis consists of the amount of cash paid for the interest plus adjusted basis of property transferred plus new partners share of partnership liabilities Holding period of a partnership interest acquired in exchange for contributed capital asset begins on date the partners holding period of the capital asset began Basis in a partnership ^ by debt that a partner is personally liable for & down by amount of liability a partner is relieved of Partner sells interest = capital G/L. If hot assets (appreciated inventory & unrealized receivables) then ordinary G/L Partner must include in income share of business income and guaranteed payments Withdrawals and distributions are not taxable events

REGULATION 4.3 Covered opinion (formerly known as shelter opinion) arises from a transaction that, at the time advice is rendered, IRS has determined a tax avoidance transaction and identified as a listed transaction. Provides opinion on whether it is more likely than not that an investor will prevail on material issues that invoice a realistic possibility of challenge by the IRS. Evaluation on the chances of success on the merits REGULATION 4.2 Amount of taxable income a beneficiary reports is limited to estates NI Every donor receives a $13K/person/year exclusion from the gift tax (not excluded if provides a specific sum only for the income of the estate/trust) Exemption of $300 is available for simple trusts Estate income distribution is the LESSER of DNI or the actual amount distributed to beneficiary Every transfer of money or property, real or personal, tangible or intangible, for less than adequate or full consideration is a gift. 4 items qualify for unlimited exclusion from gift tax and qualify to be excluded from being report on return: 1) payments made directly to school for a

donees tuition 2) payments made directly to healthcare provider 2) charitable gifts 3) marital transfers (relationship to done doesnt matter) A fiduciary must file a 1041 estate return if estate has $600 GI or more and no beneficiaries are nonresident aliens Estates allowed unlimited charitable deduction for amount paid to recognized charities out of GI if will says so Estate/trust not allowed standard deduction in preparing fiduciary tax return Form 1041 due 4/15 Max amount that can be transferred pursuant to a death tax-free is $5M

Law portion After consumer goods collateral is repossessed and >60% of price has been paid, unless debtor agrees otherwise, it must be sold & creditor can hold the debtor liable for any deficiency debtor can force creditor to sell within 90 days If a seller retains a security interest for the sale price of consumer goods, security interest is automatically perfected; filing nor possession is necessary Trade acceptance is a draft drawn by the seller of the goods on buyers account orders buyer to make payment If HDC holder pays part of agreed upon value and then receives notice of a defense or claim, he is considered a HDC in proportion to the consideration paid toward agreed up price. If paid 36000 of 4500 agreed he is HDC on 4/5 of the 5000 note or 4000 When assigning assignor warrants that he does not know anything that would impair the value of the assignment