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Agastya Tax Academy

EA Test Part 1 Review Notes

(For Tax Year 2022)


13 - Child care credit limit.
17 - Child Tax Credit limit.
18 - Coverdell recipient age limit.
19 - EIC for non-disabled non-student. Child dependent unearned income rules. HoH qualifying non-student child.
24 - EIC for non-disabled student. Student child dependent unearned income rules. HoH qualifying student child.
50 - +$1000 IRA contribution limit. +$6500 employee SEP/401/401k contribution.
55 - +$1000 HSA contribution limit.
59.5 - Withdraw earnings from Roth IRA without penalty.
65 - HSA non-med withdrawal without penalty. SD is +$1400 married or +$1750 single/HoH (or on 1/1 of next year, alive for birthday). 1040-SR.
70.5 - Old Traditional IRA RMDs (pre-2020), and Qualified Charitable Distributions age.
72 - Traditional IRA RMDs.

Income Amounts

$5 - MFS filing requirement threshold.
$400 - + earned income for child dependent Standard Deduction up to $12,950. SE income requires filing. SE tax is owed.
$1150 - Child dependent unearned investment income becomes taxable.
$1500 - In interest/dividends have to file on Sch. B (or if foreign accounts of any amount).
$2300 - Investment income kiddie tax applies.
$4400 - Relative dependent max income.
$12,950 - Single Standard Deduction.
$19,400 - HoH Standard Deduction.
$25,900 - MFJ Standard Deduction.
$75,000 - MFS estimated tax at 110% of prior.
$125,000 - NIIT for MFS.
$147,000 - SS taxation cap.
$150,000 - non-MFS estimated tax at 110% of prior.
$170,000 - non-MFJ QBI phase-out.
$200,000 - Non-MFJ Child Tax Credit phase out starts. NIIT for single/HoH.
$250,000 - Non-MFJ home sale capital gains exclusion. NIIT for MFJ.
$340,100 - MFJ QBI phase-out.
$375,000 - MFS mortgage amount for interest deduction.
$400,000 - MFJ Child Tax Credit phase out starts.

Other Dollar Amounts

$10 - 1099-INT issued.
$20 - Tips per month to report to employer and tips subject to FICA.
$300 - Max Educator Expenses.
$450 - Late return 60+ days max penalty.
$600 - 1099-NEC required.
$1000 - ES payments safe harbor.
$1400 - +SD married (MFJ/MFS/QSS) and blind or 65+.
$1750 - +Standard Deduction single/HoHand blind or 65+.
$2000 - Yearly Coverdell contribution limit. Child tax credit amount.
$2500 - Max student loan interest deduction.
$3000 - Child tax credit for 6-17. Min to deduct income later repaid as an itemized deduction.
$3600 - Child tax credit for < 6.
$6000 - < 50 IRA contribution limit.
$7000 - > 50 IRA contribution limit.
$16,000 - Gift tax form filing.
$20,500 - < 50 SEP/401k/403k employee contribution limit.
$500,000 - MFJ single home sale capital gains exclusion.
$750,000 - Mortgage amount for interest deduction.


0.5% - Failure-to-Pay penalty per month.
1.45% - Employer/employee Medicare tax rate.
3% - +fed rate interest on payments.
3.8% - NIIT tax rate
5% - Failure-to-File penalty per month
6% - IRA/Coverdell/HSA excess contribution penalty
6.2% - Employer/employee SS tax.
10% - Lowest tax bracket
15% - Failure-to-File fraudulent penalty per month
15.3% - Total FICA rate.
20% - QBI deduction. Max cap gains rate. HSA non-med penalty.
24% - Backup withholding for US citizens/residents.
25% - Failure-to-File penalty max. Tax understatement for 6 year assessment. Unrecaptured 1250 gain max.
28% - Max tax on collectible sales profit.
30% - Backup withholding for NR aliens. Nonresident aliens (form 1040NR) 30% flat rate on US source income (unless tax treaty).
37% - Highest tax bracket
75% - File-to-file fraudulent max.
100% - Of prior year tax if AGI <= $150,000 ($75,000 if MFS) for estimated tax
110% - Of prior year tax if AGI > $150,000 ($75,000 if MFS) for estimated tax.

Annual Dates

1/15 - 4th ES payment. Farmer/fisherman regular filing ES due.
3/1 - Farmer/fisherman early filing ES due.
4/1 - Due date for first RMD for Traditional IRA.
4/15 - Individual return due date. 1st ES payment. Late day to amend status MFJ -> MFS (unless death).
6/15 - Citizens abroad due date (active military, NR without withholding, citizens place of business is abroad). 2nd ES payment.
9/15 - 3rd ES payment.
10/15 - Extended deadline.
12/15 - Extended deadline living abroad request.


2019 - Alimony for new separations no longer taxable/deductible.


2 years - 1040/1040X for refund time from payment.
3 years - 1040/1040X for refund time from return filed. IRS time to assess tax from return date (or due date if filed early).
6 years - IRS time to assess tax from return date if fraud or gross income understated > 25%.
7 years - 1040/1040X for refund if bad debt from worthless securities.
10 years - 1040/1040X for refund if foreign tax accrual/payment. IRS collections from date assessed.


1040 / 1040X / 1040-SR / 1040-NR - Individual
1041 - Estate return

Sch. 1
Sch. 2
Sch. 3

Sch. A
Sch. B
Sch. C
Sch. D - Combines with 8949.
Sch. E - Real property rental income and royalty income
Sch. F
Sch. SE

W-2G - Gambling winnings.
W-7 - ITIN request
W-9 - Ask for SSN
SS-8 - Report company that is using 1099 when should be W-2. And file 8919 to adjust FICA.
1095-A - ACA payments

706 - Estate taxes
709 - Gift tax
843 - Claim for Refund and Request for Abatement
982 - Reduction of Tax Attributes Due to Discharge of Indebtedness

1116 - Foreign Tax Credit
2106 - Employee Business Expenses
2120 - Multiple Support Declaration
2555 - Foreign Earned Income
3520 - Annual Return to Report Transactions with Foreign Trusts/Gifts
3903 - Moving Expenses (armed forces)
4137 - FICA for Unreported Tip Income
4684 - Casualties and Thefts
4797 - Sale of business assets
4868 - Extension
5329 - Qualified plan penalties
5471 - Information Return of US Persons with Recept to Certain Foreign Corporations
6251 - AMT
8283 - Noncash Charitable Contributions
8332 - Release of Claim
8379 - Injured Spouse Allocation
8606 - Nondeductible IRAs
8614 - Kiddie Tax (parent)
8615 - Kiddie Tax (child's)
8812 - Child tax credits
8824 - Like-Kind Exchanges
8829 - Business Use of Your Home
8863 - Edu credits
8867 - Paid Preparer's Due Diligence Checklist
8880 - Saver's Credit
8938 - Statement of Specified Foreign Financial Assets for Foreign Account Tax Compliance Act (FATCA):
8949 - Sales of Capital Assets (flows to Sch D)
8960 - Net Investment Income Tax Individuals
8962 - ACA tax credit


- Resident? Green card or substantial presence (31 days current tax year AND 183 days during 3 year period.
-- counting 1/3 of days in previous year and 1/6 of days in previous previous year).

Exempt (remain NR):
foreign officials on A/G visas, teachers on temporary visas, researchers/scholars (for up to 2 years), au pairs on J-1 visa, foreign students on temp visas (for up to 5 year), if "closer connection" to home country (Canadian snowbirds). If married to US resident, can if elect to.
- NR alien - Only taxed on US source income.
- Resident alien - Taxed on worldwide income.

Dependent Qualifications

(The "-ish" words here like "sibling-ish" means other similar relationships like half-brother, step-brother also count, etc.)

  - Initial tests:
      - Dependents can't have dependents.
      - Dependent can't file joint return (unless only to get a refund but have no taxes even if filing separate).
      - Citizen or resident of US, Canada, or Mexico.

  - Qualifying child: (HoH, EIC, Dependent Care Credit)
      - Relationship Test: child-ish, sibling-ish, or descendants of those (niece/nephew, but not cousins).
     - Age Test: < 19, or < 24 full-time student (5 months of the year), and younger than TP, or permanently disabled of any age.
     - Residency Test: Live with TP more than half of year. Exceptions: divorce (?), death, temp absence (college, military, institutional care, JV, etc.) of any amount of time. Exception: Parents divorced and custodial parent does form 8332 release of claim (applies to CTC, but doesn't apply to HoH or EIC).
    - Support Test: Child can't provide > half of own support. SS benefits count as child's own support. Scholarships, food stamps, foster payments, don't count as child income.
    - Tie-breaker: If 2 TPs can claim them. They can agree > is parent(s) > live with longest >highest AGI.

  - Qualifying relative: (HoH, EIC)
       - Is not qualifying child of any other TP.
       - Member of household entire year -or- relationship (child-ish, sibling-ish, parent-ish, or descendant of those). Not a household employee.
       - Gross Income Test: $4400 max. Don't include sheltered workshop if disabled, tax exempt income, SS (unless MFS and lived with spouse at all, or SS is above taxable level). Include gross rent received.
       - Support Test: TP provides > half of their support (food, clothing, shelter, edu, medical). Exception: Form 2120 Multiple Support Declaration, can pick anyone providing > 10%.

Filing Status

  - HoH - Unmarried or considered unmarried (separate return and apart last 6 months, or NR alien spouse). Taxpayer pays for > 50% of cost of home + food. Live with taxpayer 6+ months/year (unless is a parent/step-parent, grandparent and TP paying > 50% of *their* home for entire year).
     - Qualifying child: Can be a married child. If TP is married but considered unmarried, a grandchild doesn't qualify.
     - Qualifying relative: Must be relative, not just household member.
  - QSS - Next 2 years after year of death if unmarried and has qualifying child (not parent). Must be child or stepchild (can't be a foster child), is a qualifying dependent. But ignore child income, child not joint return, TP can be a dependent. Lived with the TP entire year (except temporary absences), TP paying > 50% of *their* home for entire year.
  - MFS - No Child Care Credit (unless meets HoH requirements), no EIC (unless ...), no income exclusion, no Adoption Credit, no Premium Tax Credit (unless abandonment/abuse), no edu credits, no student loan interest deduction, no untaxed base amount for SS income. If lived with spouse at all during the year: no Elderly/Disabled Credit, more of income included for SS tax calc, no real estate
loss allowance (otherwise it's half amount and MAGI), $10k Roth contribution AGI limit. Half: standard deduction, SALT cap, income limit for Child Tax Credit and Savers Credit, capital loss deduction ($1500), mortgage interest deduction ($375k). Reduced: $0-$10k phase out of Traditional IRA contribution deductibility if also have plan at work if lived with spouse.

Standard deduction

  - Single/MFS: $12,950
  - MFJ or QSS: $25,900
  - HoH: $19,400
  - Dependent: Greater of $1150, or earned income + $400 (up to normal deduction).
  - 65+ (tax year or on 1/1 and alive for the birthday) / Blind: (20/200/20 even with glasses)
      - MFJ/MFS/QSS (any kind of married): +$1400 each
      - Single/HOH: +$1750

$0 standard deduction:
  - If MFS, both must do same deduction type (or $0 standard deduction). Fine if one is HoH.
  - NR alien / dual-status.
  - Short tax year.

Itemized deductions:

  - State/local taxes: State/local income tax or sales tax (but not both), property taxes (domestic only), DMV taxes. SALT cap is $10,000 or $5,000 MFS.
       - Foreign income tax - Deductible with no cap.
  - Mortgage interest: Home mortgage (secured by first or secondary home, up to), mortgage late fees and points. Loan of $750k or $375k MFS, or if from before 2017-12-15 it's $1M / $500k.
  - Investment interest: (just interest, not other fees) Limited to net investment income, but can carry forward. Not to buy tax-exempt investments (muni bonds).
  - Medical: > 7.5% of AGI. Must be paid during the year. Paid for dependents, or adopted child (even before adoption). Brail books, guide dog, capital expenses (wheelchair ramp, etc.), glasses, sterilization/fertility, disabled dependent care (if not using for Dependent Care Credit), health insurance (not coverage for lost wages etc), Medicare A/B/D premiums, special disabled/nursing home, special ed (tutoring, etc), lead paint removal, medical conference, legal fees to fight for medical coverage,
transportation to medical care ($.18/$.22), lodging needed for treatment ($50/night/person -> up to 2 people for $100), long-term care insurance (up to limits).
        - Long-term care: (chronically ill): can't do 2 activities (eating, toilet, transfer, bathing, dressing) for at least 90 days, or requires supervision for mental issue safety.
        - Not deductible: weight loss foods, supplements, nonprescription medicine (except insulin), any medicine imported from another country, nicotine gum/patches, anything illegal (medical marijuana), exercise programs, funeral, household help.
       - Deductible by parent that pays expense, regardless of custody etc.
  - Charity: Limited to percent of AGI. 60% limit if cash (to 501c3 orgs). 50% non-cash donations. 30% appreciated cap gains property (claiming FMV as donation), vehicle for the org to use for itself, or private nonoperating foundations, vets orgs, frat societies, nonprofit cemeteries. But is 20% if appreciated cap gains to those. Remainder above limits carried forward up to 5 years (or lost on death), retain same percent of AGI limit.
       - Transportation to volunteering, $0.14/mile for driving.
       - Non-qualifying orgs: Political orgs, chamber of commerce, raffles (wagering activity).
       - Substantiation: Minimum is bank record or a written receipt.
          - Cash: < $250 cash transaction => TP's written record (at a minimum). > $250 cash => Written receipt with amount, date, any goods/services. Can be a single annual statement.
         - Non-cash: (values are any single donation, or group of similar items)
              - $0-$250 need receipt. $250-$500 receipt with description, FMV, and statement about no goods/services.
              - > $500 form 8283. If vehicle, only gross proceeds of sale by the charity (attach their 1098-C), or FMV of the vehicle if that's less (or if the charity keeps it or gives it to a needy person -> with written statement).
             - > $5000 written appraisal by due date of the return (unless is stock/bonds, even crypto).
            - > $20,000 artwork or $500k anything else then attach appraisal to the return.
  - Casualty Losses: (non-business) Only if federally declared disaster with personal/theft losses. Form 4684 Casualties and Thefts. The first $100 per casualty and 10% of AGI isn't deductible.
  - Miscellaneous deductions: Gambling loss (up to earnings amount), work expenses to help with a disability, ponzi investment scheme, amortizable premium on taxable bonds, casualty/theft loss on "income-producing" property (like gold coins as an investment stolen), estate tax on income "in respect of a decedent" (IRD), excess deductions of an estate/trust in final tax year, unrecoverable payment from
an annuity.

Capital Gains

Long term cap gains rates: 0%, 15%, 20%

- Qualified dividends: (Ordinary dividends are at ordinary tax rate.) But not "nondividend distributions" -> which is a return of capital (not taxable while basis > 0).
- Distributions from mutual funds ("capital gain distribution" or "capital gain dividend") reported as long term capital gains (regardless of holding time) on Sch. D.
- Collectibles: max 28%.

    - Inheritance always has stepped-up/down value on date of death, or Alternate Valuation Date (6 months after) if executor choose.
    - Noncapital assets: (ordinary income rates) Business use, anything created by the TP, securities dealer.
   - Gifts (or sales to related party): - transfer the basis. Exception: FMV on transfer date is less than the basis, -and- the recipient sells it at a loss, then the basis is the FMV of transfer. No tax if sold for amount between the original basis and the lower transfer FMV.
   - Related Party Transactions: (close family member or > 50% owned business, not liquidation of a corp) - Can't deduct the loss on the sale, follows gift tax rules. Spouse (not ex), sibling-ish, ancestors/descendents of those. Ok relatives: Uncles, niece/nephew, in-laws step-siblings, step-children, in-laws, ex-spouse.
  - Worthless Security: Can go back to amend up to 7 years. On form 8949, write "worthless", 12/31.

Sale of main home

(Section 121 Exclusion): $250k / $500k joint. If all excluded, don't have to report it. Main home, haven't done it before in at least 2 years, lived in it 2 years of last 5 (both spouses), owned it 2 years of last 5 (either spouse), not just land but can include land. Vacations/seasonal away time doesn't matter. Multiple owners can all take the exclusion if they pass the tests.
    - If spouse dies, surviving spouse (not remarried) gets their owned/lived-in time added to their own, and they get 2 years from date of death.
    - Military personnel exception - 5 year lookback instead of 10 years.
    - Disability Exception - TP becomes disabled, lived in house >= 1 year, time in a licensed facility counts for the use test. Still requires ownership test.
    - Reduced exclusion: Unforeseen circumstances in household / co-owner (death, divorce, separation, health, job loss, job change > 50 miles, twins, disaster, involuntary conversion, etc etc.), and < 2 years for any of the tests. Calc: (250k or 500k) * (days / (365*2)).

Other Income (Sch. 1)

  - Gambling: Even if professional gambler (Sch. C), losses can't exceed earnings, NOL doesn't carry forward.
  - Hobby Income: Taxable but can't deduct expenses, except COGS.
  - Canceled debt: (1099-C) Not taxable if these exclusions: (Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness).
        - Non-recourse: Not taxable if the "personally liable" checkbox (recourse loan) isn't checked.
        - Insolvency exception: Not taxable if insolvency immediately prior to discharge of debt (*all* their assets including retirement accounts are less than their debts) -> form 982 insolvency, or partially not taxable to the extent of the insolvency. Or bankruptcy (also form 982).
        - Primary Residence Debt: Canceled *primary* residence debt up to $750k ($375k MFS). Qualified Principal Residence Indebtedness (QPRI) mortgage to buy, build, substantially improve primary residence, including refi or mortgage restructuring.
        - Student Loan Cancellation: American Rescue Plan Act (ARPA) allows excluding most student loan forgiveness through 2025.
       - Otherwise deductible debt: Such as a business expense.
  - Repossession / foreclosure: Treated as a "sale". Net loss from a personal use asset isn't deductible.
  - Court awards:
       - Not taxable: Payment for physical injury/sickness, or resulting emotional distress from physical injury not taxable. Wrongful incarceration.
       - Taxable (income tax but not SE tax): Emotional distress. Punitive damages. Harassment awards.
       - Non-deductible by business: Harassment payments that are nondisclosure.
  - Prizes/Awards: Taxable at FMV, unless rejected or directed to a charity.
  - Scholarship/fellowship: Taxable if not degree candidate, is more than qualified edu expenses (not room & board), or is payment for work.
  - Home office: Business owners only (actively involved, including self-managed rental). Simplified method up to 300 sf at $5/sf. Exclusively for business. Can't create a loss, but can carry forward. If S-corp, do "accountable plan" to pay self for office. Can divide between businesses based on time etc. (one form 8829 per business).
  - Misc: Strike benefits, jury duty pay (when not turned over to employer, not parking fees etc), Alaska permanent fund dividends, estate executor, gifts to host of party where sales are made, executor of an estate pay.

Adjustments to Income (Sch. 1)

  - Educator expenses up to $300 each. Not health courses (except athletics). P.E. only if athletic equipment. Not for home schooling. K-12 only, 900 hours/year min.
  - Reservists, performing artists, fee-based government officials: Work related expenses. Form 2106.
  - Moving expenses for armed forces: For spouse/dependents, if not reimbursed. Form 3903.
  - Half of SE tax
  - SEP, SIMPLE, Qualified plans
  - SE health insurance deduction: Only if business has a profit after subtracting the 1/2 SE tax deduction. Can be wages from S-corp with > 2% share. Can't if either spouse eligible for work health insurance, even if decline it.
   - Penalty for early CD withdrawal: (reported on 1099-INT) Adjustment to income on 1040.
   - Alimony paid (pre 2019 divorce decree)
   - Student Loan Deduction: Higher edu loan interest. Self, spouse, or dependents. Not if MFS, not if TP can be claimed as a dependent. $2500 limit per return, has AGI limit. From financial institution only (on 1098-E if > $600). For degree, certificate, etc.
   - Traditional retirement plan contributions
   - Misc: Jury duty pay remitted to employer, expenses related to rental of *personal* property for-profit (Turo, etc), olympic medals, clergy retirement plan contributions, unlawful discrimination claim attorney fees (up to amount of related income), IRS whistleblower award attorney fees/court costs, other misc deductions with 3 letter codes.


  - FICA 7.65% employer/employee -> 15.3% self-employed (each half is 6.2% SS + 1.45% Medicare). Capped at $147,000 income, then just 2.9% Medicare.

  - Net Investment Income Tax (NIIT) - 3.8% to fund ACA. Form 8960. Individuals / estates / trusts (lower for trusts). Applies to net investment income above MAGI limits: Single/HOH $200k, MFJ/QSS $250k, MFS $125. US citizens/residents only. Not withheld by employers. Net investment income: interest (not tax-exempt muni bonds), dividends, cap gains, passive rental income, nonqualified annuities, trading financial stuff (if not professional trader), passive business income. Not: earned income, pension, IRA.
  - Additional Medicare Tax: 0.9% to fund ACA. Form 8959. Earned income above MAGI limits: Single/HOH/QSS $200k, MFJ $250k, MFS $125. Earned income, anything subject to regular medicare tax (and RRTA). Employer has to withhold it (when over $200k regardless of filing status), but no employer share. SE can't deduct half of it.
   - AMT: Form 6251. TCJA made exemption indexed for inflation. No AMT if under the thresholds. Triggers: high income/deductions, exercise incentive stock options (ISOs), large cap gains sale, tax-exempt interest from private activity bonds.
  - Kiddie Tax: < 19, or < 24 full-time student (but not age 18 if providing > 50% of own support), and required to file tax return, not MFJ, and at least one parent is alive at end of the year. Certain unearned income including investment income, interest, dividends, cap gains distributions, unemployment. Investment income > $2300. First $1150 is tax-free, second $1150 is at child's marginal rate. Methods to report: child's return form 8615 (preferred), or parent's return form 8814 (can't if child has earned
income) (increases AGI, etc, not good).
  - Nanny Tax: Household employee, controlled by TP. Not caring for multiple kids. > $2400 paid to any person. Employer needs EIN, withholds half of FICA and remits to IRS (not income tax, unless they request it), employer covers half of the FICA, file schedule H, file/provide W-2. Exceptions: Pay to spouse, parent, child < 21 -> No FICA/FUTA paid, but employee has to report for income tax.

  - Mutual fund or REIT dividends: "declared" in the last quarter but paid in the next year are taxable in the previous year.
  - Constructive Dividends - C/S corp if caught in an audit. Not deductible to corporation but taxed to recipient too (as dividend). Over/under payment of rent to self, property sold at under FMV, below market interest loan, etc.
  - Estimated tax penalty: Ok if < $1000 owed or paid at least 90% of it or 100% of prior year if AGI <= $150,000 ($75,000 if MFS) , 110% of prior year tax if AGI > $150,000 ($75,000 if MFS).
  - Clergy: Pay income and SE tax. Only SE tax on housing provided.
  - Barter: If goods given instead of pay, if price was agreed beforehand use the price, otherwise use the FMV of the goods.

  - Edu savings plans. Earnings grow tax-free. Tax free to recipient as long as used for college edu expenses including room & board (left over after scholarships). K-12, undergrad, graduate. 10% for distributions not used for edu.
     - 529 plan (Qualified Tuition Programs - QTP): Contributions are treated as a gift (gift limit), but amounts are removed from calculation of donor's gross estate (?). Limit of $10k/year for k-12, otherwise 10% penalty plus tax. Can roll over to another 529 (within 60 days). No income limit.
    - Coverdell ESA: $2000/year max per beneficiary (but can be spread over multiple accounts), otherwise 6% penalty imposed on the child (form 5329). May be self-directed. Contributions while child < 18. Use by age 30 (unless special needs), or transfer to a new beneficiary in their family. Has income limit. 

  - HSA: contributions reduce income. Can't be enrolled in Medicare, can't be claimed as a dependent. HDHP and no other insurance. Contribution max $3650 (self only), $7300 (family), 55+ get +$1000. Deductible min. $1400 self / $2800 family. Max out of pocket $7050 self / $14100 family. OTC medication allowed. 20% penalty + income tax if not used for meds. 6% excess contribution penalty.
Taxed but no penalty if 65+, disabled, or dead.

Exempt from tax:

  - Combat can be optionally untaxed for entire month with any combat zone time. Vet disability or GI bill money isn't taxable.
  - Medicare waiver payments (optionally) excluded from income only if recipient of care lives in the same home (Notice 2014-7). Still counts as income for credits. Can use to make non-deductible IRA contributions (or Roth).
  - Workers comp insurance.
  - VA disability comp (military injury).
  - SSI - supplemental security income (a type of SS disability income).
  - Life insurance not taxable if result of death of the insured (but interest from annuity payments is). Or terminally ill < 24 months to live.
  - Muni bonds (but must be reported because SS calc)
  - Dividends left on deposit with the U.S. Department of Veterans Affairs
  - Food stamps and utility bill assistance
  - Series EE and Series I bonds may be excluded from income if used to pay for qualified higher educational expenses during the year and you meet other requirements for the Educational Savings Bond Program.
  - Child support, alimony from divorced from 2019. Alimony only taxable if < 2019, in cash, payments don't continue after death, related to contingencies of a child, aren't for repayment of a loan etc.
  - Transfer of property in a divorce settlement.
       - Retirement plan funds transferred as part of a divorce settlement -> Qualified domestic relations order (QDRO)

Partially/not exempt:

  - Disability insurance? Is taxable if employer paid premiums with post-tax dollars.
  - Disability retirement income is taxed as wages until they reach normal retirement age.
  - Social security: MAGI of half SS, plus AGI, plus tax exempt interest up to $32k MFJ, $0 MFS, other $25k is untaxed. Phases up to 85% taxable.


If no tax ID number, can't amend to claim credits retroactively and can't claim them after the final return due date.

Form 8867 checklist: For EITC/CTC/ACTC/AOTC/HOH.

  - EITC: (refundable) Schedule EIC. Valid SSN for employment (by final due date of the the return), US citizen or resident all year. AGI limit. Must have earned income (not SS, alimony, pensions, annuities, unemployment, inmate wages, etc -- most non-taxable income except combat pay and qualified Medicare waiver payments is ok). Under $10,300 investment income. Not a dependent.
      - With qualified child (for higher amounts): Child-ish or sibling-ish, or descendent, foster. < 19 or < 24 student and younger than the TP (or disabled). Lived in the US with the TP for more than half the year. Valid SSN unless died the year of birth.
      - Without qualified child: TP must live in the US more than half the year, age 25-65.

- Form 8812 (child tax credits):

  - Child Tax Credit (CTC): (nonrefundable): child < 17 on 12/31 (even if disabled). Child-ish, sibling-ish, or their descendents. Not providing > 50% of own support. Must be claimed as a dependent on the TP's return (can be non-custodial parent). Child not filing MFJ return (except for a refund). Valid SSN only (US resident or resident alien). Lived with TP > 6 months (unless born/died, or custodial parent gives permission to claim it). $2000/child. AGI phaseout > $200k ($400k joint), decreases by $50 for every $1000 over.
       - ACTC: (refundable) May $1500/child. Refundable, but TP must have earned income. 15% of TP's earned income over $2500 or amount of CTC above their tax liability. Can't if they have foreign earned income exclusion (form 2555).
  - Other Dependent Credit (ODC): (parent, child without SSN) $500 each dependent. Can't get CTC (over age or are other dependents -- parents, etc.). Must be claimed as a dependent on the TP's return. Dependent must have a valid SSN or ITIN by final due date, US citizen, national, or resident. Didn't qualify for the CTC/ACTC. (same) AGI phaseout > $200k ($400k joint), decreases by $50 for every $1000 over.

  - Child and Dependent Care Credit: Dependent child < age 13 at time of care, or disabled of any age. Or disabled spouse/parent/etc, their income doesn't matter. TP working. 20%-35% of expenses depending on AGI. $3000 for 1 kid, $6000 for 2+. Not if MFS (unless could basically qualify as HoH). Preschool, after-school care, disabled care, transportation costs of the provider, fees/deposits, household services, day camp. Not: Overnight camp, tutoring, forfeited deposit, not for food/etc unless incidental.

  - Adoption Credit: Up to $14,890 for qualified expenses ("special needs" child from US gets max credit even if no adoption expenses). AGI phase out is $223k-$263k for all filing types. Can't be MFS. Child < 18 (or disabled), not spouse's child. Nonrefundable, but can carry forward up to 5 years.
      - Expenses: court costs, travel, meals/lodging, unsuccessful adoption (US citizen/national only), post-adoption expenses. Not deductible: illegal, surrogate parenting.
      - Domestic child: Expenses paid year of or year before, even if unsuccessful. Foreign child: Must be successfully finalized first, then past expenses become deductible.
  - Retirement Savings Contributions Credit (Saver's Credit): Form 8880. 10%-50% of eligible contributions to IRAs and other plans. Max $1000 ($2000 MFJ if both contributing). 18+, not full-time student, not a dependent. AGI phase out (don't need to know) $20k-$34k single, $31k-68k MFJ.
- Credit for excess SS or RRTA tax withheld: (refundable) When multiple jobs withhold FICA and high income so SS income above the cut-off ($147k).

  - Edu credits: Form 8863. Child not a dependent on any return (so child can't claim self). Not MFS. Has AGI limit. Qualified expenses: tuition, required books, equipment. Not room and board, health expenses, insurance, transportation. Reduce expenses by tax-free qualified scholarships/grants, or
make the scholarships taxable.
      - Lifetime Learning Credit: Max $2000/return. 20% of expenses. Post-secondary of any kind, doesn't have to be for degree, even one class. Unlimited number of years. Felony drugs ok.
     - AOTC: (partially refundable) Max $2500/student (100% of first $2000, then 25% of next $2000). 40% of credit is refundable (so $1000 max). Same student can't take the Lifetime credit. For degree/credential. At least half-time student. No felony drug convictions. Max 4 years total of post-secondary for the student, undergrad only.

- Premium Tax Credit: (refundable) From ACA (2010). No more individual mandate on federal since 2018, but some states may, but IRS can't use aggressive collection for it. American Rescue Plan Act (ARPA) passed 2021-03: larger PTC for 2021-2022, allows credit above 400% of poverty line for now. Form 1095-A statement. Most get "Advance Premium Tax Credit" (APTC) paid upfront to the insurance, must file a return to reconcile (form 8962). Requirements: marketplace insurance, US citizen/resident, unable to get coverage from employer/government (ok if just child needs it), can't be claimed as dependent, not MFS (unless abuse/abandonment), income limits. 

IRA Accounts

$6000 limit ($7000 50+) to any IRAs. Unlimited: qualified reservist repayment, rollover contributions, etc.
   - And have to have income (either spouse if MFJ). Work income, *taxable* alimony (grandfathered alimony, and not child support), combat pay. Don't have to subtract business loss from wages income. 6% excess contribution penalty, unless corrected by final return due date, then applies only to excess earnings.
   - Income ok but nondeductible (creates basis): Qualified Medicare Waiver Payments.
   - Doesn't count: Child support, nontaxable alimony (new), passive rental income, portfolio income, pension, annuity, gambling, *excluded* foreign income (untaxed).

- Rollovers: Direct trustee to trustee is unlimited. Indirect within 60 days to avoid penalty if indirect, only 1 per year, employer required to withhold 20% (will get a refund as taxes paid when files return).
- Inherited: (beneficiary) Can be anyone. Still taxable (Traditional IRA), but no penalty for withdrawing.
     - Old plans grandfathered in before SECURE Act 1.0 can choose lump sum or "stretch IRAs" minimum distributions over life expectancy. Now: Fully distributed by end of 10th year following the death. Guidance (proposed) says RMDs for years 1-9 if inherited from someone who already had RMDs (penalties waived for
     - Eligible Designated Beneficiaries (EDBs):
         - Surviving spouse -> treat as own or rollover to own, or by 10th year, or distribute over life expectancy.
         - Minor child (not grandchild), disabled/ill or anyone < 10 years younger than owner -> can distribute over life expectancy, or by 10th year.
         - Anyone else not an EDB: Fully distributed by end of 10th year following the death.
- Prohibited transactions: Account treated as entirely distributed. Using IRA as collateral, borrowing money from an IRA, buying a non-residence (vacation home) using funds, selling/leasing/exchanging property to the IRA (or fiduciaries), unreasonable compensation for managing it, transacting with "disqualified persons"
(spouse, parents, grandparents, children, grandchildren, spouses of those -- but cousins, in-laws, siblings, ok!).
- Prohibited investment: Collectibles (except gold/silver coins minted by US Treasury, some bullion, but can't take possession), life insurance, s-corp stock, real estate for personal use.

  - Traditional IRA:
        - Contributions: Always deductible if have qualifying income except when self/spouse also covered by a retirement plan at work (401k etc) and income over a limit. (Otherwise no income limit.) Can still contribute, but nondeductible and have to file form 8606 ($50 penalty if don't) and will have "basis in the IRA". Have to track it forever to prove it. Self has plan at work: Single/HoH $68k-$78k phase out. MFJ/QSS $109-$129 phase out. MFS $0-$10k phase out if lived with spouse at all during year, otherwise single limit. Or spouse only has a work plan: MFJ
$204k-$214k. MFS $0-$10k.
       - Distributions: Taxable unless rollover to another plan, or distribution of nondeductible contributions (tax-free). 10% penalty if under 59.5 unless (still taxed, just not penalty, form 5329): medical expenses > 7.5% of AGI, medical insurance if unemployed, permanently disabled, dead, qualified edu expenses, build/buy/rebuild first home up to $10k, IRS levy, series of substantially equal periodic payments, active duty reservist, Qualified Disaster Distribution (QDD), after birth/adoption $5k/child max within 1 year, terminal illness after 2022-12-29.
           - Qualified Charitable Distributions (QCD): Age 70.5+ (!), up to $100k per spouse, trustee to charity direct, by end of year, counts towards RMD. QCD exclusion reduced by amount of any contributions made to the IRA the same year.
    - RMDs: 70.5 -> now 72 if turned in 2020 or later. Or else 50% penalty, or 10% if corrected. First one can wait until April 1st of next year. Required to continue after death (by estate executor).

- Roth IRA: Has income limit, but can do "backdoor" conversion. Employer plan has to effect on contribution limit. Never any RMDs.
     - Distributions: Can withdraw basis at any time with no penalty/tax. Withdrawals before 59.5 may have 10% penalty (min. 5 year holding time), or tax-free to beneficiary if had been held for 5 years. Amounts rolled over from a traditional IRA or qualified retirement plan can't be distributed for 5 years, or else 10% penalty.

- (none in 2022) Qualified Disaster Distribution (QDD) / Coronavirus-Related Distribution (CRD) - No penalty, but taxable income. Up to $100k. Income taxed over 3 years. 3 years to make full/partial repayments.
- Secure Act 2.0 allows penalty-free $22k withdrawals. No info yet. Retroactive to 2021-01-26. 3 year repayment.

Foreign Income

- All US citizens / US resident aliens subject to tax.
- Foreign earned income exclusion: Income from services performed in a foreign country while tax home is in a foreign country. Not passive, passive rentals, retirement income. Max $112,000/person, must file form 2555 to claim it each year (per person, not combined for couples). But "election remains in place until formally revoked" ? Tests:
    - Bona Fide Residence Test: US citizen/resident who is a resident of a foreign country for an uninterrupted period that spans an entire tax year.
    - Physical Presence Test: US citizen/resident alien who is present in a foreign country (or multiple) for >= 330 full days in 12 months. If partial year, must prorate the foreign income based on the number of days spent in the country. May have to file special extension and wait for it.
- Foreign Housing Exclusion (if employer paid) / Deduction (self-employed): Reasonable housing expenses while qualified for foreign earned income exclusion. Reduces income tax but not FICA.
- Foreign Income Tax Deduction/Credit: US citizens/residents only (not NR aliens). May just be from foreign investments. Choose itemized deduction (Schedule A) or credit (form 1116) -- but have to do same for entire return for all countries -- can amend to change the choice for up to 10 years (!). Tax must be paid by TP, legal/actual income tax, can't double-dip with Foreign Earned Income credit. Not
penalties/interest, not terrorist countries, not oil/gas extraction income. If tax reported on 1099-DIV/INT and <= $300 ($600 MFJ) then can just claim directly on the 1040 form.

Foreign Accounts

 - Laws: Bank Secrecy Act (BSA) / Foreign Account Tax Compliance Act (FATCA)
 - "United States Person" - US citizen (including children), US entities, NR alien electing to be treated as US citizen.

- FBAR (Form 114 Report of Foreign Bank and Financial Accounts): E-filed with FinCEN (but IRS does enforcement). Due April 15th, but automatic extension to October 15th. US citizens, resident aliens, trusts, estates, and other domestic entities.
     - Person had interest in or signature authority over any financial account outside the US, and aggregate value of all foreign accounts exceeds US$10,000 at any time during the year. Spouses aren't combined, it's just what each person has. Keep account records for 5 years after the year filing. Not "foreign" account if owned by a government entity, international financial institution, or US military banking. Not safe deposit box, unless has currency or bullion in it. Bullion held by taxpayer doesn't count.
    - Spouses can file one FBAR (only one spouse signs it) if all accounts jointly owned, and other spouse files form 114a (with their signature). Otherwise both spouses report on their own FBAR all their own personal accounts and all jointly owned accounts.
   - Penalties: Can be > $10k/year for non-willful (penalty is per FBAR form)., or willful $100k or 50% of the balance per year. Plus criminal penalties $250k and 5 years prison.

- Form 8938 - Statement of Specified Foreign Financial Assets for Foreign Account Tax Compliance Act (FATCA): Detailed foreign account info. Only if filing a tax return. Assets include: foreign financial accounts, stock/securities (not held in a US brokerage), pensions, deferred compensation plans, interests in an estate, partnership interest, insurance contract/annuity with a cash-surrender value. Not: real estate, unless held through a foreign entity (trust, corp, etc.). Not
bullion, cash, collectibles, etc if held directly.
   - TP inside the US: Unmarried/MFS total foreign assets > $50k on 12/31 or > $75k at any time. MFJ $100k/$150k.
   - TP living abroad: Unmarried/MFS total foreign assets > $200k on 12/31 or > $300k at any time. MFJ $400k/$600k.

- Schedule B Part III: Financial interest or signature authority over any foreign financial account. If filing a return, have to report any they have.

- Form 5471 Information Return of US Persons with Recept to Certain Foreign Corporations: Ownership of a foreign corporation > 10%, or is officer/director. Required to file even if not filing a return. $10k per entity penalty for not filing.

- Form 3520 - Annual Return to Report Transactions with Foreign Trusts/Gifts: > $100k from NR alien person/estate. Must aggregate gifts from related parties. Not if for qualified tuition or medical payments made directly to the college/hospital/etc on behalf of a US person. Due at same time as tax return, but filed separately. No taxes due, just an information return.



Agastya Tax Academy

EA Test Part 2 Review Notes
Dollar Amounts

$5 - Per SF home office deduction up to 300 SF.
$10 - 1099-MISC for royalties, 1099-DIV for C Corp dividends.
$25 - Business gift expenses max.
$75 - Evidence needed for travel expense (not lodging).

$100 - Complex trust exemption.
$200 - De minimis Election for Materials and Supplies
$300 - Simple trust exemption.
$400 - Unqualified employee award max
$500 - In C corp tax, must make estimated payments. Also threshold for underpayment penalty.
$600 - Rental 1099-NEC required. 1099-MISC for rents, prizes, crop insurance, attorney.
$600 - SEP-IRA income to require offering.
$600 - Estate income to require 1041 return.

$100 - Complex trust exemption.
$200 - De minimis Election for Materials and Supplies
$300 - Simple trust exemption.
$400 - Unqualified employee award max
$500 - In C corp tax, must make estimated payments. Also threshold for underpayment penalty.
$600 - Rental 1099-NEC required. 1099-MISC for rents, prizes, crop insurance, attorney.
$600 - SEP-IRA income to require offering.
$600 - Estate income to require 1041 return.

$10,000 - Form 8300 - Report of Cash Transactions. FBAR for foreign accounts.
$14,000 - SIMPLE plan - Max salary reduction contribution (+$3000 if 50+).
$16,000 - Gift amount before from 709 required.
$20,000 - 1099-K required (or 200 transactions).
$25,000 - De minimis rule for form 3115 depreciation/amortization change in one year
$25,000 - Real estate yearly passive loss allowance
$27,000 - large SUV max for Section 179
$50,000 - Startup/organization costs threshold to phase out startup deduction.

$50,000 - Tax exempt can use 990-N (e-postcard)
$50,000 - Max group term life insurance benefit to be untaxed.
$61,000 - SEP-IRA max (up to 25% of compensation)

$200,000 - Tax exempt can use 990-EZ (and assets < $500k).
$245,000 - Defined benefit plan max contribution.
$250,000 - In C Corp assets / gross receipts -> must complete Sch M-1 and Sch L.
$250,000 - Form 5500 required for SIMPLE / Qualified plan assets.
$270,000 - Excess business loss limitation ($540k MFJ)

$1,080,000 - Section 179 max.
$2,700,000 - Section 179 total asset purchases phase out.
$10,000,000 - In C Corp assets -> must e-file. C corp Sch. M-3 required.
$12,060,000 - Gift tax exemption.
$27,000,000 - Gross receipts (3 year average) to require accrual method. UNICAP rules.


1.45% - Employer/employee Medicare tax rate.
6% - FUTA tax
6.2% - Employer/employee SS tax.
21% - C Corp tax rate.

Annual Dates

(or the fiscal calendar equivalents)

1/15 - 4th ES payment. Farmer/fisherman regular filing ES due. W-2 deadline.
1/31 - 1099-DIV deadline
3/1 - Farmer/fisherman early filing ES due.
3/15 - S-corp election. S-corp Form 1120-S due. Form 1065 Partnership Return.
4/15 - 1st ES payment. Form 1041 Trust return. Form 1120 C-corp calendar year return.
5/15 - Tax Exempt org form 990 due.
6/15 - 2nd ES payment.
7/31 - SIMPLE / Qualified retirement plan form 5500 due.
9/15 - 3rd ES payment. Form 1065 Partnership Return extended deadline.
10/1 - SIMPLE plan setup deadline.
10/15 - Extended deadline for 1120 C-corp, 1041 Trust (not estates).
11/1 - SIMPLE plan termination deadline.
12/15 - Extended deadline living abroad request.


14 days - Personal use of rental property (and > 10% of days). August Rule days.
15 days - Form 8300 - Report of Cash Payments $10k+.
30 days - Form 966 due after dissolving a C-corp.
45 days - 1031 identify property.
60 days - Accountable plan reimburse employee time

180 days - 1031 exchange completed (or extended return due date)

2 years - Partnership disguised sale taxable
2 years - New SIMPLE plan early withdrawal 25% penalty
2 years - Farmer NOL carryback.
2 years - Related party 1031 exchange or related party installment sale wait to dispose
3 years - C-corp capital loss carryback.
4 yeas - Employers to keep all employment tax records
5 years - Partnership hot assets taxable as LTCG instead of ordinary earnings.
5 years - C-corp capital loss max carry forward. C-corp charitable contribution excess of 10% income max
carry forward.
5 years - S corp re-election wait.
5 years - Research and Experimental Expenses amortization.
7 years - Contributed property to a partnership distributed to a different partner taxable gain
15 years - Startup cost amortization
27.5 years - Residential rental depreciation


1040 / 1040X / 1040-SR / 1040-NR - Individual
1041 - Trust/Estate return
1120 - C-corp return
1120-S - S-corp return

Sch. J - Farm income averaging

SS-8 - Determine if a Worker is a Contractor vs. Employee

461 - Excess business loss limitation
940 - FUTA
966 - Dissolution of a C Corp

1023 - 501(c)(3) Application
1024 - 501(a) Application
1024-A - 501(c)(4) Application
1045 - Individual/Estate/Trust (Non-C-corp) NOL carryback (pre-2020)

1118 - Foreign Tax Credit for Corporations
1128 - Tax year change request
1139 - C Corp NOL carryback

2553 - S corp election

3115 - Change accounting method.
3468 - Investment Credit
3800 - General Business Credits

4466 - C corp Quick Refund of Overpayment of Estimated Tax

4562 - Depreciation and Amortization
4684 - Casualty/Theft Business Asset Deduction
4797 - Sale of Business Property
4835 - Sharecropping Land Rental

5305-SEP - SEP Setup
5884 - Work Opportunity Tax Credit

6198 - At-Risk Limitations
6252 - Installment Sale Income

7004 - Extension for an entity return
7203 - S Corporation Shareholder Stock and Debt Basis Limitations.

8300 - Report of Cash Payments
8594 - Asset Acquisition Statement.
8582 - Passive Activity Loss Limitations
8716 - Request tax year change for no good reason
8824 - 1031 exchange
8825 - Rental Income of a Partnership / S-corp
8829 - Business use of Home
8832 - C corp Entity Classification Election
8846 - FICA Tip Credit
8869 - Q-sub
8941 - Credit for Small Employer Health Insurance Premiums


  - Sole Proprietorships: Schedule C.
  - Joint undertaking: For a Schedule E rental with no "substantial services". Not a partnership, just
splitting profit/loss on their own Schedule E's.
  - Qualified Joint Ventures (Married Couple Businesses): MFJ only, with QJV election (otherwise they
are automatically a general partnership!). Separate Schedule C & SE for each spouse. Can't be a
MMLLC, unless in a community property state (then can have LLC and still report the income on
Schedule C's). Can also elect it on a Schedule E.
   - Partnerships: 2+ people/entities (corporation, etc.) splitting income/loss, unlimited partners, domestic
or foreign. 1+ GPs responsible for debts and liabilities. Pass-through (even when buying/selling
property), not taxed (except under audit). Partners taxed on their "distributive" share, whether or not it is
actually distributed. Can be an LLC, but must be unincorporated. Partners aren't employees, no W-2s
(generally). Schedule K-1s issued to partners. Can convert from an MMLLC, keeping same EIN.
         - Can't be a partnership: Joint stock company/association, insurance company, certain banks, a
gov entity, certain foreign orgs, tax-exempt orgs, REITs, trust/estate.

         - Family Partnerships: If capital is a material income-producing factor, the family members must
have acquired their interests in a bona fide transaction. If not, must have joined together in good
faith to conduct a business.
       - Form 1065 Partnership Return: Required if has any income/expenses for the year. Signed by
any general partner. Lists names/addresses of partners. Due 3/15 (extended date 9/15 using
form 7004), fiscal is the equivalent. Must e-file if > 100 partners ("large taxpayer"). Schedule
      - Partnership Agreement: (optional) Flexible, can choose any way to divide proceeds/assets
(unlike an S-corp). Loan and credit agreements, assumption agreements, indemnification
agreements. Can be modified until the unextended due date for filing (3/15). If terminates, short
year final return due 15th day of 3rd month after.
          - Guaranteed payments: Such as health insurance or payment for work done (even if is
an LP). Whether cash or partnership interest, etc. Deducted on 1065 as an expense,
reported on the partner's K-1. Partner's return: Ordinary income on Sch. E, SE tax,
health insurance is deductible, but no QBI.
       - Centralized Partnership Audit Regime (CPAR): Can opt out if <= 100 partners and only
eligible partners. An “eligible partner” includes C corp, S corps (but shareholders count adds to
partner count). Does not include a disregarded SMLLC, trust, grantor trust, or a bankruptcy

   - General Partnership: No LPs, no paperwork to form, just handshake. All partners are liable for
all debts.
   - Limited Partnership: GPs + LPs, have to file a state-level entity (Certificate of Limited
Partnership or Certificate of Formation). LPs don't pay SE tax on the income (unless is
guaranteed payment).
   - Limited Liability Partnership (LLP): Parters actively participate in management, but has
liability protection from actions of other parters (from debts, malpractice of other partners).
Example: Attorneys, doctors, etc., some states may require it rather than an LLC for some

   - Separately Stated Items: Other than ordinary income/loss, other amounts that flow to partners
with specific character.
          - Net STCG, net LTCG, charitable contributions, dividends from a corporate partner,
foreign taxes, US possession tax, section 1231 gains/loss, 1250 recapture, 179 deduction, bonus depreciation, tax exempt income / investment expenses, rental income/expenses, 199A wages paid to employees.
   - Unreimbursed Partnership Expenses (UPE) - Schedule E write-in.
   - Contributions: Usually not taxable. Property contributed retains same basis and long/short
holding period.
         - Taxable contributions: Partnership would be an investment company if incorporated, or
contributed property distributed to a different partner within 7 years (contributor recognizes gain/loss using FMV on date contributed), or one partner puts in cash/property and gets back different property/cash within 2 years (a disguised sale), or contribution of services (is a guaranteed payment).
   - Loss limitations: (form 6198 - At-Risk Limitations) Partner can't deduct losses exceeding their
partnership basis from their investment (at-risk limitation). Excess loss is carried forward until
there is sufficient basis.
   - Partner's basis: Money put in + recognized earnings not yet distributed + debt for the
partnership with a personal guarantee.

   - Hot assets: (section 751) Ordinary income assets in a partnership (inventory, accounts
receivables). Taxed as ordinary income, or LTCG if held for 5 years.
   - Distributions: Cash or property distribution. Cash distribution in excess of partner's basis
results in capital gain. Property distribution exceeding partner's basis not capital gain, but partner's basis transferred into the asset received.
         - Current distributions: Partnership's current/prior year earnings, withdrawal in anticipation of current year earnings. Cannot recognize a loss.
         - Liquidating distributions: Complete withdrawal of a partner's interest, or complete liquidation of the partnership. May recognize a loss if basis just before distribution > cash + non-cash assets distributed, and only cash / hot assets distributed.
                - Death of a partner: Payments made to the estate are considered a distribution
(not a guaranteed payment / distributive share). Final K-1, estate gets income owed to the date of death, inheritor may get ownership interest with basis as the FMV (unless buy-sell agreement to buyout the deceased partner's interest instead as a distribution to the estate).
                - Payment of another partner's debt: If insolvent partner, paying partner gets a
bad debt deduction for the partner's portion.
       - Sale of partnership interest: Normally cap gain/loss. Or some ordinary income if partnership
holds hot assets. Gain/loss = (cash + property received + liability relief) - partner's basis before

- LLC: Disregarded if 1 owner, partnership if 2+ owners (MMLLC), or corporation if elected.
    - PLLC (Professional Service Limited Liability Company): In some states. Just for doctors,
lawyers, engineers, CPAs.

- C Corporations: Pay taxes on income on (and has double taxation. Losses never transfer to
shareholders. Flat rate 21%. Domestic or foreign investors. Perpetual life. Limited liability.
    - Automatically treated as C corps: Business formed under fed/state law refers to it as a
corporation or "join-stock company/association", insurance companies, banks, business owned by state/local gov, required by IRC (e.j. certain publicly traded partnerships), certain foreign businesses.
    - Form 1120: Due 4/15, or fiscal equivalent (except 6/30 fiscal which is 9/15 due date). But no
penalty for late filing if no tax due. Always required regardless of income. Must e-file if > $10M in
assets (as of 2022), or 250 returns of any type. Or 1120-F if foreign, form 990 if tax-exempt, etc.
         - Sch. M-1 (required if gross receipts or total assets > $250k) / Sch. M-3 (required if total
assets > $10M): Reconcile book-to-tax differences.
         - Sch. L: Is the balance sheet. Required if gross receipts or total assets > $250k
(recommended even if not required.
  - Information returns:
           - 1099-DIV: To shareholder if distribution $10+ during the canceldar year, by 1/31. Or as
early as 4/30.
  - Requirements: Articles of incorporation (filed with the state, start of existence), tax election form 8832, file a charter, issue stock, overseen by a board of directors, maintain list of all shareholders (with SSN, otherwise 24% backup withholding of dividends), shareholder meetings at least once/year.
  - Liquidation: Corp recognizes gain/loss on sale/distribution of assets, then shareholders
recognize gain/loss on the surrender of stock to the corporation.
  - Stock: Multiple classes of common/preferred, various rights/voting/etc. Issuing stock has no tax

  - Tax-free fringe benefits: (C corp only) Health insurance, company car, etc. for employees are
deductible corporate expenses.
  - Estimated tax payments: If tax due >= $500. Must use EFTPS. 4/5, 6/15, 9/15, 12/15. 100% of
current year, or safe harbor 100% of last year (but only if > $0 and wasn't a short year). No penalty if underpayment < $500. Form 4466 Quick Refund of Overpayment of Estimated Tax (if at least 10% and at least $500).
  - Contributions of Capital to a Corporation: Generally not taxable to the corp (whether for
stock or not). Property given for nothing in return has $0 basis to the corp.
        - Section 351 Nontaxable Corporate Transfers: Contribution of property in exchange for
stock, and then the TP controls 80+% of the corporation voting power and of the nonvoting stock, then the exchange isn't taxable.
       - Stock Transfers to Satisfy a Debt: To satisfy a debt of the corp using stock, then the
corp recognizes income if the FMV of the stock is more than the debt.
   - Dividends: Dividends paid to shareholders aren't a deductible expense (so double taxation),
and dividends don't retain their character.
   - Accumulated Earnings Tax: (only under audit, uncommon) 20% of excess. > $250k, or $150k
for personal service corps. Unless "reasonable needs" such as specific feasible plans for expansion/acquiring/liability payments, or to redeem corporation's stock for a deceased shareholder's estate to pay estate/inheritance taxes/funeral admin expenses.
  - Capital gains: Same rate. Losses can only offset capital gains.
        - Losses carried to: (required order) 3 years prior, 2 years prior, 1 year prior, then carried forward 5 years. Can't carryback to before it was a C corp.
  - At-risk: Money and property contributed by the TP + money borrowed by the corp.
  - Charitable contributions: Deduct as a business expense up to 10% of taxable income, excess
carried forward up to 5 years. Same record keeping rules as individuals. If accrual, can deduct contributions that are unpaid but authorized by the board (with declaration statement attached to
the return), must pay by original return due date.
  - Dividends-Received Deduction (DRD): (C corp only, not S) To avoid double taxation of parent/child corps. < 20% = 50% deduction (up to 50% of its income), 20-80% = 65% deduction (up to 65% of its income), > 80% = 100% deduction. Income calculated without DRD, NOL, loss carryback. Can't be from REIT, tax-exempt corp.
   - Related Party Transactions: Same controlled group, > 50% ownership of a partnership / trust /
S-corp / C-corp, employee-owner of a personal service corporation. Ownership is grouped by family (siblings, half-siblings, spouse, ancestors, descendants).
   - Closely-Held Corporations: <= 5 owners own > 50%. Not a personal service corporation (PSC). At-risk amount is contributions + borrowed money + pledged property - cash/property withdrawals - nonrecourse loans where the corporation isn't liable. If at-risk < $0, suspended losses from previous years must be reduced.
   - Controlled Groups: Group of corporations as parent-subsidiary (a corp owns 80+% of another), or brother-sister (<= 5 individuals/trusts together own 80+% of voting shares for multiple corps, and 50+% in the individual corps). Can't be a foreign corp. Related party transaction rules (can't sell to each other and recognize a loss). Can elect to file a consolidated return. Only one shared $250k Accumulated Earnings Tax credit. Employees in same pool for certain qualified plans.
  - Distributions: Not an expense to the corp, no tax impact for the corp. Distributions are reduced
if the shareholder takes on corporate debt/liability.
    - Ordinary dividends: Typical for current year earnings distributions.
    - Capital gain distributions:
    - Nondividend distributions: If the corporation distributes more than all accumulated earnings + profits. Is a return of their basis (return of capital), no tax for the shareholder up to their basis amount (any more is LTCG).
    - Distributions of property: Treated as a sale. Taxable to the corp if has gains, losses aren't deductible unless liquidating. Shareholder's basis is the FMV.
    - Distributions of stock or stock rights: If stock issued, market cap doesn't change but generally reduces the stock price. Not taxable to either party unless is treated as property distribution if: shareholder has the option to receive cash instead, is convertible preferred stock, some preferred with some common, paid based on ownership of preferred stock. Expenses related to stock dividends must be capitalized, not expensed.
  - Stock redemption: Corp buys back its own stock, which can then be canceled/retired/held. Can
redeem all public shares to go private. Can't deduct related expenses. No tax effect if paying cash. If property, taxable if property and has a gain but can't recognize a loss unless is a complete liquidation, or redemption occurs on stock held by an estate.
      - Qualified Stock Redemption: Substantial reduction in stock ownership (shareholder retires, leaves, etc.) and others buy them out. Taxable like a stock sale to the shareholder. Reduces corp's profits, reducing amount of income taxable to the other shareholders but their basis remains the same.
  - Expenses related to issuing stock: IPS costs aren't deductible, treated as a deduction in the
proceeds (can capitalize?).
  - Constructive dividends/distributions: Disallowed personal benefit to the shareholder. Such
as below market rate loan (unless below $10k de minimis). Under audit it's disallowed deduction for the corp, and taxed as income to the shareholder.
   - Liquidations (dissolution): Form 966. And state paperwork. Within 30 days of decision to
dissolve. May take multiple years.
         - Property liquidated: Corp's tax: Taxed as if sold at FMV, so corp's gain/loss = FMV minus
corp's basis. Shareholder's tax: Cap gain/loss = FMV of property minus shareholder's basis.
         - Final return due on 15th day of 4th month following close of its final short tax year. (Try to close on the 4th quarter to use the current year software.)

- S Corporations: "Formed" by electing LLC, LLP, etc. to be treated as an S Corp. Must be domestic.
except buying/selling assets?. Is transferable. Less common, but can have passive shareholders not
actively participating (like LPs).
    - Formation: Form 2553 election, must file by 2 months + 15 days after the start of the tax year
(normally 3/15) to be effective for the whole year, or any time during the preceding year (entity must exist when filing). All shareholders must consent, also shareholders who held stock during the earlier part of the year. But can do S -> C conversion with just 50+% of shareholders.
   - Tax year / method: Must use calendar year, needs permission to use fiscal year for a bona fide
business purpose. Cash or accrual.
   - Shareholders: 100 shareholders max (but family from a common ancestor, spouses, dead
spouses can be considered 1, not ex-spouses), or else becomes a C corp. One class of stock, but can have differences in voting rights.
      - Must be: US citizens, US residents, some trusts/banks/estates, tax-exempt corps, SMLLC. Not: partnerships, corporations (except certain tax exempt corps), MMLLC. But S corps can own C corp stock.
      - Qualified Subchapter S Subsidiary (QSSS / Q-Sub): S corp 100% owned by another
S corp (subsidiary / parent). File for 8869. Then treated as one corp.
  - Form 1120-S: Info only, usually no taxes due. Due 3/15 (or fiscal equivalent), or 6 month extension with form 7004. Always required even if no activity. Signed by a corporate officer/receiver/trustee/assignee (not necessarily be a shareholder).
       - Taxation of S corps: (not common) Excess net passive investment income, built-in
gains (BIG), investment credit recapture, LIFO recapture. Only happens if was previously a C corp (except investment credit recapture). 21% rate.
       - Sch. K-1: Pass through income/deductions/credits to shareholders.
  - Income/expense Pass-through: Profit/losses must pass through profit/loss by share percentage, no alternatives (taxed as allocated, even if not actually distributed). Members are only employees or investors, not self employed.
       - TP reports S corp income/loss on Sch E page 2: TP must keep track of their stock basis.
       - Retain character: Rental real estate, portfolio income/loss, cap gains/losses, section 1231 gain/loss, charitable contributions, section 179 deduction, foreign taxes, business credits, investment interest expense, adjustments to figure AMT, nonbusiness bad debts.
        - No DRD deduction (only C corps have that).
  - Shareholder's basis: Value of cash/property contributed to it when formed + stock purchase
cost of shares + earnings + excess depletion - expenses - distributions - oil/gas depletion. Debt for the partnership with a personal guarantee doesn't add to their basis for an S corp (unlike a partnership), unless the shareholder is lending their own money.
         - Form 7203 - S Corporation Shareholder Stock and Debt Basis Limitations.- Required for shareholder if receives distribution, deduction for S corp loss, disposes of S corp stock, or loan repayment.
  - Distributions: Distributions to all share holders must be on the same date, in proportion. Distributions aren't generally taxable, they just change the shareholder's basis.
       - Distributions in excess of basis: Taxed as capital gains (long or short depending on how long held the stock). Usually only happens if the S corp has debt.
       - Property distributions: Worst of both scenarios. No loss recognized if the FMV value of the property is less than the corp's basis. If increased in value, treated as a sale to the shareholder. Gain passes through to the shareholders and increases everyone's basis of their stock.
  - Responsible compensation: Necessary if there are profits and someone is actively doing work
for the S corp.
  - Termination of shareholder's interest: Just like a regular stock sale reported on Sch. D. The S corp may elect to allocate income/expenses as two separate short tax years, based on the date of the shareholder's termination. All shareholders must agree to the section 1377 election (including terminating one).
   - Termination of S corp election: Becomes a C corp, has two short tax years that year. Can't be
an S corp again for 5 years (60 months).
       - Intentional: Or the majority of shareholders willingly revoke the S election (not a form,
send a letter).
       - Inadvertent: Over 100 shareholders (on that date), or each of 3 consecutive tax years has accumulated earnings/profits (because it was a C corp in the past) and > 25% of gross receipts from passive income, or they create a second class of stock, or income was distributed non-proportionally.
          - Termination relief: Used to have to get a private letter ruling to fix it, now there is
a procedure to fix most issues. Can use for: Multiple classes of stock, disproportionate distribution, form 2553/8869 error, missing acceptance letter for the S corp / QSub, filing a retirn inconsistent with S election or QSub, correcting non-identical governing provisions.

EIN: Optional for sole proprietorships without employees. Required for corporations, exempt orgs, trust,
estate, or partnerships. Or if employees (even nanny), excise tax, alcohol/tobacco/firearms, withholds taxes
paid to a NR alien, establishes a pension/profit-sharing/retirement plan.


   - Schedule K-1: (partnership/s-corp/trust/estate) Name/address of each partner, and their distributive
share of income/loss. (Reported on their Sch. E.)
       - Schedule K-2 / K-3: If any partners aren't domestic, or partnership has more than "minimal"
foreign activity.

Payment Forms

   - W-2: Employee pay. Due 1/15.
   - 1099-MISC: Business payments only. Royalties $10+. $600+ for rents, prizes, awards, crop insurance,
certain medical/health care, attornies (separate box). Not if recipient is a corporation (except attornies).
Not if credit card or other payment network, then the network sends a 1099-K instead.
   - 1099-K: Credit card, third party network transactions, Amazon, Uber. To the recipient of money. If $20k
in earnings, or 200 transactions (in 2022).
   - Form 8300 - Report of Cash Payments: Business payments only (not personal transaction), receiving
> $10,000 in cash / cashiers checks (not wire transfer, CC, ACH, personal check). Single, or sum of related transactions. File within 15 days. Also written statement to customer by 1/31.


  - Federal Unemployment (FUTA) Tax: Business pays 6% (but credit up to 5.4% if paying unemployment to the state) on first $7000/employee pay. Reported on form 940, filed separately annually.
  - Trust Fund Recovery Penalty (TFRP): 100% penalty if business doesn't pay FICA, can be against any
"responsible person" (owner, accountant, etc).

Worker Classification
  - Independent contractor:
  - Employee:
     - Child working for parent: If is a sole prop / partnership (and all partners are the parents), still has
income tax withholding, but:
         - Child < 18: No FICA.
         - Child < 21: No FUTA.
     - Spouse employed by spouse: And is sole prop -> FICA but no FUTA. Also can't be corp or
partnership with employing spouse is a partner (?).

  - Statutory employee: Gets W-2 ("statutory employee" box 13 checked), but goes on Schedule C. Work
on commission (full-time life insurance sales, traveling salesman, commission truck drivers, board
members, certain home works). FICA taxes paid by the employer (so no SE form), but income taxes
not withheld.

- Statutory nonemployee: Employees that are not treated as employees (just like normal contractor
1099-NEC -> Schedule C). Direct sellers, real estate agents, certain companion sitters. Works in sales,
performed under a written contract that says not employees for taxation.

Account periods

Period types:

- Calendar Tax Year: All individuals (since a long time ago).
- 52/53-week tax year: Rare.
- Short Tax Year: Can happen on first or last year of a business.

- Fiscal Tax Year: Can be used by...
   - C corps: Can be fiscal. Elect on first year, form 1128 to change it later.
   - Partnerships / S corps:
        - If majority owners (50%+ of interest) are fiscal (so generally C Corp partner/owners).
        - Or "natural tax year": for a legit business purpose (seasonal), use form 1128 to request.
        - Or Section 444 Election (form 8716): (rare) No business reason, just wants to request it. Not
tiered, not elected before, not to defer revenue.

Accounting Methods

  - Cash: (most) Expenses when paid, income when received. All businesses gross receipts < $27M (3
year average) can use it (except tax shelters).
      - 12 Month Rule: Expenses paid more than a year in advance have to be capitalized (e.j. advanced rent).
  - Accrual: (more "accurate") Expenses when incurred, income when earned. Tax shelters must use it. >
$27M gross receipts, publicly-traded corporations, large nonprofits needing audited financial statements
for government funding, or tax shelters.
      - Advance payments for services: Payment for future services past the current year. Can elect
to defer reporting the income til the next year (only one year). Guarantees, service agreements, etc. Any portion for the current year still taxable the current year. Not for rent, interest, and insurance premiums.
  - Hybrid: A combination. If an inventory is necessary to account for income, must use accrual for
purchases and sales. Can use the cash method for all other items of income and expenses. If cash method for reporting income, must use cash method for reporting expenses and vice versa.
  - Special methods for farming methods: Includes the Crop Method.

- Can use multiple methods if businesses are completely separate.
- Rent, interest, and insurance premiums income always is reported when received regardless of the
accounting method.

- Form 3115 - Change accounting method:
     - Cash/accrual method: Need pre-approval to change cash/accrual method if not required by law
(e.j. gross receipts go over $27M).
     - Inventory method change:
     - Depreciation/amortization method change: e.j. rental didn't claim appreciation. Allowed through
section 481(a). De minimis rule permits taking the difference in the current year if < $25,000.


- Cost of Goods Sold (COGS): Beginning inventory + purchases/production/freight/labor - ending
   - Not deductible as an expense until the goods are sold.
   - Uniform capitalization rules (UNICAP): Guidance for how to capitalize COGS. Mostly only
large (> $27M) businesses are subject to UNICAP rules.
       - Inventory includes: merchandise, raw materials, supplies that become part of items for
sale, purchased goods (has title, even if in transit), goods out on consignment or displayed away from the TP's place of business.
       - Never included in inventory: Advertising, old goods, goods consigned to the business
but not owned by it (not paid for), goods for future delivery (not yet legal title), land/buildings/equipment (unless business is selling those things), livestock not raised for sale (draft, breeding, dairy, sporting purposes).

- Use form 3115 to change inventory accounting method.

- Casualty loss of inventory / theft / shrinkage: Adjust COGS (easier for small amounts, not if exceeds
inventory actually sold), or record separately as a casualty or theft loss (for larger amounts, entered
separately on the return). Eliminate affected inventory from opening inventory amount (don't count the
loss twice). Don't claim loss if reasonably expecting to claim it with insurance.

Business Income

  - Muni bonds etc. are still tax-free.
  - Deferral: 1031 exchange.

Income Types:

   - Active income:

- Passive active income: No material participation, or real estate rental (except for REPs).
      - Passive activity rules apply to: individuals, estates, trusts (not grantor trusts), personal service corporations, and closely held corporations. The rules also apply to owners of grantor trusts, partners in a partnership, and shareholders of an S corporation (but not to the entities themselves).
     - Form 8582 - Passive Activity Loss Limitations: Losses not deductible against other income
types (usually), but carry forward, unless completely disposing of the activity. Income not subject to SE tax.

    - Dispositions: If complete disposition of the activity to an unrelated party, carried forward losses
can offset gain from the sale.
    - Former passive activities: If now active, can deduct previous years carried forward losses up
the amount of the current year income.
   - Grouping activities (section 469 grouping): For material participation, then only have to
participate in the group as a whole. Irrevocable. If disposing, have to dispose of entire group to
use the suspended passive losses.

   - Portfolio income: Interest, dividends, capital gains.

NOT business income:

    - Issuances of stock (including the sale of stock) (for C corps).
    - Most business loans, sales tax collected, deferral from 1031 exchanges, gain from an involuntary conversion properly reinvested.

Business Expenses

    - Must be ordinary and necessary.

Startup/Organizational Costs

  - Startup costs: $5000 as an expense on the first tax return after business begins. Investigate whether
to open it (or buy a business), creating a business, legal costs to purchase a business, training new
employees. Not: Deductible interest, taxes, R&D. Not expansion costs if business is operational.
  - Organizational costs: $5000 as an expense on the first tax return after business begins. To organize/register a corporation, partnership, or LLC. Contract legal fees, temporary directors, organizational meetings, etc. Separate from startup costs.
  - If startup or organizational costs exceed $50,000, the deduction is reduced dollar for dollar (so have to
amortize them instead).
  - Otherwise amortize startup/organizational costs over 15 years on form 4562. Starting with the first
month of business. If disposing of business, can deduct any remaining unamortized costs on the final
tax return.
  - If never starts:
          - (individual's) Costs before deciding to purchase/start: Costs are non-deductible.
          - (individual's) Costs in a bona-fide attempt to purchase/start a specific business: Capital cost
loss on Schedule D (regular $3k/year limit).
          - Corporation's costs: Can deduct all investigatory costs.

Business Deductions

  - Deductible taxes: real estate taxes (tax must be based on the value of the property). Not: Assessments for local benefits and improvements (for streets, sidewalks, etc., unless is just maintenance/repairs that aren't improvements) -> adds to the basis instead.
  - Business bad debts: Can claim if was previously included in income (accrual method). Bad business
loans (may be cash or accrual).
     - Later recoveries: Just include in current year income (don't have to amend past returns).

 - Insurance: Business property insurance, malpractice, casualty, state unemployment fund (or as taxes),
vehicle insurance (if not using standard rate as an individual), group-term life for employees (not self),
group accident health/long-term care/workers-comp for employees.

 - Accident/Health insurance:
      - Sole proprietor: For self on Sch 1 (only if business is profitable, otherwise it's lost).
      - Partnership: If pays for insurance for its partners, deduct as guaranteed payments to partners (which count it as income, but then can take the SE health insurance deduction on Sch 1).
     - S corp: If pays for insurance for its > 2% shareholders, added to the shareholder wages (and is
subject to income tax withholding).
    - C corp: Can deduct it as an expense, even if creates a loss.

  - Business interest: Interest paid/accrued on debts related to the business (regardless of property type
securing it). Business interest, not investment interest.

  - Home office deduction: Regularly and exclusively. Principal place of business or place to meet
clients or separate structure not attached to the home.
  - Simplified: $5/sf up to 300 sf, can still claim the full amount of deductible interest, real estate
taxes, casualty losses. No depreciation. Can switch back and forth any year.
  - How: Self-employed use form 8829. Partnership deduct as UPE. S corp reimburse under an
accountable plan instead.

  - Entertainment: Entertainment not deductible any more, except: business provides entertainment to the public or entertainment is central to the work or company-wide (not just HCE employees) (then whole
event including food is deductible).
 - Meals: 100% (only through 2022) if from a restaurant, including per-diem meals for employees. Other
food is 50% deductible, including employee fringe benefits. Can separate meals from entertainment if
listed separately.

- Travel: For business and "away from home" (longer than a regular day and need to sleep/rest).
Adequate records (unless under $75 for non-lodging).
     - Per diem: (optional) Can use instead of saving receipts for actual expenses. Self-employed can
only use it for meal costs. Reimbursed and not included in wages.

 - Transportation: Actual cost or standard mileage.
       - Standard mileage: (plus parking fees & tolls) only for SE, but corporation can reimburse employee under an accountable plan using their own car using the standard rate. Can't if: operates 5+ cars at the same time, claimed depreciation using anything other than straight-line, claimed 179 deduction or bonus depreciation, claimed actual expenses on a car that was leased.

 - Business gifts: $25 max (TP and spouse combined) to any person or their spouse, not including
packing/shipping/engraving/etc which is deductible.
   - Exceptions (not limited):
        - Promotional gifts: Not limited. Item with business name < $4, display stuff for the business premises of the recipient.
       - Employee gifts: Nominal value stuff, but not cash, gift certs, tickets, vacations, meals, lodging, etc.

  - Charitable contributions: Only C corps. Partnership / S corp contributions can pass through to the

  - Non-deductible:
     - Political contributions, lobbying, country clubs, government penalties/fines.
    - Research and Experimental Expenses: After 2021 TCJA must amortize over 5 years with
mid-year convention (foreign research over 15 years).


 - Farms: Beekeeping, cotton, silk worms, trees, fish farm, etc. Not farms: Breeding household pets, farm
supplies sales/rentals, fishing, etc.
 - Not part of farm income: farm employee wages, grain harvesting under contract with taxpayer
machines/workers, gains from selling farm equipment, securities, passive rental income from farmland
(unless materially participates, then is Sch F farming income).
    - Form 4835 - Farm Rental Income: Providing land for sharecropping (not just flat cash rental).
Sharecropper's income goes on Sch F.
 - Schedule F: if sole proprietor. Farm income/expenses only.
 - Return/taxes due dates: Farmer/fishermen (>= 2/3 of gross income from farming/fishing) and not C
corp: File by 3/1: no estimated tax payments. Otherwise can pay all estimated taxes by 1/15 (if not doing regular quarterly payments).
 - Accounting methods: Cash, accrual, combination (hybrid), crop method (crops that take more than a
year to harvest, with permission), other special methods.
 - Farming inventory: Feed, seed, eggs hatching, harvested crops, parts of a physical product
(wrappers, packaging, etc.), inventory storage costs.
     - Not inventory (form 4797 assets): Farmland, equipment, livestock for
 - Depreciation: *new* farm equipment depreciation shortened from 7 to 5 years. Used farm equipment
still 7 years. SIngle purpose greenhouses etc. can get 179 or bonus depreciation. Fruit/nut trees can
get bonus.
 - Postponing Gain Due to Weather Conditions: More income because of fed disaster assistance area
drought, flood, or other weather, can postpone reporting additional income until the following year.
Requirements: principal business is farming, cash method. Separate amount by each type of animal.
Attach statement.
- Crop Insurance and Government Payments: Less income because of drought, flood, or natural
disaster, can postpone reporting insurance / gov payment income until the following year. Requirements: cash method, insurance received same year as damage, normally would have reported
the income from crops harvested the nest year, not getting paid to not plant. Attach statement.
 - Farm/fisherman income averaging: Schedule J. Average using prior 3 years.
 - Misc:
    - Car and truck expenses: Can claim 75% of car or light truck business use without any records.
   - Soil conservation: Normally is land improving, but is deductible as business expenses.
   - Excise tax credits: Refund of fed excise taxes on fuel.

Tax Exempt Organizations

Nonprofits - 501(c)

  - 501(c)(3) charities: Tax deductible donations.

     - Structure: Must be a corporation, trust, or unincorporated association (less common).
     - Have an exempt purpose: charitable, educational, religious, scientific, literary, fostering
national or international sports competition, preventing cruelty to children or animals, or testing
for public safety.
     - Can't: Political campaigns of candidates, avoid political campaign intervention. Lobbying must
be "insubstantial" part of total activities. Can't endorse a campaign. Can't benefit private
interests, such as founder or family. Primary purpose can't be to run a business unrelated to
its exempt purpose.
    - Creation:
      - EIN
      - Organizing Document (defines charitable purpose, plans on how to dissolve by distributing assets to another charity).
      - Form 1023 / 1023-EZ - Application for Recognition of Exemption: Not required if church, or < $5000 gross annual receipts but must within 90 days of first year that goes over. File online, takes a long time, but can operate while pending.
 - Types:
   - Private foundation (most): Most are private foundation by default. < 1/3 of donations are from the public. More scrutinized. Form 990-PF instead of 990.
   - Public charity: Churches, hospitals, medical research organizations, schools, colleges, and universities are public charities by default. > 1/3 donations are from the general public.

- Other Tax Exempt 501 entities: Donations aren't tax deductible. Tax exempt, but not charities. Social
clubs, labor unions, nonprofit political orgs.
   - Creation:
       - Form 1024 - for 501(a) frat societies, business leagues, chamber of commerce, farmers coop.
       - Form 1024-A - for 501(c)(4) social welfare, volunteer fire dept, community service clubs.

- Form 990 return: Due May 15th (5/15) (!). No separate amended return form, just check the "amended
return" box. Late filing / false return without reasonable cause: $20/day up to 5% of gross receipts.
Status automatically revoked if not filed for 3 years.
 - For public charities:
    - Not required: Churches and gov agencies. But still payroll returns if employees, possibly 990-T.
    - 990-N: ("E-postcard") Can if gross receipts under $50k.
    - 990-EZ: Can if gross receipts < $200k and assets < $500k.
 - For private foundations:
    - 990-PF: Private foundation. Must file every year, even if no activity.
 - Additional: Also 990-T if unrelated business income $1000+.
- Entity types: corporations, trusts, or unincorporated associations (never sole proprietorships or
- Unrelated Business Income Tax (UBIT): Business regularly carried on and not substantially related to
its exempt purpose. Must file 990-T if $1000+ unrelated income, and quarterly payments if tax $500+.
21% tax rate. Due with form 990.


  - Gift Tax Return: > $16,000 (per giver to any recipient) reported on form 709 (separate return, but same due date/extension). Reduces the Estate/Gift Exemption ($12.06M).
     - Exceptions: US citizen spouse. Tuition or medical expenses paid directly to the institution. Gifts to political orgs, charities, parent's support for a minor child.
     - Future Interests: Still reported when given even if there are strings attached.
    - Gift Splitting: Spouses can split a gift to give $32k total, but have to report it (form 709), but doesn't count against their estate limit. (Or could just write separate checks and not have to do the form.) Separate form for each spouse, or other spouse can sign to consent on the one form. Community property funds are deemed to be 50% each spouse.

- Estates/Trusts:
   - NIIT: May be due if estate/trust earns over the (lower) threshold on undistributed net investment
income. Form 8960. Doesn't apply to tax-exempt trusts or grantor trusts.

  - Estates: Two types: Decedent's estate (happens automatically on death), Bankruptcy estate (not covered here). Pub 559.
     - Executor (if there is a will -- testamentary probate proceedings), otherwise an administrator is appointed (intestate). IRS calls either "personal representative". Usually earns fees (reported on 1040 as other income if not in the business of being an executor). Responsibilities:
    - Get EIN, file form 56 to tell the IRS who the representative is, distribute the estate assets
    - Form 1040 File final income tax for the decedent (or surviving spouse may sign it) - and any previous years. Same deductions etc, as if full year. Write "deceased" at top, may have to paper file. If surviving spouse remarried that year, deceased is MFS.
          - Medical expenses: Outstanding medical bills paid within a year of death can be deducted on the decedent's past tax returns (amend if already filed) for the date the costs were incurred (unusual tax treatment).
   - Form 1041 fiduciary return for a domestic estate if it generates > $600 in income or if has any NR alien beneficiary while not done distributing assets (annually). Schedule K-1 issued to beneficiaries when distributing assets. Usually due April 15th (unless fiscal), but extension (form 7004) is 5.5 months. May have to pay NIIT. Choose accounting period on first 1041.
      - Income can be taxed either to the estate or the beneficiaries.
         Distributable Net Income (DNI): Income that is available for distribution, taxes on that paid by the beneficiaries, so the estate gets a Income Distribution Deduction (IDD).
      - Final year (termination): Terminate when all assets/income distributed. Only in the final year of termination, can have a loss that is passed to the beneficiaries (reported on Schedule K-1), and they put the income on their Sch. E.
  - Form 706 estate taxes if > $12.06M in assets or to claim the DSUE election or to choose alternate 6-month asset valuation date. Max tax rate is 40%. Due 9 months after death, 6 month extension allowed.
      - Gross estate value includes: FMV of assets, life insurance (if owned by the decedent or payable to the estate), annuities payable to heirs, IRA etc, property transferred within 3 years of the death where a gift return wasn't filed but should have. Not: spouse's half of shared assets.
     - Deductions from the gross estate: Debts owed, funeral expenses paid out of the estate, admin expenses (if not deducted on 1041), marital deduction (surviving US citizen, not just green card resident, spouse gets assets tax-free), charitable deduction (donations in will), state death tax.
        Not deductible: fed taxes, alimony etc, property taxes only if accrued after death.
     - Deceased Spousal Unused Exclusion (DSUE): Surviving spouse's election to take unused exclusion for later use for self, must elect it. Only US citizens (not just residents).
   - Beneficiaries' taxes: Only after those taxes paid/filed then can distribute to beneficiaries (or else executor could be held liable for the tax debt). IRA can be rolled into their own if it's a spouse, otherwise traditional IRA is taxable as income to the beneficiary (because the money wasn't taxed before). Basis of inherited assets is FMV on date of death (stepped up/down), or alternatively 6 months
after date of death (or date of distribution if distributed < 6 months), or another
alternate for farming / closely-held business.

  - Income in Respect of a Decedent (IRD): Earned while alive, but received after death (unpaid salary, accrued interest/rent, accounts receivable). May go on 1041, or may go directly to a survivor. Reported as same type as it would be for the decedent and they pay regular tax on it. Except wages / SE income -> subject to income tax withholding but FICA will be withheld during the year of death, if > $600 should be reported on box 3 of 1099-MISC. SE income: will include the decedent's distributive share of a
partnership's income/loss through the of the month of the death. If IRD paid to a beneficiary and estate tax is due, estate tax is an itemized deduction on Sch A.
 - Beneficiaries inherit directly from the estate aren't taxed (unless the estate taxes weren't
paid -- that's bad).

- Trusts: Need EIN if not Revocable grantor. Might pay tax, or might pass earnings to the
beneficiary to have them pay the tax (either but not both).
   - Grantor (or settlor or trustor) -> (trustee or fiduciary) -> beneficiary.
   - Simple/Complex: (can vary year to year depending on if it has income or distributes principal that year)
          - Simple trust: Distributes all income, doesn't accumulate income year to year. No distributions of principal. No distributions to charity.
          - Complex trust: All non-simple trusts.
   - Revocable/Irrevocable:
          - Revocable: (disregarded entity, usually no form filing requirement) Treated as assets still belonging to grantor. Becomes irrevocable on death (so has a separate filing requirement), including "testamentary trust" formed by a will.
         - Irrevocable: Removes assets from the grantor's estate, is a separate entity. May still be taxed
  - Grantor/Non-grantor:
        - Grantor Trusts (generally revocable): To avoid probate. Doesn't need an EIN, no form 1041 just on grantor's return because it's disregarded. Is "inter-vivos" (created during their life rather than testamentary). Still subject to estate taxes when it distributes assets.

           - Examples: To transfer assets and avoid probate, or to transfer assets to a child in a controlled way.
   - Non-grantor Trusts (generally irrevocable): Grantor loses control of the assets. "Most deductions and credits allowed for individuals are also allowed to trusts"? Is generally taxable income to the beneficiaries (goes on Schedule E).
        - Qualified Disability Trust (QDT): (complex) For the benefit of a disabled individual < age 65. Gets the regular exemption amount ($4400). Exempt from Kiddie Tax.
        - Charitable Trusts: Holds assets to benefit 501(c)(3) charities. Not subject to NIIT.
        - Other irrevocable trusts: Complete gift, subject to gift tax at the time assets are moved into it.
  - Form 1041 filing: (Generally only if irrevocable.) Trusts are usually calendar year. Return due 4/15. Report income/gaines/deductions/distributions/etc of the trust. Required if: any taxable income (after subtracting exemption), gross income of $600+ (regardless of whether the income is taxable), any beneficiary who is a NR alien. Filed by trustee (not grantor).
       - Exemptions: simple trust $300, qualified disability trust $4400 (original regular person exemption amount), any other complex trust is $100.
  - Abusive trust arrangements: To get deductions for personal expenses, stepped up basis for property, elimination of SE or gift tax. May be abusive if no one pays the tax (grantor/trust/beneficiary), other than the QDT exemption.
  - Foreign trusts: May be tax havens. Is foreign if a US fiduciary doesn't control all substantial decisions (or a US court supervises it). Many foreign trust treated as grantor trusts (taxable income taxable to the grantor). Have to file FBAR (if > $10k at any time).

Retirement Plans from Employers
Always optional for all employers.

  - Simplified Employee Pension (SEP-IRA): Can setup for previous year by extended tax due date with
Form 5305-SEP. If business has no other retirement plans. No Roth option (currently). Can contribute to
SEP and other IRAs the same year. Not on W-2. Immediately vested.
          - Up to 25% of compensation or a maximum of $61,000. Employer decides how much to
contribute, employees can't contribute.
          - Must offer to all employees 21+, employed 3 of last 5 years, earning at least $600. Can exclude
employees with a union agreement, NR alien employees.
          - Early withdrawals 10% penalty under 59 1/2.

- SIMPLE IRA and SIMPLE 401(k): <= 100 employees (with 2 year grace period). Must offer to all
employees $5000+ income in any prior 2 years (and expected same this year). If business has no other
retirement plans (unless union-specific). Can setup any date 1/1 - 10/1 (or later if business established
later). Only can be terminated at year end after notice by 11/1. Immediately vested.
      - Employee: optional salary reduction contribution up to $14k + $3k if 50+ (up to amount of salary).
      - Employer: must choose one of:

          - Matching contributions: Match up to 3% of compensation, can be reduced to 1% any 2 of 5 years (IRA only, not 401k).
          - Nonelective contributions: Contribute a flat 2% of employee's compensation. Must be
for all employees.
    - Types:
         - SIMPLE IRA: Doesn't allow loans. No annual IRS filings.
         - SIMPLE 401(k): Allows loans. Must file form 5500 annually. Compared to a regular 401k: lower contribution limits, doesn't require non-discrimination testing, no vesting schedule.
    - Early withdrawals 10% penalty under 59 1/2. 25% if withdrawn within 2 years of the beginning of participation in the plan.
- Qualified Retirement Plans: Employee Retirement Income Security Act (ERISA) requirements/reporting requirements.
     - Types:
         - Defined contribution plans (401k/403b/457): Employee and/or employer can contribute. Funding certified by an actuary. $20,500 max employee deferral (+$7500 if 50+). .
         - Defined benefit plans (traditional pension): Employer funds it. Minimum funding requirements required by ERISA. Expensive, but very high limits. Self employed TPs may contribute up to 100% of compensation. Up to $245k (up to average compensation of the employee in the 3 highest years). Protection from creditors in a bankruptcy.
  - Form 5500: For Qualified plans or SIMPLE 401k when plan's assets exceed $250k. Due annually by 7/31 (or plan year's equivalent). Not filing penalty $250/day up to $150k. 5000-EZ option if just self/spouse.

Employee Compensation

   - Nondiscrimination rules: Can't give highly compensated employees (HCEs), family (includes spouse, parents, children, grandparents, but not siblings, grandkids, etc), or > 5% owners more benefits. 100+ employees have to yearly review, if failed the benefits become taxable.
Not taxed to the employee, and deductible expense for the employer:
   - Cafeteria plan (section 125): Employee has option to choose a non-taxable benefit and taxable (such
as cash). Daycare FSA, healthcare FSA, etc. Employees can contribute a portion of their salary pre-tax.
        - May include: Accident/health benefits, adoption assistance, group term life insurance (only up
to $50k is excludable from taxable income + < $2k for spouse/dependents).
   - HSA: Employer's contribution must be comparable for all employees who have comparable health
plans, otherwise excise tax of 35%, but can give non-HCEs more.
   - FSA: Flexible Spending Arrangements - Withheld from paychecks, tax-free payment for medical
expenses. Use it or lose it (forfeited back to the employer), may have limited carryover or 2.5 month
grace period.
       - Dependent Care FSA: $5000/year/family ($2500 MFS). Qualified person's care for parents can
work. < 13, disabled spouse, or dependent parent in eldercare.
       - Health Care FSA

   - QSEHRA - Qualified Small Employer Health Reimbursement Arrangements: Employees get reimbursed for getting their own health insurance. < 50 full-time employees. Only funded by employer.
Annual limit (a max that employers can offer less than).
   - Working Condition Fringe Benefits: Misc expenses covered. Company car (partially taxable if used
for non-work use, unless ambulance etc), professional memberships, equipment, cell phone (substantial business reason).
   - Accountable Plans: Incurred expenses while performing work services as an employee, adequately
account for expenses, provide documentary evidence of travel/mileage/etc, employee returns excess to
employer within a period of time. Can even be used for single-member S or C corp. Written plan. Safe
harbor (recommended): reimburse employee within 60 days of expense, or employee return pre-paid
amounts within 120 days.
         - Nonaccountable Plans: Taxed as wages. Can be anything, documentary evidence not needed.
   - Employee Awards: Excluded from wages if tangible personal property (not cash). Such as length of
service or safety achievement. "Qualified plan awards" written plan that does not favor HCE. $400/employee/year for not qualified, $1600 total of qualified/unqualified.
   - Athletic Facilities: Only nontaxable if it's on premises.
   - Meals for Employees: If on premises and/or for the employer's convenience, nontaxable to the
employee but only 50% deductible to the employer. Including break room snacks.
   - Lodging for Employees: Lodging for employee, spouse, and dependents is nontaxable and 100%
deductible. Exception: No deduction if offering any option to take cash instead.
   - Edu assistance:
        - Job-related education: (section 132) Nontaxable, 100% deductible. Must maintain/improve skills for the current job or required by the employer or by law.
       - Non job-related education: (section 127) "Educational Assistance Program" or "employer educational program" (EAP). Written plan, non-discrimination, $5,250/year limit (additional taxed as wages). Tuition, fees, books, supplies, or pay for student loans (CARES act). Not: meals, lodging, or transportation.
  - Employee discounts: Up to 20% on services (or more if the service doesn't cost the business
anything), or for merchandise the price without profit (I think ?). Must offer to all employees, no for real
estate or investments such as stock.

Not taxed to the employee, but not deductible to the employer:

    - Transportation: Parking, mass transit.

Taxable to the employee, and not deductible to the employer:

      - Moving expenses: (because of TCJA)
      - Personal use of a company vehicle: except situations where it is for the employee's safety, or for
commuting and is public safety (police car).
     - Other: off-site health club, concerts, vacation, employer provided life insurance over $50,000. gift card etc (except if occasional meal money/transportation to allow an employee to work beyond normal hours). entertainment (except occasional entertainment that includes all staff).


  - Applicable Large Employer (ALE): >= 50 full-time employees (FTE) (30 hours/week and 130 hours/month), or part time equivalent. If offers any, must offer to all full-time employees. Part time coverage is optional, but if offering it, must be for all. Employee can decline (get it in writing).
       - Penalties: "Employer Shared Responsibility Payments", Lien and levy actions.
           - 4980H(a) Penalty: Failure to Offer Minimum Essential Coverage: Not offering to 95%
of employees and anyone receives Premium Tax Credit. $2750 / full-time employee without coverage minus the first 30.
           - 4980H(b) Penalty: Failure to Offer Coverage that is Affordable and Provides Minimum Value: Offering insurance but it's not MEC and anyone receives Premium Tax Credit, just those employees count for $4120 each penalty.

  - Minimum Essential Coverage (MEC): >= 60% of total cost, substantial coverage of physician/inpatient hospital services. Dependents < 26, excluding stepchildren and foster children.

Business Losses

  - Net Operating Loss (NOL): (same for individuals / C corps)
       - 2018-2020: 5 year carryback (CARES Act), unlimited forward 100% (if timely filed return).
             - Carrybacks: C corp carryback by filing form 1139. Individuals, estates, and trusts my apply by filing form 1045. By 12/31 of the year after the NOL. Have to carryback to the earliest year with income first. Reduces income tax only, not SE tax or fines.
      - 2021-current: No longer option to carryback, only forward (indefinitely, but only until death).
Carry forward cannot exceed 80% of taxable income (unless was generated before 2018 it's 100%). Cannot increase an NOL with a carry forward/back (C corp only?).
     - Farmers: 2 year carryback (default), unlimited 80% carry forward election (permanent election,
can't change). Carrybacks by amending return or a special form. Have to carryback to the earliest year with income first.
    - Casualty insurance companies: 2 year carryback, carry forward 100%, limited to 20 years.

  - Excess business loss limitation: (Form 461) Non-corporate TPs only (sole, partnerships, etc.) with
business losses of > $270k ($540k MFJ), indexed for inflation. Excess carries forward.

Business Credits

   - General Business Credit (GBC): Various credits. Specific forms -> flow to form 3800 General
Business Credits. Non-refundable, doesn't offset employment/payroll taxes. Carryback 1 year, forward
up to 20 years. FIFO basis.

- Investment Credits: (form 3468) Property can't be: outside the US, used by a gov unit or foreign entity,
used by a tax exempt org, lodging, already took section 179.
    - Rehabilitation credit: older/historic building rehab. 20% credit rehab costs, ratably over 5 years
from date placed in service.
   - Energy credit: Solar, or geothermal energy and shale oil production.
   - Qualifying advanced coal project credit: Coal, while still reducing carbon dioxide emissions.
   - Qualifying gasification project credit: Synthetic gas natural, while reducing carbon dioxide
   - Qualifying advanced energy project credit: 30% credit for renewable energy resources.

- Work Opportunity Tax Credit: (form 5884) Must be when hiring. Unemployed vets, food stamp
recipients, empowerment zone residents, vocational rehab, ex-felons, SSI people, summer youth
program, long term unemployment recipient. Tax exempt can use it towards employer half of FICA.
Amount depends on the group.

- Disabled Access Credit: To provide access to disabled for ADA. 50% of expenditures over $250, not
to exceed $10,250, for a max benefit of $5,000. < $1M gross receipts, <= 30 employees. Must reduce
the deduction by the amount received for the credit.

- Employer Social Security and Medicare Taxes on Employee Tips: (form 8846) "FICA Tip Credit".
Restaurants/food places. Covers employer's part of FICA on tips for food/beverages, except tips to
meet fed minimum wage ($5.15).

- Credit for Small Employer Health Insurance Premiums: (form 8941) Refundable (!) credit max 50%
of employer's contribution towards employees' health insurance, only for 2 years. Must have < 25 FTE
employees, employer pays >= 50% of employee's premiums (35% if tax exempt), low/moderate
average income (phases out), coverage through SHOP Marketplace. Smaller employers, or paying less
wages, get more.

- Foreign Tax Credit for Corporations: (form 1118) Nonrefundable, for corporations. If foreign taxes
exceed the credit amount, can carry back 1 year, then carried forward 10 years. There's also a
deduction, but the credit is usually better. For taxes actually owed.

- Employer Credit for Paid Family and Medical Leave (FMLA Leave)

QBI 199A Qualified Business Income Deduction

- QBI 20%. Does not reduce SE tax, etc., is income tax only. 2019-2025. Domestic income, domestic
sources, even if person is foreign. On taxable income. QBI loss carries forward and reduces QBI in
future years.
- Income limit (before QBI): (don't have to memorize) MFJ $340k-$440k, all other $170k-$220k. If AGI
above limits:
   - Specified Service Trade or Business (SSTB) Limitation: Can't get QBI over income range.
(type of business, specified service trade or business). Business is: Health pros, law, accounting (not billing), actuarial services, performing arts, consulting, athletics, financial services, security brokerages, reputation/skill. Not architecture/engineering. Ok if < $25M and < 10% of business is SSTB, or > $25M and < 5% (de minimis rule).
  - Wage and Property Limitation: Greater of 50% of W-2 wages/retirement or 25% of W-2 wages
plus 2.5% of UBIA (Unadjusted Basis Immediately After Acquisition, before bonus/179) of all tangible depreciable property (held 1+ years, not land), still depreciating, < 10 years.
- Pass-through businesses: sole proprietors, partners, LLC, beneficial owners of trusts/estates, S corp
shareholders, REIT, PTP Publicly Traded Partnership. Even if not materially participating. Not: C corps,
cap gains, hobby income, guaranteed payments from a partnership (is like a service payment).
- Rentals:
    - (optional) "250 hour" Safe Harbor - 250 hours per year per property any 3 of past 5 years. Can
group properties (but separate from material participation grouping). Separate books/records. Time logs of hours. Not NNN lease. Not part of home. Attach statement. Not required if rental satisfies the usual tests for a "qualified business"

- Schedule K-1: Reports QBI info and them claimed by shareholders/partners.

Rental/Royalty Income

- Advance rent taxable when received (regardless of accounting method).
- Partnership/S-corp uses form 8825. But passive rentals can be co-owned and split everything
without being a partnership.
- Sharecrop (paid with percent of crop) - Form 4835.
- $25,000 loss allowance if active participation, 10% ownership, phase out AGI $100k-$150k. MFS from
$50k only if didn't live with spouse at all during the year.
- Personal use: "Residence" if using for personal use (self or close family) > 10% of the total days (at
least 14 days).
     - Less than fair market rent: Including family or anyone using it at less than fair market, even charity. Pub 527 -> "Not Rented for Profit" -> Then report income on Schedule 1 line 8j, and expenses deductible on Schedule A (no longer deductible currently?). Safe harbor if income more than expenses for 3 of 5 years.
- Augusta Rule - Can rent any residential property for up to 14 days and not pay tax on it.
- No profit motive: Rented below fair market rent. Like hobby activity. No expenses are deductible, just
reported as income on 1040.
- Personal property renting: Schedule C if business. Unless sporadic, then income on 1040 and losses on Sch. 1 line 22 (limited to the amount of income).
- Royalty income: Schedule E. Reported on 1099-MISC (if > $10).
     - Actively participates?
         ● Not active: on Sch E, but isn't passive income, is portfolio income.
         ● Active: (including self created works, but not if inherited) On Sch C. (But to avoid irs
notice, can also report on sch E, negate it with an expense.)

1031 Exchange

- Basis remains the same (plus or minus any boot).
- "Like-kind", real property only (TCJA change), rental/business use (but not developer inventory), not
foreign real estate.
- Qualified intermediary if not simultaneous actual exchange (can't have receipt of funds). Identify
property in writing within 45 days. Exchange received by 180th day after the original sale or due date
of the year's tax return including extensions.
- File form 8824 Like-Kind Exchanges (and next two years if related-party exchange).
- Cash boot: Increases basis if paid. Taxable if received (minus qualified costs). FMV doesn't matter for
- Related-party exchanges: (siblings, half-siblings, spouses, ancestors, descendants, entity > 50%
ownership, executor or beneficiary of an estate, or both exchangers fiduciary/beneficiary of same trust)
If either party disposes with 2 years after exchange, exchange is disqualified. Exceptions: a party dies,
involuntary exchange, can be established it wasn't done for tax purposes. Not related: ex-spouse, cousins, step-siblings, etc.

1033 Involuntary Conversions

  - Any type of property (personal/real/business). Theft, fire, etc, condemnation or threat of condemnation.
  - Defer gain from insurance if later invest in similar property. No forms, don't have to report anything.
  - Can combine with section 121 exclusion for main home.
  - Cannot be from a related party.
  - Deadlines: business real estate (3 years), livestock weather damage (4 years), main home in federally
declared disaster (4-5 years), all else (2 years). Deadline is that many years from the end of the tax year after the date they actually receive the money. Don't have to pay cap gains if they plan to defer it.
  - If no conversion by deadline, have to amend original return and pay the cap gains.
  - Basic increased if paying additional costs of acquiring the property (put in own money).
  - Didn't reinvest all of the payout money? Capital gains if payout was more than the original basis.



- Original basis: Sales tax, freight, installation, legal fees for defending the title, recording fees, real
estate taxes if assumed by the buyer, assumption of liabilities.
    - Building real property: Construction labor, architect fees, permits, rental of construction equipment, etc.

- Adjusted basis: Events during ownership.
   - Increases: Improvements, assessments for local improvements (sidewalks, etc.). Demolition: Added to the basis of the *land*, not the building.
       - Improvements (not repairs): "Betterment, restoration, rehabilitation, adaptation".
   - Decreases: Depreciation, casualty/theft, rebates, exclusion of income from subsidies for energy
conservation, vehicle credits, 179 deduction, nontaxable corporate distributions.


- De minimis safe harbor election: (just add it to all returns, no reason not to, must choose each year)
Not land.
    - (#1) $5000 (big corps with auditing) if applicable financial statement (AFS) may use this safe harbor to deduct amounts paid for tangible property, up to $5,000 per invoice or item. Must have written capitalization policy.
   - (#2) $2500 (applies to most) Up to $2500 value.
ible-Property -> "Explanations" -> "Election Explanation" -> Enter the title "Sec 1.263(a)-1(f) de minimis safe harbor election"
       - Include in a single line the following information:
            - [taxpayer's name], [address], SSN # [] elects the de minimis safe harbor under Treas. Reg. 1.263(a)-1(f) for its tax year ending December 31, [year]".

- Small Taxpayer Safe Harbor for Real Property: (just add it to all returns, no reason not to) Gross
receipts < $10M. Building basis of < $1M. Can deduct repairs/improvements up to 2% of building basis
(up to $10K). Any De Minimis Safe Harbor expenses have to be included. Irrevocable (for that year),
but have to do it each year.

- Routine Maintenance Safe Harbor: Anything that has to be done more than once in a 10 year period,
or more than once in the applicable life period of non-building properties. Don't need to elect it,
automatic. No $ limit.

- De minimis Election for Materials and Supplies: (automatic but optional, could instead depreciate). Not for inventory.
     - <= $200 property
     - <= 12-month property life
     - Acquired components: This includes things like spare parts, air filters, or other components acquired to maintain or repair a unit of property.
    - Incidental materials and supplies: items that are not part of inventory, used in the business, and generally not tracked (e.g., pencils, pens, copy paper, staplers, toner, trash baskets).
    - Consumables: Costs of fuel, lubricants, water, and similar items that are reasonably expected to be consumed in 12 months or less, beginning when used in operations.


- Casualty/Theft: of business assets (form 4684)
    - Deduction = (Adjusted Basis - Any remaining value) - Any insurance received
    - Deductible in the year it happens or theft is discovered.
    - Have to file an insurance claim if you have insurance, or otherwise can't claim a deduction for any amount insurance might have covered (above the deductible). Can't claim deduction if claim is pending. Can amend a prior year for any amount not covered by insurance.
    - Partial Loss: Loss is the reduction in market value (up to the amount of the basis). Amount also reduced by any insurance settlement.


  - (form 4562) Using for business, > 1 year life. Starts when placed in service (not when purchased).
  - Not depreciable: Land, inventory, personal use, section 197 intangibles are amortized instead (copyrights, patents, franchises, non-compete agreements, and goodwill).

- Leasehold improvements: Depreciable improvements by renter.

- Modified Accelerated Cost Recovery System (MACRS):
   - 5 years: Vehicles, computers, etc.
   - 7 years: Furniture, ag. machinery.
   - 15 years: Land improvements.
   - 27.5 years straight-line: Residential or mixed use (if > 80% residential) real estate.
   - 39 years straight-line: Commercial real estate.

- Methods: Can't change after starting, except to straight-line, or maybe if ask for permission using form


  - Section 179: Can choose per item or part of an asset. Opt-in. Bought (not gift) by business from
unrelated party (spouse, ancestors, descendants), > 50% business use if Listed Property, must be used
in the US. Must be first year placed in service. Cannot create a total net business loss (but does get
carried forward until there is a future profit), not real property, < $1,080,000 (2022) in value, phases out
if total asset purchases total > $2.7M (amount allowed reduces by $1 for each $1 over).
        - Eligible: Tangible property (except off-the-shelf software) that isn't real estate or inventory.
Includes: (office furniture, machinery), livestock (that isn't inventory), lodging furniture (but not for residential rentals?), single purpose farm structures, storage/transport of petroleum.
          Nonresidential buildings use only: roofs, HVAC, fire protection systems, security systems.
     - Not eligible: Intangibles (except off the shelf software), enlargement of building, elevator,
escalator, expansion of structure.
     - Auto limits: (if not not-personal use ambulance etc) 0-6000 lbs $11,200 year 1, etc. 6001-14000 lbs (large SUVs/trucks with a bed < 6') $27k. 14001+ no limit. Can't use standard mileage rate if used 179.

- Special depreciation ("bonus depreciation") (temporary, 100% 2022, 80% 2023, ...) Default, must opt-out by asset class each year on a timely filed return (can't opt out if delinquent). Can opt back in by amending later. Can create a net loss (applies to other income or carries forward), applies to entire asset (can't do partial). Entire asset class. Must be first year placed in service. > 50% business use if Listed Property. Not from a related party if it's used property. No limits.
     - Eligible: Tangible personal property with <= 20 years MACRS life, water utility property, off the
shelf software, fil/tv/theater production costs, nut/fruit trees/vines, Qualified Improvement Property (QIP).

- Listed property: Passenger vehicles < 6000 lbs, entertainment/recreational/photographic equipment.
Stricter recordkeeping. If used >= 50% for personal use, can't take section 179 or bonus.


- Section 197 intangibles: straight-line 15-year. Intangibles (except off the shelf software). Basis is the
cost to purchase/create it. Can't use 179/bonus depreciation.
      - Examples: patents, copyrights, trademarks, trade names, franchises, intellectual property, customer mailing lists, covenant not to compete, and goodwill.
     - If shorter agreement (franchise agreement, noncompete covenant, etc), can deduct the remaining basis when the agreement ends.


- Mining, quarrying, cutting timber. Figured as:
     - Cost depletion: (depletion basis / total recoverable units) * units sold.
     - Percentage depletion: A flat percentage set by law for oil and gas investors.


(Form 4797 Sale of Business Property)

      - Related party: Between individuals or corporations owned (or indirectly owned) by related parties.
Spouses, ancestors, descendents, siblings, half siblings (not step- or inlaws). No deduction allowed for
losses (except exception for a corporation dissolving). Can't even be netted if there are multiple gain/loss transactions with the same party the same year. Losses suspended until the property is disposed of to a non-related party.

Types of assets:

- Ordinary assets: Inventory, accounts receivable, product sales, patent (?), formula, process, artistic
compositions, letters.

- Capital assets (capital gains reporting): (section 1221) Personal use assets and most investments.
Hobby item sales, collectibles, stocks, etc. (except if professional securities dealer, then it's "inventory").
Raw land held for investment. Personal gains reported on Schedule D (1040).
   - Collectibles: Taxed at ordinary tax rate, but capped at 28% if long-term (if not professional
   - Noncapital assets: (everything else, ordinary assets and 1231 assets) Inventory, depreciable
property (even after fully depreciated), real property for a business, self-produced stuff, accounts receivable/notes acquired by a business, professional dealers' stocks, professional's collectibles, business supplies.

Section 1231: Depreciable business property (not personal-use) and held over 1 year. Not: Inventory,
personal-use, or held < 1 year. Use form 4797.
   - If net loss from sale of business assets: Is an ordinary loss (that's good). If net gain from sale of
business assets: Long-term cap gains (that's also good).

  - Types:
       - 1245: Not real estate. Machinery, equipment, etc. If sold at a gain: Depreciation recapture is taxed as ordinary income ("1245 gain"). Other gain that isn't depreciation recapture is "1231 gain" taxed at cap gains rates.
      - 1250: Real estate. “Unrecaptured section 1250 gains” and taxed at your ordinary income
tax rate, but max 25% .

Installment Sales

- Such as real estate acquired note.
- Form 6252 Installment Sale Income. Each payment includes: return of seller's adjusted basis, gain on
the sale, interest income (if any). Otherwise other option is to recognize all gain in the year of the sale.
Depreciation recapture?
- Related party: ok, but if they sell < 2 years, the TP loses the installment sale benefit. Exceptions: death, involuntary conversions.
- Not: Inventory sales, sold at a loss, stock/securities on a market.



Agastya Tax Academy

EA Test Part 3 Review Summary Glossary Notes

8275 - Tax Position Disclosure Statement:
8275-R - Tax Position on Regulation Disclosure Statement
8821 - Tax Information Authorization
8862 - Claim Credits after Disallowance
8857 - Seeking Relief from Joint Liability:
8867 - Paid Preparer's Due Diligence Checklist
8879 - e-file Signature Authorization
8886 - Reportable Transaction Disclosure
8888 - Allocation of Refund
8944 - E-file Hardship Exemption
8948 - Preparer Explanation for Not Filing Electronically.

9423 - Collection Appeal Request
9465 - Installment Agreement Request

12153 - Request for a Collection Due Process or Equivalent Hearing
13551 - CAA Application
14157 - Return Preparer Complain

Form 23 - Enrolled Agent Application

656 - Offer in Compromise Program "Doubt as to collectibility"
656-L - Offer in Compromise Program "Doubt as to liability".
911 - Taxpayer Advocate Service

1127 - Extension of Time for Payment

2848 - Power of Attorney and Declaration of Representative

4564 - Information Document Request (IDR

- US I Savings Bonds: Up to $5000 ($50 increments).

Legal Authority

- 3 branches of government -> Executive -> includes IRS + Treasury Department.
- Treasury Inspector General for Tax Administration (TIGTA): has oversight over IRS activities. Authorized by title 31 USC §330.

- Primary authority:
- Title 26 - Internal Revenue Code (IRC):
      Also Title 31 - Bank Secrecy Act: FBAR, etc. Filed with the Financial Crimes and
Enforcement Network (FinCEN), but enforcement was delegated to the IRS in 2003.
- Supreme Court rulings 

- Substantial authority: Can be used in court.
     - Treasury Regulations: The IRC authorizes the Treasury to interpret the IRC. Written by the IRS's Office of the Chief Counsel and approved by the US Treasury Secretary. Published in the Federal Register, then organized and codified in the Code of Federal Regulations (CFR).
         - Types:
             - Legislative Regulations: (more authoritative) Congress expressly delegates authority to the Treasury/IRS to provide the requirements.
             - Interpretive Regulations: (less authoritative) No grant of authority to interpret, so may be challenged on the grounds they don't reflect Congressional intent.
             - Procedural Regulations
- Classifications (stages):
             - Proposed regulations: Public commentary.
             - Temporary regulations: For 3 years. May never become final. (Didn't used to expire.)
             - Final regulations: Published in the Federal Register.
- Court challenge: IRS is bound to follow its regulations, but the courts are not. The
regulations can be challenged in court (but not by appealing to the IRS).
             - Can be challenged if: outside power of the Treasury, conflicts with a statute, deemed unreasonable by the courts.
- Court cases
- Administrative pronouncements
- Tax treaties
- Congressional intent, as reflected in committee reports

- IRS Guidance: (IRS Publications) Not substantial authority to avoid understatement or accuracy related penalties. Not binding in court, but can be used for guidance.
      - IRS publications and form instructions
      - Revenue Rulings: States an IRS position. Numbered each year ("2022-1", etc.).
      - Revenue Procedures: Instructions concerning an IRS position.
      - Private letter rulings (PLR): TP requested guidance. Legally binding to the IRS if the TP gave full/accurate info. Made public, but with personal info redacted. Costs $10k+.
      - Technical advice memoranda (TAMS): Internal guidance from the IRS Office of Chief Counsel on request of the IRS director.
      - Internal Revenue Manual (IRM): For IRS employees to follow, but is public.
      - IRS notices: Misc

Freedom of Information Act Requests (FOIA)

- Uses: Can get copy of client's audit records. Request own Centralized Authorization File (CAF) client list.
- Required they comply except: national security, the privacy of individuals, the proprietary interests of business, the functioning of the government, and other vital recognized interests.
- 20 business days to respond (supposed to).

IRS Divisions

   - Large Business & International Division (LB&I): Assets > $10M.
   - Small Business/Self-Employed Division (SB/SE): Assets < $10M, gift tax, estates, Sch. C/E/F, etc.
   - Wage and Investment Division: Domestic W-2 employee TPs.
   - Tax-Exempt and Government Entities Division: Employee plans (including IRAs), exempt organizations, and government entities.

Taxpayer Bill of Rights

   - The Right to Be Informed
   - The Right to Quality Service
   - The Right to Pay No More than the Correct Amount of Tax
   - The Right to Challenge the IRS’s Position and Be Heard
   - The Right to Appeal an IRS Decision in an Independent Forum
   - The Right to Finality
   - The Right to Privacy
   - The Right to Confidentiality
   - The Right to Retain Representation
   - The Right to a Fair and Just Tax System

Taxpayer Advocate Service (TAS)

    - Independent org within the IRS. Free.
    - Form 911

Practice Before the IRS

Publication 947 (read)

"Practice before the IRS":
     - Corresponding and communicating with the IRS
     - Representing a TP at conferences, hearings, or meetings with the IRS
     - Preparing/filing documents with the IRS (but not tax returns).
     - Providing written advice that has a potential for tax avoidance/evasion

Not "practice before the IRS":
     - Representation of TPs before the US Tax Court (is separate)
     - Being a witness for a TP (but not advocating/helping the TP).
     - Preparing a tax return.

Court Cases:
     - Loving vs. IRS (2014): IRS lost -> IRS can't mandate education requirements for tax preparers.
    - Steele vs. United States (2017): IRS lost -> can't charge a fee for PTINs. Then IRS won on appeal, so can charge for PTINs.
   - Sexton vs. Hawkins: Can't stop felons from preparing tax returns.

Enrolled Practitioners:
   - Attornies, CPAs, EAs: Unlimited practicing.
   - Enrolled Actuaries: Limited to actuary stuff.
   - Enrolled Retirement Plan Agents (ERPAs): Limited to retirement plan stuff.

IRS departments:
    - Return Preparer Office (RPO): Issues PTINs, AFSP testing, and continuing ed.

Unenrolled Tax Return Preparers

Can not:

    - Represent TPs before appeals officers, revenue officers, counsel, or similar officers, or employees of the IRS or Department of Treasury.
   - Execute closing agreements
   - Extend the statutory period for tax assessments or collection of tax
   - Execute waivers
   - Execute claims for refund
   - Sign any document on behalf of a taxpayer

Annual Filing Season Program (AFSP)

   - Voluntary, non-credentialed preparers, just "record of completion".
   - Requirements: Having a PTIN, consent to duties/restrictions in Circular 230, pass a comprehension test after taking a course. Then 18 hours of CE, including 6 hours Annual Federal Tax Refresher.
   - Refresher course/exam exempt if: Did state program for OR, CA, or MD. Or  passed SEE Part
      1. VITA volunteers. Or Accreditation Council for Accountancy and Taxation's Accredited Business Accountant/Advisor (ABA), or Accredited Tax Preparer (ATP).
- Can represent the TP only for a tax return the preparer did and signed. And only before the examination division of the IRS.

Limited Practice Due to "Special Relationship":

    - Self
    - Family member: Includes spouse, child, parent, brother, or sister.
    - An officer: of a corporation (including a parent, subsidiary, or affiliated corporation), association, organized group, or governmental agency.
    - A partner: A GP (not an LP). .
    - An employee: A regular full-time employee can represent his employer. An employer can be an individual, partnership, corporation, association, trust, receivership, guardianship, estate, or organized group, or a governmental unit, agency, or authority.
    - A fiduciary: A fiduciary (trustee, executor, personal representative, administrator, receiver, or guardian).
    - Qualifying Student or Law Graduate working in a LITC or STCP: A taxpayer may authorize a student who works in a qualified Low Income Taxpayer Clinic (LITC) or Student Tax Clinic Program (STCP) to represent them under a special appearance authorization issued by the Taxpayer Advocate Service.
- Authorization for Special Appearances: Request made to the OPR, Commissioner of the IRS or a delegate can authorize it.

Not eligible:

- Lost eligibility because of suspension or disbarment by the OPR, or not meeting the requirements for renewal (lacking CE, etc.).
- Anyone lost eligibility to practice before the IRS, even if named as power of attorney.


    - Required if paid to prepare a return (if there is agreement for compensation, but gifts ok), or to be an EA. US citizenship not required. Must be a real person (not a corporation, association, partnership, etc.).
    - Not required for: Tax advice about future events. Typing/copying assistance. Employee preparing a return for an employer. Fiduciary for a trust/estate. VITA/TCPE volunteers. IRS employee.


    - Needed to e-file returns. Foreigners without an SS # are not eligible.

Enrolled Agent Licensing

   - Either complete the EA exams, or 5 years of experience with the IRS with recommendation of their superior officer. Also must be 18+, pass a background check. Apply with Form 23.
   - Denial of enrollment: Disreputable acts, failure to file returns or pay taxes. RPO must inform the applicant. Can appeal within 30 days.
  - Renewal: Every 3 years. Between 11/1 and 1/31 (prior to 4/1 of the year the next enrollment cycle begins). Will check to see if the EA filed / paid taxes on time.
  - CE: 72 hours for each 3 year cycle (is 2 hours/month for the first partial cycle) . Min. of 16 hours/year, including 2 hours/year of tax ethics.

IRS Power of Attorney (POA)

    - Form 2848 - Power of Attorney and Declaration of Representative
         - Up to 4 tax practitioners authorized per form, personal name (not company name), PTIN if have one.
        - One form per TP (even if MFJ filers, have to do both separately).
        - Can be used by unenrolled people if for a close family member, executor for an estate, or AFSP for only the returns they filed.
       - Must specify tax years, limited to 3 future years from date of the POA.
       - Termination: Is terminated if the TP becomes incapacitated/incompetent. Or the TP revokes it, or the preparer withdraws it (must write "revoke" or "withdraw" and mail/fax the 2848).
       - Not required for: Preparing a return, providing info to the IRS at their request, using form 8821 Tax Information Authorization instead, third party designee via the checkbox on the return, tax matters parter as part of a partnership, a fiduciary/executor about the estate.
  - Durable Power of Attorney: non-IRS POA. Can continue if the TP becomes
incapacitated/incompetent, but ends on death. Accepted by the IRS if contains all of the information on a form 2848 with a signed statement.

Form 8821, Tax Information Authorization

    - Also used by mortgage lenders, employers, etc. to get tax info.
    - Not to represent the TP, just to get info.
    - Specify prior years, and up to 3 future years.

Centralized Authorization File (CAF)
   - IRS's computer database record of authorizations (form 2848/8821). Get a 9-digit CAF number with the first one.

Third-Party Authorizations

   - "Checkbox authority" on the 1040. Only to ask about processing of the current year tax return, expires on the next year's return due date. Can't be used for past tax year returns. Useful to call to ask about refund status.

Privacy of Taxpayer Information

   - Section 7216 - Unauthorized disclosure of TP tax return info. Civil penalties (even if accidental) +criminal penalties (if knowing/reckless).
        - Ok to disclose: Related TP (spouses, minor child & parent, grandchild/grandparent, GP in a partnership, trust/estate beneficiary, fiduciary/executor of the estate of the deceased TP (verify "letter of Testamentary"), corporate shareholder, members of a controlled group of corps. TP's interest is not adverse, and disclosure isn't prohibited (by court, etc.).
        - Other consent not required: court order / subpoena (must specify the document), federal/state government agency (admin order, etc from IRS etc), to report a crime to authorities (even if wrong), for peer reviews (for CPAs), to preparer's attorney or IRS in connection with investigation of the preparer.
        - Should get written disclosure if estranged spouses. If requested from a mortgage broker etc, just give the info to the TP to give to them.

- Limited Confidentiality Privilege
     - For credentialed professionals.
     - Federally Authorized Tax Practitioner Confidentiality Privilege (FATP) - Noncriminal tax matters before the IRS, or federal court case by/against the US. IRS only, not other government agencies.
     - Not: Criminal matters, tax shelter, state tax, the tax return itself. .
     - Certified Acceptance Agents (CAA)
- To get an ITIN: ITINs expire after 3 years of not being used.
- TP can mail original password/birth certificate.
- Go in person to IRS service center.
        - Use a CAA
  - Form 13551 CAA Application: To become a CAA. Don't have to be an EA.

Circular 230

(but not updated since 2013).

Diligence as to Accuracy §10.22: Due diligence is required

   - Reliance on Others: Presumed to have exercised due diligence if relies on the work product of another and it seems consistent/complete. (e.j. Using past year depreciation schedule.)

Best Practices §10.33: Good to do but not mandatory.

   - Communicate clearly with the client about the terms (engagement letter)..
   - Reasonable facts/assumptions/application of law.
   - Advise client of conclusions reached and the impact of it.
   - Acting fairly and with integrity.

Competence §10.35: Having appropriate level of knowledge/skill from consultation, study, etc.

Knowledge of Client's Omission §10.21: From past return, while consulting, etc. Must notify client of error/omission promptly and explain consequences. But not responsible for correcting it or notifying the IRS.

Conflicts of Interest §10.29: Clients are adverse, ex-spouses, etc. involve two clients, self, or third party.
    - Must: reasonably believe can provide competent/diligent representation. Not prohibited by law. Clients waives the conflict of interest and gives informed consent in writing, within 30 days of giving any non-written consent (identifying the nature of the conflict). Retain for 36 months after end of representation.

IRS Information Requests §10.20: Practitioner must comply and submit records promptly, or tell them who has the records, or make a "reasonable inquiry" of the client about the location of the records.
   - Practitioner not required to ask any thirty party, or verify any info.
   - Practitioner may not interfere with the request if it's lawful and not privileged under section 7525.

Return of Client Records §10.28: Have to return client's records on request. Don't have to return work product that they haven't paid for. Practitioner may retain copies of records.

Copies of Tax Returns - IRC §6107: preparers are required to give a copy of a return to the TP on or before the time that the TP signs it.
     - Preparers must keep a copy of all returns (recommended) or a list of clients and returns prepared (allowed but not recommended). Keep at least 3 years after filing date.

Practitioner Fees §10.27:
- Can't charge "unconscionable fees."
- Can't charge contingent fees (based on taxes saved or a specific result).
       - Allowed: Representation during an audit ("reexamination"), during the audit of an amended return filed within 120 days of the TP receiving a written IRS notice of the original return, services for dealing with an IRS penalty/interest charge, or judicial proceedings.
      - (Ridgely v Lew court case in 2014: IRS lost, so for now the IRS probably can't enforce the restriction on contingent fees, but wasn't a supreme court case so could be challenged. Consider contingent fees to still be not allowed when answering questions for the EA exam.)

Advertising Restrictions §10.30
   - Can't be misleading, deceptive, etc.
   - EAs can't use term "certified", or imply IRS employment. Allowed: "enrolled to represent taxpayers before the Internal Revenue Service," "enrolled to practice before the Internal Revenue Service," and "admitted to practice before the Internal Revenue Service."
   - Solicitation Restrictions: Can't violate federal/state law or other rules. Can't re-contact anyone who asked not to be solicited.
   - Mail Advertising: Must be clearly labeled as advertising, source of information about the recipient must be identified.
   - Keep a copy: Mail/e-mail/TV/radio: Must keep a copy of the ad for at least 36 months.
   - Fee Information: If publishing a fee schedule, must adhere to it for at least 30 days after publishing it. Can be fixed fees for services, hourly rate, range of fees, or initial consult fee.
  - Can't use IRS logo/insignia in ads except the IRS e-file logo (if authorized provider). Can use the new EA logo (new one without the eagle head).

Negotiation of Taxpayer Refund Checks §10.31

    - Can't endorse/cash a refund check issued to the TP or redirecting by any method.
    - Can't use Form 8888 - Allocation of Refund to enter own bank info to get a fee.
    - Applies to any practitioner, not just the tax preparer.

Other Duties and Prohibited:

   - No Delay Tactics Allowed §10.23: Must not unreasonably delay the prompt disposition of any matter before the IRS.
   - No Employment of Disbarred or Suspended Persons §10.24: Even if temporary suspension (or an EA etc.).
   - Practice by Former Government Employees §10.25: Gov employee/associates can't represent/assist a TP on same matters after leaving the position or if a violation of US law.
   - Performance as a Notary §10.26: Can't notarize documents if they have an interest in the document/matter (if they did tax work on it).

Signature Requirements:

   - Preparer Signature / PTIN: Must sign the return (e-sign, typed, stamp, etc.) under penalty of perjury, and fill out the preparer info, including PTIN before giving the return to the TP. Only one primary preparer can sign it.
   - TP signature: Must sign, affirming accuracy under penalty of perjury. Paper return requires a wet signature.

Requirements for Written Advice §10.37

   - Base it on reasonable factual/legal assumptions, consider all relevant facts, relate applicable law.
   - Don't rely on unreasonable info from the TP.
   - "Audit lottery": Don't say it's ok to do something questionable because they probably won't get audited.

Standards for Tax Returns and Documents §10.34

   - Preparers must not willfully sign a return that:
   - Lacks a reasonable basis.
   - Is an unreasonable position (see IRC §6694(a) (2)).
   - Is a willful attempt to understate tax or reckless/intentional disregard of rules/regulations.

- Tax Position Definitions:

    - More likely than not: > 50% likelihood it would be upheld if IRS challenged.
    - Substantial authority: (about 40%-50% likelihood) Authoritative sources support it.
    - Reasonable basis: (about > 25% likelihood) Minimum standard, not frivolous, somewhat likely to be sustained. Only if disclosing the position on the return and it's not frivolous.
           - Form 8275 - Disclosure Statement: To disclose positions that are questionable or unusual, but still has a reasonable basis. Can't be used to avoid penalties related to negligence, disregard of regulations, or understatement on a tax shelter.
          - Form 8275-R - Regulation Disclosure Statement: (rare) To disclose a position that is contrary to Treasury regulations, so it will be likely litigated in court.
   - Unreasonable position: Without substantial authority, or an undisclosed position without a reasonable basis.
   - Frivolous position: (0%) No reasonable basis. Practitioner must not sign.

Advising Clients on Potential Penalties: Must tell client if there are likely penalties that may result from taking a position on a return.

Reliance on Information from Clients: Not required to verify information, but can't ignore contrary information/knowledge, and must make reasonable inquiries if the information appears incorrect.

Reporting Requirements for Tax Shelter Activities

   - Tax shelter activities (a "listed transaction") that have potential for tax avoidance/evasion.
   - Form 8886, Reportable Transaction Disclosure: For each reportable tax shelter transaction.
   - Penalties: In addition to 30% understatement of tx, civil penalty of 75%, possibly criminal penalties. Can happen even with disclosure.
   - IRS will find promoters and get their list of clients to audit.

Firm Compliance Procedures §10.36

   - Tax firm owner must ensure all members/associates/employees comply with Circular 230.
   - Subject to sanctions if they know other members have a pattern of noncompliance and fail to take action.

Form 8867 Paid Preparer's Due Diligence Checklist

     - Applies to: EITC, CTC/ACTC/ODC, AOTC/LCL, HOH filing.

- Requirements:
     - Form 8867 Paid Preparer's Due Diligence Checklist: For each credit, each year. Specify documents used, if any.
         - Must ask questions and document the answers.
     - Compute the Credits on the Required Worksheets: Keep worksheets even if not submitted (the software generates them).
     - Apply the Knowledge Requirement: Preparer must know the law, apply common sense, recognize obvious fraud or contradictions, not know any information is incorrect. Ask questions and document answers.
     - Recordkeeping Compliance Requirements: Form 8867, applicable worksheets, any documents or written proof used, record of how/when/from whom information was obtained. Keep records for 3 years.

- Preparer penalties: Employers of tax preparers can also be penalized. $560 per failure (per credit, can be multiple per return).
- TP penalties: Must pay back credit with interest, may need to file form 8862 to Claim Credits after Disallowance the next year. If reckless/intentional disregard of the rules: can't claim the credit for the next 2 years. Or 10 year ban if fraud.
- Proof of child, relationship, etc:
     - Birth certificate, SS card, etc: Not required, but if using evidence, must keep a copy.
         - SS card "NOT VALID FOR EMPLOYMENT" - Not valid for work. "VALID FOR WORK ONLY WITH INS AUTHORIZATION" - Valid for work only with a green card.

Record Keeping

- Misc supporting documents: Not specific requirements, but keep any documents used. Expense amounts can't just be estimates.
       - Financial documents: Bank statements, brokerage, receipts.
       - Legal: Birth certs, divorce decrees.
       - Business entity: Partnership agreement, corporate bylaws/minutes.
       - Expense records: Mileage logs, receipts, charitable receipts. Especially for travel expenses.

Statute of Limitations for Records Retention:

   - IRS assessment of tax owed: 3 years from date was due or filed (whichever is later). Or 6 years if the TP omitted > 25% of their gross income. Or no limit if fraud or no return filed.
   - Filing a claim for credit/refund: (by filing the return or amend the return) 3 years from date the original due date of the return (or the date filed if it was filed on extension), or 2 years from the date the tax was paid (whichever is later).
      - Worthless securities claim: (special exception) 7 years.
   - Property records: Must keep records related to the basis until after the property is sold + statute of limitations (see above).
   - Employment Tax Records: Payroll / employment tax records (IDs, wage info, etc.) for 4+ years after the tax becomes due or is paid, whichever is later.


Penalty for Substantial Understatement: Understatement is $5000+ and > 10% (or 5% if it's a 199A deduction claim) of the tax owed.

Penalty for Valuation Misstatement: (such as for a charitable donation)
    - "Substantial" §6662(e): Overstated by 150%+ resulting in $5000 tax underpayment ($10,000 for C corps) = penalty is 20% of tax underpayment.
    - "Gross" §6662(h): Overstated by 200%+ resulting in $5000 tax underpayment ($10,000 for C corps) = penalty is 40% of tax underpayment. 

Fraud: Proven to be deliberate/intentional. Penalty is 75% of the tax understatement. May not apply to other spouse of a joint return if only related to one spouse.
   - Filing a false return, hiding/omitting assets/income, false deductions, second set of books, covering up source of receipts.

Frivolous Tax Return Penalty or Alteration of the Jurat (§6702): Penalty of $5000, plus failure-to-file/pay penalty, etc. Just putting zeros on everything, tax conspiracy theory nonsense, etc.
   - $25,000 penalty for making the frivolous argument in US tax court.

Trust Fund Recovery Penalty (TFRP) (§6672): Employer withheld FICA not remitted. 100% of the amount of unpaid.

Penalties Imposed on Tax Preparers:
     - Failure to furnish copy to taxpayer, Failure to sign return, Failure to furnish identifying number (PTIN), Failure to retain copy or list of returns, Failure to file correct information returns: $55 each, capped at $28k.
  - Negotiation of check: (endorsing a check payable to another person) $560 penalty.
  - Credit due diligence failure: EITC, CTC/ACTC/ODC, AOTC/LCL, HOH. $560 penalty.
  - Promoting Abusive Tax Shelters:
     - False statements about the tax benefits: 50% of the gross income the person made for the activity.
    - Provides a gross valuation overstatement: 100% of the gross income for the activity, up to $1000. Per each entity/arrangement.

  - Understatement of Taxpayer's Liability:
      - Due to unreasonable positions: (§6694(a)) $1000 (or 50% of the preparer fee if greater).
     - Willful or reckless conduct: (§6694(b)) $5000 (or 75% of the preparer fee if greater).
     - Helping the TP with understatement of Tax Liability: (§6701) $1000, or $10,000 for a corporate return. Per TP, per tax period.

  - Disclosure or Use of Information: (disclosure after 2019-07-01). $250/disclosure, up to $10,000/year. Or if connected to identity theft $1000/disclosure, up to $50,000/year.
    - Knowing or Reckless Disclosure or Use of Information: (misdemeanor) Up to $1000 + cost of prosecution, up to 1 year prison.
  - Fraud and False Statements: (felony) Up to $100,000 ($500,000 for a corp) + cost of prosecution, up to 3 years prison.

  •  Appeal: The process through which taxpayers can challenge an IRS decision or
    assessment, requesting a review by an independent Appeals Officer.
  •  Audit: An examination of a taxpayer's financial records and tax returns by the IRS to verify accuracy and compliance.
  • Automated Under Reporter (AUR) Program: A program conducted by the IRS to identify discrepancies or underreported income by matching taxpayer data with information reported by third parties.
  • Collection Due Process (CDP): The right of a taxpayer to request a hearing before the IRS takes collection actions, such as levies or seizures.
  •  Correspondence Audit: An audit conducted through written communication between the taxpayer and the IRS, typically addressing specific issues or discrepancies. This kind of audit is normally aimed at charities and other non-profits.
  • Delinquent Return: A tax return that is filed after the due date, potentially subjecting the taxpayer to penalties and interest.
  • Earned Income: Income earned through employment or self-employment activities, including wages, salaries, and business profits.
  •  Innocent Spouse Relief: A provision that allows a taxpayer to be relieved of tax liabilities resulting from a spouse's or ex-spouse's erroneous or fraudulent actions. Innocent spouse relief can relieve you from paying additional taxes if your spouse understated taxes due on your joint tax return and you didn't know about the errors.
  • Tax Court: A federal court where taxpayers can dispute IRS determinations and
  • Tax Evasion: The illegal act of intentionally evading payment of taxes owed by
    underreporting income or inflating deductions.
  • Tax Fraud: The intentional act of deceiving the IRS by providing false or misleading information on a tax return.
  • Tax Lien Certificate: A certificate issued to a purchaser at a tax lien auction, providing them with the right to collect the unpaid taxes plus interest from the property owner.
  • Tax Levy Release: The removal of a tax levy on a taxpayer's property, typically due to successful resolution of the tax debt.
  • Taxpayer Advocate Service (TAS): An independent organization within the IRS that assists taxpayers in resolving problems with the IRS. TAS Services are available for both Individuals & Business.

  - Fraudulent Returns/Statements/Documents: (misdemeanor) Up to $10,000 ($50,000 for a corp, up to 1 year prison.

  - Information Return Penalties, §6723
      - Form W-2, Form W-2G, Form 1099-MISC, Form 1099-R, and Form 1099-NEC - $50/return if forgot to file. $110 > 30 days but before 8/1. After 8/1 $280. If was intentional $570.

Office of Professional Responsibility (OPR): Discipline / sanctions.

  - Attorneys/CPAs interaction with the IRS
  - EAs, enrolled retirement plan agents (ERPAs), and enrolled actuaries.
  - Qualified appraisers (for tax matters)
  - AFSP certificate holders
  - Other licensed and unlicensed individuals who give written advice that has potential for tax avoidance/evasion.
  - Any person submitting a power of attorney for tax matters (agreed on form 2848).

Practitioner misconduct handled by OPR:
   - While representing a taxpayer
   - Practitioner's own tax return
   - Giving a false opinion knowingly, recklessly, or through gross incompetence
   - Misconduct not directly involving IRS representation (conviction of a non-tax criminal act)

Referrals to OPR:

  - Mandatory: Promoting abusive tax shelters, aiding understatement of tax, injunction of preparer, injunction for tax shelters / reportable transactions.
  - Discretionary: Accuracy related, understatement because of an unreasonable position, failure to furnish copy of return, failure to sign, keep a copy/list of returns, frivolous returns.
  - Other common reasons: Cashing/diverting refund, pattern of misconduct over years, potential conflict of interest situations.
  - TP complaint: Form 14157 Return Preparer Complain. Can be anonymous.

Disciplinary Sanctions:

  - Reprimand: Private warning.
  - Censure: Public reprimand. May place conditions are future representations.
  - Suspension: 1-60 months.
  - Disbarment: 5 years minimum. Then can petition for reinstatement.
  - Monetary Penalty: Can be in addition to the above.


  - Complaint requirements: Name the respondent, clear and concise description of the facts, signed by the director of the OPR, type of sanction, duration of suspension (if any), date for practitioner to respond by (at least 30 days).
     - Copies of evidence must be served within 10 days.

  • Trust Fund Recovery Penalty: A penalty imposed on individuals who are responsible for collecting and paying employment taxes on behalf of a business but fail to do so.
  • Underpayment Penalty: A penalty imposed on taxpayers who have not paid enough taxes throughout the year, typically due to under-withholding or underestimating their tax liability.
  • Voluntary Disclosure: The act of voluntarily reporting previously undisclosed income or assets to the IRS, typically in exchange for reduced penalties or criminal prosecution.
  • Whistle-blower: An individual who provides information to the IRS about tax non-compliance by another taxpayer, potentially eligible for a monetary reward.
  • Withholding Compliance Program: An IRS program designed to ensure employers comply with income tax withholding and reporting requirements for employees.
  • Written Determination: A formal decision or ruling issued by the IRS in response to a taxpayer's request for clarification or guidance on a specific tax issue.
  • Accuracy Penalty: A penalty imposed on taxpayers for substantial understatement ormisstatement of income tax on their returns.
  •  Circular 230: Regulations governing practice before the IRS, including rules of
    conduct for tax professionals.
  • Compliance: The act of meeting tax obligations, including filing returns, making
    payments, and maintaining accurate records.
  • Criminal Investigation (CI): The division of the IRS responsible for investigating potential criminal violations of tax laws.
  •  Delinquency: The status of a taxpayer who has failed to file a tax return or pay taxes by the due date.
  •  Examination: The process of reviewing and verifying a taxpayer's financial records, deductions, and compliance with tax laws.
  • Foreign Bank Account Reporting (FBAR): The requirement for U.S. persons to
    report foreign financial accounts exceeding a certain threshold to the Treasury
  • Innocent Spouse Rule: A rule that provides relief for taxpayers who filed a joint
    returnbut should not be held responsible for their spouse's tax liabilities.
  • Instalment Sale: The sale of property where the buyer pays in instalments over time, spreading out the recognition of gain.
  • Preparer Penalties: Penalties imposed on tax return preparers for certain
    misconduct,such as wilful or reckless disregard of tax rules.
  • Protest: A formal disagreement or challenge against an IRS determination or
    proposed assessment.
  • Representation: Acting on behalf of a taxpayer in dealing with the IRS, including communication, negotiations, and dispute resolution.
  • Small Case Request: A request made by a taxpayer to have their case handled
    under the Small Case program, which provides a more informal process. A request made bya taxpayer to have their case handled under the Small Case program only in case if theamount of case is $50,000 or less for any one tax year, the decision of the tax court isfinal (meaning, one cannot appeal).
  • Statutory Notices: Official written notices issued by the IRS to inform taxpayers of assessments, audits, or other actions taken against them.
  • Tax Liabilities: The amount of taxes owed by a taxpayer based on their income,
    deductions, and applicable tax rates.
  • Tax Planning: The process of arranging financial affairs to minimize tax liability
    withinthe boundaries of the law. The concept of tax planning is to save money and mitigateone’s tax burden.
  • Tax Relief: Programs or provisions that provide assistance or reduction of tax burdens to eligible taxpayers.
    - Delivery: Certified mail; first-class mail if returned undelivered by certified mail; private delivery service; in person; or by leaving the complaint at the office of the practitioner. Not email, phone, etc.
    - Practitioner response: Can admit, deny, or state not enough info to know. Can't deny a material allegation if they know it to be true. No response is admission of guilt -> sanctions imposed without a hearing.
    - Hearing: Administrative law judge decides (not OPR). Parties can use attorneys.
      - For suspension/disbarment the OPR must give "clear and convincing evidence" that practitioner willfully violated provisions.
      - 180 days for the judge to decide.
    - Appeal: Either party can appeal the judge's decision with the Treasury Appellate Authority within 30 days. -> then "Final Agency Decision".
       - U.S. district court: Practitioner can contest the Final Agency Decision in a US district court. May win only if decision judged to be arbitrary/capricious, contrary to law, or an abuse of discretion.
    - Reinstatement: If disbarred, may petition for reinstatement after 5 years. OPR may reinstate if determine their conduct not likely to be in violation of regulations and in public interest.

Prohibited Actions during Suspension or Disbarment:

  - Can't practice before the IRS except to represent self/family.
  - Prepare/file documents with the IRS.
       - Except tax returns for compensation (Loving case).
  - Render written advice regarding any entity/transaction/plan/arrangement with the potential for tax avoidance/evasion.
  - Represent a client at conferences/hearings/meetings.
  - Execute waivers, consents, or closing agreements.
  - Receive a TP's refund check or sign a tax return on behalf of a TP.
  - File powers of attorney with the IRS.
  - Accept assistance from another person (or request assistance) or assist another person (or offer assistance) if the assistance relates to a matter constituting practice before the IRS. (Can't be hired to work for a tax practice at all.)
  - State/imply that they are eligible to practice before the IRS.

But can still:

  - Represent self/family.
  - Prepare returns for clients for compensation (due to Loving case).
  - Act as a trustee/fiduciary.
  - Appear as a witness for a TP.
  - Furnish information at the request of the IRS
  - Receive IRS information from a valid tax information authorization.

Tax Refund

  - Apply to next year's estimated tax.
  - Direct deposit: Savings/checking/retirement accounts (US banks only). Must be in the TP's name. Max 3 deposits into a single bank account. Preparer must accept any eligible financial institution and can't charge an extra fee for direct deposit. Preparer must advise TP that the direct deposit info can't be changed once the return is filed (verify each year).
- Paper check
- Split: among the two options above or up to 3 different account
- US I Savings Bonds: Up to $5000 ($50 increments)

  • Enrolled Agent (EA): A federally authorized tax practitioner who is qualified to
    represent taxpayers before the IRS.
  • Installment Agreement: A payment plan arranged between a taxpayer and the IRS forthe settlement of tax debt in monthly instalments.
  • Levy: A legal seizure of a taxpayer's property by the IRS to satisfy a tax debt. A levy takes taxpayer’s property to satisfy tax debt.
  •  Lien: A legal claim by the IRS on a taxpayer's property as security for the payment of atax debt.
  •  Non-filer: A taxpayer who fails to file a tax return for a given tax year.
  •  Offer in Compromise: An agreement between a taxpayer and the IRS that settles a taxdebt for less than the full amount owed
  •  Power of Attorney (POA): A legal authorization granted by a taxpayer to another person, enabling them to represent the taxpayer before the IRS.
  •  Preparer Tax Identification Number (PTIN): A unique identification number issued by the IRS to tax return preparers. A Preparer Tax Identification Number (PTIN) is an 8- digit number issued by the IRS to Paid Tax return Preparers.
  • Private Letter Ruling (PLR): A written statement issued by the IRS in response to a taxpayer's request for guidance on a specific tax issue.
  •  Revenue Agent: An IRS employee responsible for conducting audits and
    examinationsof taxpayer records to determine compliance with tax laws.
  •  Revenue Officer: An IRS employee responsible for collecting delinquent taxes and enforcing tax compliance.
  • SFR (Substitute for Return): A tax return filed by the IRS on behalf of a taxpayer who has failed to file their own return.
  • Statute of Limitations: The timeframe within which the IRS can audit or collect
    additional taxes from a taxpayer.
  • Abatement: The reduction or elimination of penalties or interest assessed by the IRS.
  • Accuracy-Related Penalty: A penalty imposed on taxpayers for underpayment of tax due to negligence, disregard of rules, or substantial understatement. For example,underpayment may happen if you don’t report income or claim deductions or creditsfor which you don’t qualify.

Tax Payment

Can pay anytime until the due date of the return (before/after ok).

   - Direct debit: Enter bank info on the tax return. Risky to the preparer if they make a mistake.
   - Credit card, debit card, or digital wallet: (added fee) Online, phone, or mobile device through an authorized payment processor. The processor charges a fee.
   - Personal check, cashier's check, money order.
   - Installment agreement: IRS Direct Debit Installment Agreement (DDIA) when a TP authorizes monthly payments from their bank.
  - Electronic Federal Tax Payment System (EFTPS): Required for businesses, individuals can use it but it's more clunky than Direct Pay. Can schedule payments in advance (businesses 120 days, individuals 365 days).
  - Electronic funds withdrawal (EFW): Withdrawal handled by the tax software.
  - Federal Tax Application (same-day wire transfer): Useful if the TP has a foreign bank (foreign bank must have a relationship with a US bank).
  - Direct Pay: (easiest/best option for the TP) IRS website payment from a bank account. Doesn't require signups.
  - Cash: IRS-approved retail stores (up to $500).

Payment plans:

  - Short Term Payment Plan: No fee, must be paid within 180 days. Individual TP only. No application, call to request or use website. Pay using Direct Pay, EFTPS, or check etc.
  - Installment Agreements (long term payment plan): Direct debit from bank account, or Direct Pay, EFTPS, check, etc. Individuals or businesses. TP must file all required tax returns. Must wait for returns to process and tax to be assessed. IRS charges a fee (can be waived for low income).
     - Form 9465 Installment Agreement Request, or can apply on the website (cheaper).
     - Guaranteed approval if: Owe $10k or less, timely filed all returns and paid taxes previous 5 years, IRS determines the TP can't pay the tax owed, TP agrees to pay within 3 years, TP has not done an installment agreement in past 5 years. May still get approved otherwise.
     - Automatic 30 day notice if the TP misses a payment. Reinstatement fee charged if goes to default.
  - Extension of Time for Payment (Form 1127): Application for Extension of Time for Payment of Tax Due to Hardship.

IRS Collections

  - Start of collections process: IRS sends a bill that must be paid within 30 days (with penalties/interest).
  - Collection Statute Expiration Date (CSED): 10 years from the start of collections (when the return is filed). No limit if the return was never filed.
     - Extended (suspended): While considering an installment agreement or an offer in compromise, when the TP requests a collection due process (CDP), while the TP is living outside the US, during a pending bankruptcy proceeding (plus additional 6 months added).
Collections methods:
    - Applying a state income tax refund to the federal balance due.
    - Automated Substitute for Return Program (ASFR / SFR): Substitute for return never filed for many years. Can be replaced by filing a real return.
   - Federal Tax Lien: For > $10k tax debt. Property secured to cover tax debt. Lien for the amount of the debt. Applies to all TP property (cars, real estate, accounts receivable).
       - Only after: IRS assesses the TP's liability (so it can't be pending or appealing), IRS sends a notice/demand, and the TP neglects to pay.
  - IRS seizure (Notice of Levy): Attach a taxpayer's assets, such as wages, pension benefits, annuities, SS benefits, retirement income.
      - Won't if: Pending installment agreement, pending appeal, pending Innocent Spouse, consideration of an offer in compromise, during bankruptcy (unless the court authorizes it), < $5k for seizure of real property, or if severe economic hardship (temporary).
      - Exempt: Clothes, school books, fuel, food, furniture, personal effects, personal weapons, livestock (limited), books/tools for a business (limited), undelivered mail, unemployment benefits, worker's comp, some annuity/pension payments (if payable by the military or Railroad Retirement Act), child support, certain public assistance (SSI for the aged/blind/disabled).
  - IRS Summons: (rare) To request records/documents (must be documents that exist) to ascertain correctness of a return, etc.
  - Appeal rights
        - Collection Due Process Hearings (CDP): Form 12153 Request for a Collection Due Process or Equivalent Hearing. After the IRS final notice of intent to levy or lien. Can still appeal to the tax court if the TP doesn't like the outcome.
        - Collection Appeals Program (CAP): Form 9423, Collection Appeal Request. Faster process, and can apply before getting a levy/lien letter, but the TP can't appeal the decision.

- Collection Financial Standards: Method to evaluate the TP's ability to pay based on income/expenses. Used for qualifying for OIC and CNC.

  - Offer in Compromise Program (OIC)
       - (Form 656) "Doubt as to collectibility" (impossible to pay it) or "exceptional circumstances" (serious economic hardship). Application fee (may be waived if low income).
      - (Form 656-L) "Doubt as to liability". No fee.
      - If rejected, TP may appeal within 30 days.

- "Currently Not Collectible" Status (CNC): If the TP has no ability to pay. If confirmed, the IRS must stop trying to collect the debt for a period of time.


   - Filing bankruptcy stops all assessment/collection of tax (good). Collection Statute Expiration Date collections clock is suspended while it's pending (bad).
   - Income tax debt can be discharged only if: related to a return due at least 3 years before bankruptcy filing, tax return filed at least 2 years before, tax assessment must be at least 240 days old, and TP cannot be guilty of tax evasion and the return can't be fraudulent or frivolous. May not seize a main home without approval of the IRS district director + judicial approval.

Seeking Relief from Joint Liability: Form 8857. Joint spouses are normally jointly responsible (regardless of person at fault, divorce decrees, etc.). Can apply for an exception for relief.

  - Innocent Spouse Relief: Other spouse made errors on the return (understated the tax), and the innocent spouse knew nothing about it. Can be still married. (IRS usually fights it, may have to go to tax court).
  - Separation of Liability Relief: Same situation as Innocent Spouse Relief, but additionally the spouses are divorced, or living apart for 12 months, or the other spouse is deceased. Allocates specific amounts to each of the spouses / ex-spouses.
  - Equitable Relief: May apply when a taxpayer does not qualify for the other two options. Also applies to unpaid tax (not just understatement). Considers the entire scenario, if there was abuse, or poor mental/physical health, etc.

- Injured Spouse: Other spouse had their return offset (kept) because of past due tax, child support, overdue student loans, etc. Injured spouse can apply to recoup their share of the tax refund. (Some states don't offer it.) Would have been better to just not file jointly.

Audits ("Examination")

- 1% of total, but more if high income, or returns claiming credits.

  - Types:
        - Correspondence audit: By mail. Most common, minor issues.
        - Office audit: At a nearby IRS field office.
        - Field examinations: Auditor goes to the TP's business or home.

  - Why selected for audit:
       - Potentially Abusive/Tax Avoidance Transactions
       - Computer Scoring/DIF Score: Discriminant Inventory Function System (DIF). Secret scoring system.
       - Information Matching: Return didn't match known income info, etc.
       - Related Examinations: Related to business partners, investors, etc. with issues.
       - Third-Party Information: Tips, public records, etc.

 - TP Rights:
     - Professional and courteous treatment by IRS employees.
     - Privacy/confidentiality about tax matters.
     - To know why the IRS is asking for information, how the IRS will use it, and what will happen if the requested information is not provided.
     - Representation, either oneself or an authorized representative.
- Appeal disagreements, within the IRS and before the courts.

- Information collection:
   - Form 4564 - Information Document Request (IDR) - Used by the IRA to request info from the TP. May ask to see books, etc.
- Representative: Can be self (if MFJ, can be either spouse), enrolled practitioner, or certain close family. Probably best if the TP is not present. Practitioner can be representing only once spouse.
  - If the TP is uncomfortable during the audit while representing self, the IRS must suspend it until they get representation. Unless the IRS has an administrative summons (rare).
- Third party contacts: (Taxpayer First Act of 2019) IRS can contact them without the TP's permission, but IRS must notify the TP first (45 day notice). IRS must state time period (up to 1 year). Doesn't apply to contacting other government agencies, if pending criminal investigation, if would jeopardize collection of tax, may result in reprisal against any person, or the TP authorized the contact.

- Audit determinations:
  - No Change
  - Agreed: Closing agreement signed, audit is closed. IRS usually won't re-open unless fraud/misrepresentation, or substantial IRS error.
  - Unagreed: May request conference with an IRS manager, IRS appeals, US tax court, TP may request fast-track mediation.
      - 30-Day Letter: Notifies the TP's right to appeal within 30 days, includes a copy of the revenue agent report (RAR) and Pub. 5 Your Appeal Rights. TP can sign the agreement form, or appeal (to IRS Appeals, have to wait for 90 day letter to go to Tax Court).
      - 90-Day Letter (Notice of Deficiency): 150 days if foreign address. If the TP doesn't respond to the 30 day, or can't reach an agreement with appeals. Sent as certified mail. Final letter before assessment (and then can't appeal). Can go to IRS Appeals or Tax Court. Or must pay within 10 days before additional penalties/interest start.

- Reconsideration:
   - IRS can do it if the audit assessed additional tax that is unpaid.
   - TP can request it if new information discovered, the TP filed a return to replace a SFR, the TP believes the IRS made a computational/processing error, or the tax remains unpaid or credits denied. Can't if the audit closing agreement was already signed.

- Repeat Examinations: If the TP gets audited 3 years in a row for the same issue and audits resolved with "no change" in the past 2 years, TP can request the IRS discontinue the examination (but they may say no).
- Centralized Partnership Audit Regime (CPAR): Mandatory if 101+ partners or if any partner is a SMLLC or a bankruptcy estate, otherwise can opt out (on form 1065 Schedule B-2 of a timely filed return). If partnership is audited and tax assessed, the partnership itself is taxed rather than the partners.

Appeal Options

Penalties/interest continue to accrue but won't won't go to collections.

- IRS Independent Office of Appeals ("IRS Appeals"): Can choose it after the 30 or 90 letter. Independent of the rest of the IRS. Alternative to going to tax court. Free, but may be slow. Conference with an appeals officer. Arguments be supported by tax law (not constitutional argument, etc.). Unenrolled preparer can be a witness but can't represent the TP. Enrolled representative must have filed form 2848.

- US Tax Court: Can only do it after the 90 day letter. Costs a filing fee (but don't have to pay the tax first). Once it's docketed, the IRS Appeals office will try to resolve it (gets resolved 90% of the time before going to court).
    - Representation: Can be self ("pro se"), a lawyer, or EA/CPA only if passed exam to the tax court exam (rare).
   - Decisions:
        - Regular decision: First time ruling the on the issue.
        - Memorandum decision: The court already ruled on the issue.
   - Jurisdiction: Notices of deficiency, failure to abate interest, partnership items, admin costs, worker classification, review of collection actions. Not FBAR, foreign financial reporting.
        - On types of tax: income, estate, gift, excise tax, re-determine transferee liability, spouse relief, whistleblower awards.
   - Small Tax Case Procedure ("S-case" procedure): $50,000 max (total amount for all years, or per quarter for worker classification). Neither side can appeal the decision. Not treated as precedent, not published. Not related to the IRS's "Small Case Request."

- US Court of Federal Claims or a US District Court: (rare) Can bypass the IRS Appeals and US Tax Court. TP must pay the tax first and then sue for a refund.


- E-file mandate: e-file required if the firm files > 10 returns/year (1040/1041 forms). Doesn't apply to payroll 940/941 forms. Applies to sum of all preparers in a firm. Preparers can charge extra for e-filing (some states don't allow e-file fees).
     - Exempt: Foreign preparers exempt (can't get an EFIN), fiduciaries that file fiduciary returns, form 8944 E-file Hardship Exemption (waiver for all preparer's returns because of economics or disaster).
          - Form 8948 Explanation for Not e-Filing: Filed with each paper return if filing with a PTIN as a paid preparer. For reasons above (other than fiduciaries), or client is member of recognized religious group that is opposed, or client request to paper file.
- EFIN application: US citizen / green card holder, age 18+, meet state/local licensing/bonding requirements. No fee. Fingerprinting if not enrolled preparer. Criminal background check, credit history, tax compliance check. List form types on application. For each office location. Not transferable, even if selling tax business.
- W-2 requirement: Can't e-file if didn't receive all W-2s first. (Or form 4852 if impossible to get the forms from the employer, or if the TP lost them wait til around June and request TP's wage transcripts to get the info.)
- E-file rejections: If can't rectify it, must tell the TP within 24 hours. Must give the TP the IRS reject codes. If can't fix, may have to paper file.
     - Perfection period: Time to paper file if e-file rejected. 5 calendar days for personal returns, 10 days for business returns. Include: explanation of why, copy of rejection notification, brief history of actions taken. Write "REJECTED ELECTRONIC RETURN-(date)" (date of the first e-file rejection) on the top of the first page. Late payment penalties still apply.
- Electronic Return Originators (ERO): Person who can e-file. Someone else could prepare the return.
      - Requirements: Timely submit returns, submit supporting paper docs, provide copy to the TP, retain record of returns filed (and make available to the IRS on request), work with the TP to correct rejected return, enter the PTIN info, recognize fraud/abuse.
      - Advertising: Can't promise a time frame for refunds. Can't use the IRS logos/seals. Can use the "Authorized IRS e-file Provider" logo. Must keep copy of ads for at least 36 months.

- E-signature:

  - Types:
       - Self-Select PIN Method: (less common) TP provides prior year AGI for verification, TP enters their own PIN using keystrokes after reviewing the return. Or TP can authorize the ERO to enter the PIN on their behalf (with a signed signature authorization form).
       - Practitioner PIN Method: (more common) Have the TP sign Form 8879 - e-file Signature Authorization. Preparer enters a pin (e.j. the TP's zip code).
- Signing form 8879 Authorization: Not submitted, but must be retained for 3 years. AGI can't differ by more than $50, and total tax by $14.
       - Handwritten signature: Can be in person, mailed, fax, or scanned and
       - E-signature:
          - In-person: (in-person e-signing) Inspect valid government picture ID, and record the name, SS #, address, and DOB. Optional credit check. Must verify every
         - Remote transactions: Verify name, SS #, address, DOB, and other info on
record are consistent with record checks with credit bureau etc. (KBA). Must
verify every year.

  •  Undisclosed Offshore Accounts: Foreign financial accounts that have not been reported to the IRS as required by tax laws.
  • Voluntary Compliance: The act of voluntarily complying with tax laws by filing accurate and timely tax returns and paying taxes owed.
  •  Withholding Compliance Program: An IRS program designed to ensure employers comply with income tax withholding and reporting requirements for employees.
  • Worker Classification: The determination of whether a worker is classified as an employee or an independent contractor for tax and employment purpose.
  •  Audit Reconsideration: The process of requesting a new examination of a tax return when a taxpayer disagrees with the results of a previous audit. An Audit
    Reconsideration is a process used by the IRS to assist taxpayers who disagree with the results of previous IRS audit.
  • Collection Due Process Hearing: A hearing conducted by the IRS Office of Appeals to review collection actions, such as levies or liens, and consider alternatives for resolvingtax debts. A Collection Due Process Hearing, also known as a CDP hearing, may be yourlast best chance to resolve a tax controversy with the IRS short of tax
  • Equitable Relief: A form of relief available to certain individuals who do not qualify for innocent spouse relief but believe it would be unfair to hold them liable for tax debts.
  • Identity Theft: The fraudulent use of another person's personal information to commit tax fraud or other financial crimes.
  • Offer in Compromise Unit: The unit within the IRS responsible for reviewing and processing offers in compromise submitted by taxpayers.
  •  Practitioner Priority Service (PPS): A toll-free telephone service provided by the IRS for tax professionals to get assistance on client-related matters. PPS is a professional support line staffed by IRS customer service representatives specially trained to handle practitioners' accounts questions.
  • Problem Resolution Program (PRP): A program offered by the IRS to help taxpayers resolve ongoing or systemic tax problems they have been unable to resolve through normal channels.
  • Qualifying Relative: An individual who meets specific criteria to be considered a dependent for tax purposes, such as a close relative who receives more than half of their support from the taxpayer. An individual who meets specific criteria (dependent taxpayer test, joint return test, gross income test and support test) to be considered a dependent for tax purposes.
  •  Refund Offset: The process of applying all or part of a taxpayer's federal tax refund to offset certain outstanding debts, such as unpaid taxes or child support.
  •  Return Preparer Office (RPO): The office within the IRS responsible for overseeing and regulating tax return preparers, enforcing compliance with tax laws, and promoting quality in return preparation.
  • Self-Employment Tax: The tax paid by self-employed individuals to cover their Social Security and Medicare obligations.
  • Taxpayer Assistance Center (TAC): Local IRS offices where taxpayers can receive in- person assistance with tax-related issues, including filing returns, making payments, and resolving problems.
  •  Third-Party Authorization: Written authorization from a taxpayer that allows another person or entity to act on their behalf in dealing with the IRS.
  •  Transcript: A summary or record of a taxpayer's tax return or account activity, such as an account transcript, wage and income transcript, or return transcript.
  • Trust Fund Taxes: Taxes collected from employees or customers on behalf of the government, such as income tax withholding or payroll taxes.

Paper Returns

- TP can paper file their self-prepared returns. If preparer prepared, requires form 8948 - Preparer Explanation for Not Filing Electronically.

- Can't e-file:
   - Older amended/original returns.
   - Individual returns with fiscal tax year (rare)
   - Forms that can't be e-filed.
    - Rare/unusual processing conditions.
    - Estate tax returns (form 706).
    - Deceased TP with SS# rejected because it was turned off.

Safeguarding Taxpayer Data

  - Written Information Security Plan (WISP): required. See example in Pub 5708.
  - IP PIN: IRS will send to the TP automatically if they had identity theft, or the TP can request one. Sent on a CP01N notice, or can get from the IRS website. On a joint return, only the first (primary) person needs to use their pin. Can paper file without the pin, but may be delayed for the IRS to validate their ID.
  - Identity Theft: Using someone's SSN, etc.
   - Spoofed email accounts: Fake emails made to look like they come from a legit source.
   - Social engineering attack: A person pretends to be someone they aren't to get info from someone.
   - Stolen Identity Refund Fraud (SIRF): Criminal filing tax returns with someone else's info to get their refund.
      - Tax preparers can ask for picture ID, SS cards, etc. Best to file letter early so someone else can't claim the refund.