2013 REG Last Minute Study Notes (Bonus)

2013

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LastMinute Study Notes

Regulation LatsMinute Study Notes Index

Topic Page #

Individual Taxation 3

C Corporations 14

S Corporations 16

Exempt Organizations 17

Gift Tax 18

Estates and Trusts 19

Ethics and Professional Responsibilities in Tax Services 20

Contracts 21

Sales 23

Commercial Papers 25

Secured Transactions 28

Suretyship 30

Debtor-Creditor Relationships 31

Agency 33

Bankruptcy 35

Federal Tax Procedures and Legislative Process 39

Regulations of Business Employment, Environment, and Antitrust 40

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1. Above thelinedeductions

-taken from GI to get AGI. AGI important because it may affect the amount of allowable charitable contributions, medicalexpenses, casualty losses, and misc itemized deductions.-Includes: Business deductions of a self-employed person-Losses from sale or exchange of property-Deduction attributable to rents and royalties-One half of self-employment tax-Moving expenses-Contributions to self-employed retirement plans and IRAs-Deductions for interest on education loans-Penalties for premature withdrawals from time deposits-Alimony payments-Jury duty pay remitted to employer-Costs involving discrimination suits-Expenses of elementary/secondary teachers

2. AccountingPeriods

-Calendar year (Jan-Dec) or Fiscal Year -Taxpayer establishes accounting period by filing first tax return. A taxpayer who doesn't keep books must use calendaryear-Adopting a taxable yearC Corporations- May adopt any taxable year it chooses, but if personal service corp, must use calendarSole Proprietor- same taxable year for business as personal returnPartnership- Pass through, use same tax year as partners owning more than 50% of income/capital, unless substantialbusiness purpose.S Corp- Pass through, calendar, unless substantial business purposeEstate-Any taxable yearTrust-Calendar year unless charitable or tax exempt

-Substantial business purpose and IRS approval required to change a taxable year. Business purpose met if taxpayerreceives at least 25% of its gross receipts in the last two months of the selected year, and this 25% test has been satisfiedfor 3 consecutive years-Some changes require no approval: newly married, newly acquired subsidiary, etc

3. AccrualMethod

-Must be used by taxpayers for purchases and sales when inventories are required to clearly reflect income. -Income recognized when all events have occurred that fix the taxpayer's right to receive the item of income, and amountis determinable.-Expense is deductible when all events have occurred that establish the fact of the liability and the amount can bedetermined. Economic performance must take place (property or services are actually provided to the other party) unlessrecurring items, in which case economic performance has to occur within 8.5 months after close of tax year.

4. Alimony In order for a payment to be considered as alimony, the payment must:be made pursuant to a decree of divorce or writtenseparation instrument, be made in cash and received by or on behalf of payee's spouse, terminate upon death of recipient.-Alimony recapture may occur if payments sharply decline in the second or third years (payor reports recaptured alimonyfrom first and second years as income in the third year)-Recapture for the 2nd year occurs to the extent that the alimony paid in the second year exceeds the third-year alimony bymore than 15,000-Recapture for the first year occurs to the extent that the alimony paid in the first year exceeds the alimony paid in thesecond year and third year by more than 15,000-Does not apply to payments that may fluctuate over 3 years due to something not within control of payor

5. Amortization -Business start up costs: if in the same line of industry, then deductible in year paid or incurred. If not, then costs must becapitalized. May deduct up to $5000 (reduced by amount exceeding $50,000). Costs are amortized over 180 months. -Patents and copyrights may be amortized over useful life. 17 years for patents, life of author plus 50 years for copyrights-Research and experimental expenses may be amortized over 60 months or more, or be expensed at election of taxpayer-Anything else not specified by Code is amortized over useful life

Individual Taxation


For personal use only, not for resale

6. Annuities(exclude ordeduct?)

-Excluded to the extent it represents a return of capital.- Net cost of annuity/expected total annuity payments* payment received-Amounts over the ROC is fully taxable-If taxpayer dies before total cost is recovered, unrecovered cost is allowed as a misc. itemized deduction on the final taxreturn.

7. AssetDepreciationRange (ADR)

Guideline to determine deprecation class of property.

8. AveragingConvention

Used to compute depreciation for the taxable year in which property is placed in service or disposed of under bothregular MACRS and alternative depreciation system (straight line depreciation) -Half year convention: Personal property treated as placed in service at the midpoint of the taxable year. -Midquarter convention: Must be used if more than 40% of all personal property is placed in service during the lastquarter of taxpayer's taxable year. Treated as placed in service in the middle of the quarter.-Real property is treated as placed in service or disposed of in the middle of the month, resulting in half moth ofdepreciation.

9. Bona fideresidence test

Used to determine foreign earned income exclusion qualificationMust be US citizen who is a foreign resident for an uninterrupted period that includes an entire taxable year

10. BonusDepreciation

50% of the adjusted basis of qualified property is available if acquired after Dec 31, 2007 and placed in service beforeJan. 1, 2013. -Tax Relief Act of 2010 increased the bonus depreciation percentage to 100% for qualified property acquired afterSeptember 8, 2010 and before January 1, 2012, and placed in service before January 1, 2012.

11. BusinessIncome anddeductions

-Cost of goods sold (Inventory is valued at LCM, Specific ID, FIFO, LIFO allowed, if LIFO used for taxes, must be usedon books, LCM can't be used with LIFO)-Ordinary and necessary expenses incurred in a trade or business are deductible-Net Operating Loss-Some business use of home-Loss deductions incurred in a trade or business are limited to amount a taxpayer has at risk-Losses and credits from passive activities (usually only offset income from passive activities)

12. Businessmeals,entertainment,and travel

-Receipts must be maintained for all lodging and for other expenditures of $75 or more expect transportationexpenditures because receipts are not readily available.-Adequate records must be kept to detail who, where, when, why-Must be directly related to active conduct of a trade or business -food, beverage, and entertainment reduced by 50% unless full value of meal or entertainment is included in recipient'sincome or excluded as a fringe benefit, is reimbursed, traditional employer paid employee recreation expense, etc.-No dues are deductible unless for professional organizations, business leagues, trade associations, chambers ofcommerce, board of trade, civic and public service orgs.-Transportation/travel expenses deductible. 55.5c per gallon or actual cost.

13. Business useof homedeductions

-A portion of home must be used exclusively and regularly as the principal place of business, or as a meeting place forpatients, clients, or customers.-Deduction is limited to the excess of gross income derived from the business use of the home over deductionsotherwise allowable for taxes, interest, and casualty losses.-All business expenses not allocable to the use of the home must be deducted before home use expense

14. Cash methodaccounting

-Recognizes income when first received or constructively received(an item is unqualifiedly available withoutrestriction), expenses deductible when paid. Not all receipts are income (loan proceeds, ROI) and not all payments aredeductible (loan repayment, etc)-A capital expenditure or prepayment that results in a benefit that extends substantially beyond the end of the yearcannot be immediately deducted, unless benefit does not extend beyond 12 months after the first date that the benefit isreceived, and the benefit does not extend beyond the end of the taxable year following the taxable year in whichpayment is made. Does not apply to prepaid interest.-Cannot generally be used if inventories are necessary to clearly reflect income, and cannot generally be used by Ccorps, partnerships that have C corps as partners, tax shelters, and certain tax-exempt trusts.

15. Child Support -excluded from GI by payee, nondeductible by payee-if specified amount of alimony is to be reduced upon the happenings of some contingency relation to a child, then anamount equal to the specified reduction will be treated as child support rather than alimony.

Individual Taxation



16. Child support(exclude ordeduct?)

-Excluded from GI-Must be specified as Child support, or else may be considered alimony which is included in GI

17. Contributionsmade toeducation IRAs

-Also called the Coverdell Education Savings Account-up to $2,000 per beneficiary (until the beneficiary reaches 18) are not deductible, but withdrawals to pay foreducation expenses are tax-free.-Any amount left in an education IRA before the beneficiary reaches 30 can be rolled over to another family member'seducation IRA without income taxes or penalties-Phased out for single taxpayers with mod AGI between 95,000 and 110,000 and for MFJ with mod AGI between190,000 and 220,000.

18. Contributions ofself employed toqualifiedretirementplans

-Called HR10 or Keogh Plan-Max contribution and deductions is lessor of 49,000 or 100% of earned income for 2010 and 2011-Earned income includes retirement plan and self employment tax deductions (must reduce by the retirement plancontribution and self employment tax deduction for purposes of determining max deduction)

19. Contributions toIRAs

-Maximum of the lessor of $5,000 or 100% of compensation (including alimony), phased out if active participant inan employer-sponsored retirement plan or a Keogh plan proportionally for AGI between 90,000-110,000 for MFJ or56,000-66,000 for singles-Taxpayer whose AGI is above the applicable phaseout range can make a $200 deductible contribution regardless ofthe proportional phaseout rule. -Can make nondeductible contributions, but total contributions cannot exceed $5,000 or 100% of compensationlimit.-Catchup contributions of an additional $1,000 per year available for individuals at least age 50-10% penalty tax on early withdrawals (pre 59.5 years) does not apply to amounts withdrawn for "qualified highereducation expenses" and "first-time homebuyer expenses" (capped at $10,000), nor to distributions made tounemployed for health insurance premiums, and distributions to the extent that deductible medical expenses exceed7.5% of AGI.-Cannot make contributions past 70.5 years old

20. Contributions toRoth IRA

-Not deductible, but qualified distributions of earnings are tax-free. Can also contribute to IRAs, but totalcontributions to all IRAs cannot exceed $5,000 or $6,000 for >50 year olds-Eligibility for Roth IRA phased out for singles with AGI 107,000 to 122,000 and MFJ with AGI between 169,000and 179,000.-Can make contributions past 70.5 years old-Qualified distributions are made after the 5 year period beginning with the first tax year for which a contributionwas made and the distribution is made after the individual reaches 59.5 years old, to a beneficiary after theindividual's death, after the individual becomes disabled, or for the first time homebuyer expenses of the individual,individual's spouse, children, grandchildren, or ancestors ($10,000 cap)-Nonqualified distributions are subject to tax on earnings, and to the 10% penalty.-Can convert assets in traditional IRAs to Roth IRA without paying the 10% penalty, although deemed distributionsof IRA assets is included in income.

21. Deduction forInterest onEducationLoans

-Individual is allowed to deduct up to $2,500 for interest on qualified education loans, unless individual is claimed asdependent on another taxpayer's return-Qualified = any debt incurred to pay the qualified higher education expenses of the taxpayer, spouse, or dependents,and the education expenses must relate to a period when the student was enrolled on at least a half time basis-Phased out for single with mod AGI between 60,000 and 75,000, and MFJ with AGI between 120,000 and 150,000

22. Deduction forQualifiedtuition andrelated expenses

-For 2007-2011, individuals are allowed to dedcut qualified higher education expenses, limited to $4000 forindividuals with AGI below $65,000 or 130,000 for joint. Limited to $2000 above $65,000-$80,000 (130,000-160,000 for joint)-Deduction is allowed for expenses paid during the tax year, or in connection with an academic term beginningduring the year or the first 3 months of the following year.-Not deductible if individual takes Hope credit or lifetime learning credit.

23. Dependent CareAssistance(exclude ordeduct?)

-Employer payments to an employee for dependent care assistance are excluded if made under a written,nondiscriminatory plan-Maximum exclusion is $5,000 per year ($2,500 for a married filing separate)

Individual Taxation



24. Depletion Allowed on timber, minerals, oil, and gas, and other exhaustible natural resources of wasting assets.-Two methods: Cost and percentage-Cost method divides the adjusted basis by the total number of recoverable units and multiplies by the number ofunits sold during the year-Percentage method uses a specified percentage of gross income from the property during the year. Deductionmay not exceed 50% of the taxable income from the property, may be taken even after costs have been recoveredand there is no basis, may be used for domestic oil and gas wells by independent producer or royalty owner;cannot be used for timber. Percentage is a statutory amount.

25. Depreciation ofleaseholdimprovements

Must be recovered over the MACRS recovery period of the underlying property without regard to the lease term.For qualified leasehold improvement property, qualified restaurant property and qualified retail improvementproperty placed in service after October 22, 2004 and before January 1, 2012, cost is recovered over 15 yearrecovery period using SL method and half year convention (unless midquarter applies)-Upon expiration of lease, any unrecovered adjusted basis in abandoned leasehold improvement is treated asloss.

26. Depreciation,Depletion,Amortization

Deduction for AGI-Depreciation = allowance for the exhaustion, wear and tear of property used in a trade or business, or propertyheld for the production of income.-Depletion = Allowed on timber, minerals, oil, gas, and other exhaustible natural resources -Amortization =Depreciation of intangibles

27. Discharge ofindebtedness(exclude or deduct?)

-Normally results in income to debtor but may be excluded if discharge of certain student loans pursuant to aloan provision for discharge if individual works in a certain profession for a specified period of time, dischargeof a corporation's debt by a shareholder, gift, purchase money debt reduction, discharged in a bankruptcyproceeding, or debtor is insolvent both before and after discharge

28. Employee fringebenefits (exclude ordeduct?)

-can be excluded if: no additional cost services, nondiscriminatory employee discount, working conditionfringes, de minimus fringes (small value like coffee, using copier, etc), transportation fringes (up to $230 permonth for parking, transit passes, car fees, etc), moving expense reimbursement (directly incurred byindividual)

29. Employer'scontribution toemployee'ssimplified employeepension plan (SEP)

-Deductible by employer-Limited to 25% of compensation (up to compensation of $245,000) or 49,000-Excluded from employee's GI

30. Exclusion VSDeduction

Exclusion: Income items that are not included in gross income. Must be specified by law.Deduction: Amounts that are subtracted from GI to arrive at AGI

Individual Taxation



31. Exclusionsfrom GI

-Child Support-Property Settlement in a divorce-Annuities that are a ROC-Life Insurance proceed (face amount of policy)-Certain employee benefits (group-term life insurance, accident/health plan insurance premiums paid by employer,accident and health benefits, employer contribution to Medical Savings Account (MSA), meals or lodging furnished for theconvenience of the employer on the employer's premise, educational assistance program, dependent care assistance,qualified adoption expenses, employee fringe benefits, worker's compensation)-Accident/Health insurance benefits derived from policies purchased by taxpayer-Damages for physical injury or physical sickness-Gifts, bequests, devises, or inheritances-Stock dividends-Certain interest income (municipal bonds, qualified bonds issued for the benefit of schools, hospitals, and othercharitable orgs, bonds used to finance certain exempt facilities such as airports, docks, wharves, mass commutingfacilities, etc, qualified redevelopment bonds, student loan bonds, qualified mortgage and veterans' mortgage bonds)-Savings bonds for higher education (Series EE US savings bond)-Scholarships and fellowships-Political contributions received by candidates' campaign funds-Rental value of parsonage or cash rental allowance for a parsonage-Sometimes a discharge of indebtedness -Lease improvements unless in lieu of rent-Foreign earned income

32. Foreignearnedincome(exclude ordeduct?)

-an individual meeting either a bona fide residence test or a physical presence test may exclude up to 92,900 of income,and qualified taxpayers may elect to exclude additional amounts based on foreign housing costs-must be a US citizen who is a foreign resident for an uninterrupted period that includes an entire taxable year (bona fideresident test) or a US citizen/resident present in a foreign country for at least 330 full days in any 12-month period(physical presence test)

33. GrossIncome

All income from whatever source derived, unless specifically excluded

34. InstallmentMethod

Applied to gains (not losses) from the disposition of property where at least one payment is to be received after the year ofsale (unless taxpayer makes a negative election to report the full amount of gain in the year of sale)-Cannot be used for property held for sale in the ordinary course of business (except time-shares, residential lots, andproperty used or produced in farming), and cannot be used for sales of stock or securities traded on an establishedsecurities market.-Amount to be reported in each year is: (GP/Total Contract Price) * Amount received in year-Contract price = Selling price - liabilities assumed to the extent not in excess of seller's basis-Any depreciation recapture under sections 1245, 1250, and 291 must be included in income in the year of the sale. Treatedas an increase in the basis of the property for purposes of determining GP ratio.

35. Interest -Earnings from savings and loan association-Interest on bank deposits, corporate or US government bonds, and Treasury bills-Interest on tax refunds-Inputed interest from interest-free and low interest loans

37. ItemizedDeductionsfrom AGI

-Below the line deductions-Itemize or take the standard deduction-Personal exemptions-Medical/Dental Expenses-Taxes (local/state income, real property, personal property)-Interest Expense-Charitable Contributions-Personal Casualty and Theft Gains and Losses-Misc Deductions

Individual Taxation



38. Items to beincluded in GI

GI includes all income from any source except those specifically excluded, including-Compensation for services, including wages, salaries, bonuses, commissions, fees, and tips -Gross income derived from business or profession-Distributive share of partnership or S corp income-Gain from the sale or exchange of real estate, securities, or other property-Rent and royalties-Dividends-Interest-Alimony-Social security, pensions, annuities-Income in respect of a decedent-Employer supplemental unemployment benefits or strike benefits from union funds-Fees, including those received by an executor, administrator, director, or for jury duty, or precinct election board duty-Income from discharge of indebtedness unless specifically excluded-Stock options-Prizes and awards-Employment achievement awards (unless between $400-1600)-Embezzled or other illegal income-Gambling winnings-Unemployment compensation-Tax benefit rule

39. Leaseimprovements(exclude ordeduct?)

-increase in value of property due to improvements made by lessee are excluded from lessor's income unless made inlieu of FV rent

40. Life insuranceproceeds(exclude ordeduct?)

-the face amount of policy is generally excluded if paid by reason of death-dividends received is excluded if it doesn't exceed cumulative premiums paid-use ratio if paid in installments-accelerated death benefits by a terminally ill or chronically ill are generally excluded from GI-if chronically ill, exclusion is limited to the amount paid by individual for unreimbursed long term care costs. $300per diem excluded regardless of incurred costs-if proceeds are paid for reasons other than death or ill, all proceeds in excess of cost are taxable-if employer is beneficiary of policy of company owned life insurance, can exclude all of proceed if employee is notifiedin writing of the intent and amount to insure, provide written consent, be informed in writing that employer will be thebeneficiary of proceeds, and was an employee at any time during the 12-month period before the insured's death.Otherwise, only return of premiums paid are excluded, rest is taxable

41. Losses andcredits frompassiveactivities

Passive activity = any activity that involves the conduct of a trade or business in which the taxpayer does not materiallyparticipate, any rental activity, and any limited partnership interest.-Losses from passive activities can only offset income from passive activities, and can be carried forward for to theINFINITE future.-Credits from passive activities can only be used to offset the tax liability attributable to passive activity income.

42. Medical/DentalExpenses

-Itemized Deduction-Expenses paid by taxpayer for himself, spouse, or dependent are deductible in year of payment if not reimbursed. Achild of divorced/separated parents is treated as a dependent of both parents for this purpose-Unreimbursed expenses are deducted to extent in excess of 7.5% of AGI-No unnecessary medical expenses-Expenses for removal of structural barriers in residence is deductible

Individual Taxation



43. ModifiedAccelerated CostRecovery System(MACRS)

Mandatory for most depreciable property placed in service after 1986.-No salvage value-Method of cost recovery and recovery period for new and used items are the same.-Recovery property include anything that isn't land, intangible assets, and property the taxpayer elects todepreciate under a method not using years (eg per unit of output)-3 year, 200% class: Property with an ADR midpoint of 4 years or less (except autos and light trucks) and certainhorses-5 year, 200% class: Property with an ADR midpoint of more than 4 but less than 10, includes autos and lighttrucks, computers, and peripheral equipment, office machinery (typewriters, calculators, copiers)-7 year, 200% class: Property with an ADR midpoint of at least 10 and less than 16 years, including propertywith no midpoint, office furniture, and fixtures (desks, files, etc)-10 year, 200% class: Property with an ADR midpoint of at least 16 and less than 20 years-15 year, 150% class: ADR midpoint of at least 20 years and less than 25 years-20 year, 150% class: ADR with midpoint of 25 years or more, other than real property with midpoint of 27.5years or more.-27.5 year, straight line: residential rental property-39 year, straight line: Any property that is neither residential real property nor property with a class life of lessthan 27.5 years

-Taxpayers can elect to use straight line rather than declining balance on property with 3-20 year class, class byclass selection, or use 150%.

44. Moving Expenses -Distance between former residence and new job must be at least 50 miles farther than from the former residenceto the former job.-Must be employed at least 39 weeks out of the 12 months after move. Self employed = 78 weeks out of 24months. -Can deduct cost of moving household goods and personal effects from the old to new, cost of traveling(including lodging).-Can't deduct meals, househunting trips, temporary lodging in the general location of new work site, expensesincurred in selling old house or buying new house, etc.

45. Net operating loss -Carried back two years and carried forward 20 years to offset taxable income-Things that cannot be be included as NOL: Any NOL carryforward or carryback from another year, excess ofcapital losses over capital gains, excess of nonbusiness capital loss over nonbusiness capital gain even if overallgains exceed losses, personal and dependency exemptions, excess of nonbusiness deductions over nonbusinessincome.

46. Ordinary/Necessaryexpenses

-Deducted from GI-Nothing illegal-Business expenses must be reasonable (no absurd salaries... compare with other companies)-First telephone line for an individual is not deductible-Uniform Capitalization Rules (UNICAP)-Business meals/entertainment/travel-Business gifts are limited to $25 per recipient per year, unless for employee award for length of service or safety.Then, $400 for regular, $1600 limit for qualified plan that is written and nondiscriminatory, and average cost ofall items awarded under plan must not exceed $400.-Bad debts deducted in the year they become worthless. Business bad debts can deduct when become partially orcompletely worthless, nonbusiness bad debt can only be deducted when completely worthless and as a shortterm capital loss.-No net loss can be deducted for hobby activities, but expenses can be deducted as itemized deduction in the orderof taxes, interest, casualty losses pertaining to hobby, then other hobby expenses (out of pocket, depreciation).Subject to 2% of AGI floor.

47. Percentage ofCompletion Method

-Used for contracts that are not completed within the year they are started.-Recognizes income each year based on the percentage of the contract completed that year-Taxpayer may not elect to recognize income or account for costs from a contract for a tax year if less than 10%of the estimated total contract costs have been incurred as of the end of the year.

48. Physical presencetest

Used to determine foreign earned income exclusion qualificationMust be a US citizen/resident present in a foreign country for at least 330 full days in any 12 month period

Individual Taxation



49. Prizes andawards

-generally taxable, but if received for religious, charitable, scientific, educational artistic, literary, or civicachievement, can exclude if not required to render future service and designates that prize is to be transferred by payorto government unit or tax-exempt charitable, educational, or religious org. Then, recipient can exclude, but cannotdeduct for charitable contribution.-employee achievement awards are excluded if the cost to the employer is between $400-$1600). Must be for length ofservice or safety achievement and must be in the form of tangible personal property (not cash)

50. Property heldfor theproduction ofrents orroyalties

-Attributable expenses are deductible above the line. -Rental of vacation home: if any personal use, amount deductible is prorated-If used as residence, amount deductible is further limited to rental income less deductions otherwise allowable forinterest, taxes, and casualty losses. Residence if personal use exceeds greater of 14 days or 10% of days rented. -If used as residence and rented for less than 15 days, income therefrom is not reported and rental expensesdeductions are not allowed.

51. ProvisionalIncome

AGI + tax-exempt income + 50% of SS benefits

52. Qualifiedadoptionexpenses(exclude ordeduct?)

-$13,360 per eligible child can be excluded for payments from employer to employee -Ratably phased out for mod AGI between $185,210 and $225,210

53. Qualifiededucationalassistanceprogram(exclude ordeduct?)

-Employer paid expenses excluded up to maximum of $5,250 per year for payment of tuition, books, fees forundergrad/graduate classes

54. Receipt of stockdividends(exclude ordeduct?)

-Excluded, but FMV of stock received will be included in income if on preferred stock, is payable at the election of anyshareholder in stock or property, results in the receipt of preferred stock by some common shareholders, and thereceipt of common stock by other common shareholders, or results in the receipt of property by some shareholders,and an increase in proportionate interest of other shareholders in earnings or assets of the corporation.

55. Reimbursedemployeebusinessexpenses

Depends on whether the employee makes an adequate accounting to the employer and returns amount in excess ofsubstantiated expenses.-Per diem reimbursements at a rate not in excess of federal rate and 55.5c per mile are deemed to satisfy thesubstantiation requirement if employee provides time, place, and business purpose of expenses-If employee makes an adequate accounting to the employer and reimbursements equal expenses, or if the employeereturns excess reimbursement, reimbursements are excluded from GI and expenses are not deductible. -If employee does not make adequate accounting, total amount of reimbursement is included in GI and relatedexpenses are deductible as misc itemized deduction subject to 50% limitation for business meals and entertainmentand the 2% of AGI floor.

56. Rental Activity Although passive activity, a special rule permits an individual to offset up to $25,000 of income that is not frompassive activity by losses or credits from rental real estate if the individual actively participates in the rental real estateactivity.-Actively participate = taxpayer personally operates the rental property or if rental agent operates the property, andtaxpayer participates in management decisions or arranges for others to provide services.-Has to have at least 10% interest in activity throughout year-$25,000 offset reduced by 50% of AGI in excess of $100,000 and fully phased out when AGI exceeds $150,000. AGIhere is computed before including taxable SS, before deducting IRA contributions, and before the exclusion of interestfrom Series EE bonds -If they meet certain eligibility requirements, losses and credits from rental are not subject to passive activity losslimitation. They must perform more than half of all personal services for the property, and perform more than 750hours of service per year. For corps, 50% of their gross receipts must be from rental activities.

57. Scholarshipsand fellowships(exclude ordeduct?)

-Degree candidate can exclude scholar/fellowship that is used for tuition and course related fees (room/board notincluded)-Amount received as a grant or a tuition reduction that represent payment for teaching, research, or other service aregenerally not excludable

Individual Taxation



58. Sec 197 Intangibles -Most acquired intangible assets are amortized over 15 year period-Amortizable 197 intangible is any qualifying intangible asset which is acquired by the taxpayer and which isheld in connection with the conduct of trade or business. Includes goodwill, going concern value, workforce,information base, know-how, customer-based intangibles, government licenses and permits, franchises,trademarks, and trade names.-Excluded are many types of financial interests, instruments, and contracts, interests in a corporation,partnership, trust, or estate, interest in land, sports franchises, leases of tangible personal property.-No loss can be recognized on the disposition of Sec 197 intangible if taxpayer retains other 197 intangiblesacquired in the same transaction or a series of transactions. Any disallowed loss is added to basis ofremaining 197 intangibles and recovered through amortization.

59. Section 179 expenseelection

-May annually elect to treat the cost of qualifying depreciable property as an expense rather than a capitalexpenditure.-Qualifying property is recovery property that is new or used tangible property acquired by purchased from anunrelated party for sue in the active conduct of a trade or business. Off-the-shelf computer software with auseful life of more than one year is treated as qualifying property that may be expensed.-Maximum cost that can be annually expensed is $500,000 for the years beginning in 2010 and 2011, butreduced dollar for dollar by cost of qualifying property that is placed in service during the year that exceeds $2million-if property converted to nonbusiness use, must recapture excess of expensed over MACRS deductions thatwould have been allowed as ordinary income.

60. Self employedindividual-Medicalinsurance premiums

-Can deduct 100% of premium for individual, spouse, and dependents for AGI-Cannot exceed net earnings from the trade or business with respect to which the plan providing for healthinsurance was established. -No deduction is allowed if eligible to participate in an employer's subsidized health plan.

61. Series EE US Savingsbonds (exclude ordeduct?)

-Excluded to the extent that the aggregate redemption proceeds (principal plus interest) are used to financethe higher education-Must be issued after Dec 31, 1989 to an individual age 24 or older at bond's issue date-Purchaser of bond must be sole owner unless joint owner with spouse-If redemption proceeds exceeds the qualified higher education expenses, only a pro rata amount of interestcan be excluded-Subject to phase out MFJ (106,650-136,650) Single or HH (71,100-86,100) computed as excess agi/15,000(30,000 for joint) * otherwise excludable interest = reduction

62. Small businessdefinition

Any trade or business (including one conducted by a corporation, partnership, or SP) with annual grossreceipts of $5 million or less for the 3 year tax period preceding loss year

63. Social Security,Pensions, annuities(other than excludedrecovery of capital)

-Up to 50% of SS retirement benefits may be included in gross income if taxpayer's provisions income (AGI +tax-exempt income + 50% of the social security benefits) exceeds a threshold that is $32,000 for a jointreturn, $0 for MFS, $25,000 for all other taxpayers.-Amount to be included is lesser of 50% of SS benefits or 50% of the excess of taxpayer's provisional incomeover the base amount.-85% of SS retirement benefits if higher than 2nd threshold of $44,000 for joint, $0 for MFS, and $34,000for all other. -Rule of thumb: SS retirement benefits are fully excluded by low-income taxpayers (provisional income<$25000); 85% of benefits must be included in gross income by high income taxpayers (provisional income>$60,000)

64. Special rules regardingmethods of accounting

-Rent/Royalty received in advance are included in gross income in year received under both cash and accrual.-Security Deposit included if not returned, or to be used as final payment of rent-Dividends included in GI in year received-No advanced deduction generally allowed for estimated or contingent expenses... obligation has to be fixedand determinable.

Individual Taxation



65. Standard Deduction -May be more for old/blind-MFJ, Widow $11,600-MFS $5,800-HH $8,500-Single $5,800

Single (not survivor) who is either 65 or older or blind receives additional standard deduction of $1,450 ($2,900if both)Married, $1,150 each ($2,300 for both)

Dependents: Standard deduction is lessor of $5,800 or greater of $950 or dependent's earned income plus $300.

66. Stock Options -Incentive stock option receives favorable treatment: must meet certain technical requirements, but no income inrecognized by employee when option is granted or exercised.-If employee holds the stock acquired through exercise of the option at least 2 years from the date of the optionwas granted, and holds the stock itself at least one year, then the employee's realized gain will be LTCG. Ifrequirement not met, FMV at date of exercise over cost = ordinary income, remainder is STCG or LTCG-Nonqualified stock option is included in income when received if option has determinable FMV

67. Tax benefit rule A recovery of an item deducted in an earlier year must be included in gross income to the extent that a tax benefitwas derived from the prior deduction of the recovered item.

68. Taxes -Itemized Deduction-Deductible as a tax in year paid if they are imposed on taxpayer: Income tax (state, local, foreign), Real PropertyTax (State, local, foreign), personal property tax (state, local).-Deductible as expense incurred in a trade or business or in the production of income (above the line): SS andemployment tax paid by employer, federal excise taxes on autos, tires, phone service, air transportation, customsduties and gasoline taxes.-Not deductible: Federal income tax, federal/state/local estate or gift tax, SS or other employment tax paid byemployee (including SE tax)

69. Tips -If <$20 in one month, tips do not have to be reported to the employer but must be included in the individual's GIwhen received-If >$20 in one month, the individual must report the total amount of tips to the employer by the 10th day of thefollowing month for purposes of withholding of income tax and social security tax. Then the total amount of tipsmust be included in the individual's GI for the month in which reported to the employer.

70. Unemploymentcompensation

-Must be included-In 2009 only, up to $2,400 of unemployment compensation could be excluded from GI

71. UNICAP (UniformCapitalization Rule)

-Require that all costs incurred (both direct and indirect) in manufacturing or constructing real or personalproperty, or in purchasing or holding property for sale, must be capitalized as part of the cost of the property. -Cost become part of the basis of the property and recovered via depreciation or amortization.-Included in inventory and recovered via COGS as an offset to selling price-Includes indirect cost such as general, administrative, and overhead costs-Unless small retailers and wholesalers, then must include in inventory all costs including wages of employeesresponsible for purchasing inventory, handling, processing, repackaging and assembly, off site storage costs,etc.-Does not apply to advertising, selling, and research/experimentation expenditures, mine development andexploration costs, property held for personal use, and freelance workers whose personal efforts create theproduct

72. What happens ifaccounting periodis less than 12months?

-If due to beginning or ending of taxpayer's existence, exemptions and credits are not prorated.-If due to change in taxable year, taxable income generally must be annualized (unless new subsidiary). Cannotuse the tax tables and must itemize deduction, prorate personal exemption.

73. What is excludedfrom gross income?

-Return of capital (if I loan $500 and get back $500, then that's not included)-Unrealized Income

Individual Taxation



74. Worker's Compensation (excludeor deduct?)

Fully excluded if received for an occupational sickness or injury and is paid under a worker'scompensation act or statute

Individual Taxation



1. AccumulatedEarnings Tax

C corps whose accumulated earnings are inexcess of $250,000 (15% tax)

2. AdjustedCurrentEarnings(ACE)

Muni interest incomeIncrease CSV life insuranceNon S/L depreciationDividends received deduction

3. AffiliatedGroup

a. 80% or more of the voting power of alloutstanding stock and b. 80% or more of the value of alloutstanding stock of each corp

4. Amortization,depreciation,and depletion

goodwill and other intangibles are amortizedstraight line over 15 years

5. AMTAdjustments

Add or minus:Long term contractsInstallment sale dealerExcess depreciation

6. AMT Credits Foreign tax credit

7. AMTExemptionAmount

$40,000 less 20% of AMTI in excess of$150,000

8. AMTPreferences

Add:Percentage depletionPrivate activty tax exempt interest incomePre 1987 ACRS excess depreciation

9. AMT Tax rate 20%

10. Bad debts Specific charge-off method (direct write-offmethod):1. accrual basis - deduct when specific A/R iswritten off2. cash basis - not allowed a tax deduction

11. BonusAccruals

bonuses paid by an accrual basis taxpater aredeductible in the tax year when all eventshave occured, provided they are paid within2.5 months after year end

12. Brother-Sister corps

may not file consolidated returns

13. Business gifts $25 per person/per year

14. Businessinterestexpense(general)

Tax deductible

15. Businessinterestexpense(prepaid)

prepaid interest expense must be allocated tothe proper period to which it relates

16. Business losses orcasualty lossesrelated to business

100% deductible

17. Business losses orcasualty lossesrelated to business(fully destroyed)

loss is the adj basis of the property

18. Business losses orcasualty lossesrelated to business(partiallydestroyed)

loss is limited to the lesser of:1. the decline in value of the propertyor2. the adj basis of the propertyimmediately before the casualty

19. Business meals andentertainment

50% deductible

20. Capital losscarryover

3 back5 forward

21. Capital losses only offset capital gains

22. Charitablecontributions

10% limit, accrual must be paid within2.5 months of taxable year end

23. Corporation taxconsequences:basis of propertycorp receives

the greater of:1. adjusted basis (NBV) of theshareholder (plus any gain recognizedby the shareholder) or2. debt assumed by corp (transferormay recognize gain to prevent anegative basis)

24. Corporation taxconsequences:gain/lossrecognized

No gain or loss is recognized to thecorp issuing stock in exchange forproperty in the following transactions:1. formation - issuance of commonstock2. reacquisition - purchase of treasurystock3. resale - sale of treasury stock

25. Dividends ReceivedDeduction

100% (own 80-100%, consolidate)80% (own 20-80%, large investment)70% (own under 20%, smallinvestment, "unrelated")

26. Domesticproductiondeduction

9% deduction of the lesser of:1. qualified production activies income(QPAI)2. taxable income

27. Entities for whichthe DRD does notapply

1. Personal service corps2. Personal holding companies3. (Personally taxed) S corps

28. Executivecompensationdeduction

a publicly held corp may not deductcompensation expenses in excess of$1,000,000 paid to the CEO or thefour most highly compensationofficers

C Corporations



29. GeneralBusinessCreditFormula

The credit may not exceed "net income tax"less the greater of:1. 25% of regular tax liability above$25,000 or2. "Tentative minimum tax" for the year

30. Half-yearconvention

Machinery and equipment

31. Life insurancepremiums

a. corp named as a benificiary (key person)- not deductibleb. insured employee named as beneficiary(fringe benefit) - deductible

32. Lobbying andpoliticalexpenditures

not deductible

33. Mid-monthconvention

real estate, taken in month placed intoservice

34. Mid-quarterconvention

machinery and equipment, if more than40% of depreciable property is placed intoservice in the last quarter of the year

35. Minimum taxcredit (MTC)

carryforward indefinitely

36. Net OperatingLosses

2 back20 forward

37. Non-residentialdepreciation

39 years straight line

38. Organizationalexpendituresand start-upcosts

$5,000 expense maximum/180 monthsamortization of remainder.Excluded costs include costs of issuing andselling the stock, commissions,underwriter's fees, and costs incurred in thetransfer of assets to a corp.

39. Penalties andillegalactivities

not deductible

40. PersonalHoldingCompany

corps more than 50% owned by 5 or fewerindividuals and having 60% of adjustedgross income consisiting of:Net rentInterest that is taxableRoyaltiesDividends from an unrelated domestic corp

41. QualifiedProductionActivitiesIncome (QPAI)

DOMESTIC production gross receipts- COGS- Other directly allocable expenses or losses- proper share of other deductions = QPAI

42. Residentialdepreciation

27.5 years straight line

43. Section 1231gain treatment

Long term capital gain

44. Section 1231loss treatment

ordinary loss

45. Section 1231property

depreciable personal and real property usedin the taxpayer's trade or business and heldfor over 12 months

46. Shareholdertaxconsequences:basis ofcommon stock

Adj basis of transferred property+ FMV of services rendered+ gain recognized by shareholder- cash received- liabilities assumed by the corp- FMV of non-money boot received= Basis (if below zero, gain)

47. Shareholdertaxconsequences:gain/lossrecognized

No gain or loss recognized if:1. 80% control2. boot not received(cancellation of debt - the amount of theliabilities assumed that exceeds the adj basisof the total assets transferred to the corp isnot boot byt does generate gain. NBV Assets- Liab = Excess liab = boot)

48. Smallbusiness stock- exclusion ofsome or all

Noncorporate shareholders who holdqualified small business stock for more than5 years may exclude 50% of the gain on thesale or exchange of the stock

49. Taxes state and local taxes and federal payrolltaxes are deductible when incurred onproperty or income relating to business.federal income taxes are NOT deductible

50. Unused creditcarryover

1 back20 forward

51. Worthlessstock - Section1244 stock(smallbusinessstock)

ordinary loss up to 50,000 (100,000 MFJ)

C Corporations



1. Accumulated AdjustmentsAccount (AAA)

distributions may not reduce AAA below zero, however, AAA may be negative from S corp losses

2. Electing S Corp status by March 15, retroactive to beginning of the year. All shareholders must consent to a valid election

3. Eligibility

4. Shareholder Basis B.A.S.E.initial Basis+ income items (Additions)- distributions- Subtractions= Ending basis

5. Termination 1. holders of a majority of the corporations stock consent to a voluntary revocation2. corp fails to meet any or all the eligibility requirements for S corp status (corp or foreign owner)3. more than 25% of the corps gross receipts come from passive investment for 3 consecutive years andthe corp had C corp E&P at the end of each year.

S Corporations

Eligibility Criteria for S-Corporations

A corporation may choose to be taxed as an S-Corporation if it meets the following criteria.

1. The company is (a) a domestic corporation, or (b) a domestic entity eligible to elect to be treated as a corporation that timely files Form 2553 and meets all the other tests listed below. If Form 2553 is not timely filed, see Rev. Proc. 2004-48, 2004-32 I.R.B. 172.

2. The company has no more than 100 shareholders. (A husband and wife and their estates are treated as one shareholder for this test. A member of a family can choose to treat all members of the family as one shareholder for this test. All other persons are treated as separate shareholders.)

3. The only shareholders are individuals, estates, certain exempt organizations, or certain trusts. 4. The company has no nonresident alien shareholders. (That is, the only shareholders are US citizens and

resident aliens.) 5. The company has only one class of stock. Generally, a corporation is treated as having only one class of stock

if all outstanding shares of the corporation's stock confer identical rights to distribution and liquidation proceeds.

6. It is not one of the following ineligible corporations: o A bank or thrift institution that uses the reserve method of accounting for bad debts under section

585. o An insurance company subject to tax under subchapter L of the Code. o A corporation that has elected to be treated as a possessions corporation under section 936. o A domestic international sales corporation (DISC) or former DISC.

7. It has or will adopt or change to one of the following tax years. o A tax year ending December 31. o A natural business year. o An ownership tax year. o A tax year elected under section 444. o A 52-53-week tax year ending with reference to a year listed above. o Any other tax year (including a 52-53-week tax year) for which the corporation establishes a

business purpose. 8. Each shareholder consents to the S-Corporation election.

?



1. 501(c)(3) Prohibited Activities: 1. influencing legislation2. directly participating or interveing in any political campaign (endorsing candidates or engaging in fund raising for political candidates)

2. Not Required to file Form 990: $50,000 or less fross receiptsChurchesHigh schools - religousReligious ordersInternal support activitesSocieties - missionary relatedTax exempt - organized by Congress

3. Section 501(c)(1) - Act of Congress: corp is organized under an Act of Congress and a US instrumentality. Does not require anapplication (almost all other exemot orgs must make written application for exempt status, be approved by IRS)

4. Section 501(c)(2) - Application Form 1024: corp is organized for the exclusive purpose of holding title to property, collecting incomefrom that property, and turning over the net income to an exempt org

5. Section 501(c)(3) Corporation: corp must apply and be approved by the IRS.. charities

6. Section 509 Private Foundations: includes all 501(c)(3) corps other than those specifically excluded. Could be a foreign corp

7. Section 509 Private Foundations - Involuntary Termination: private foundations will terminate when they become public charities

8. Section 509 Private Foundations - Required Returns: An annual information return, Form 990-PF, that discloses substantialcontributors and amounts of contributions received is required

9. Section 509 Private Foundations - Voluntary Termination: achieved by notifying the IRS

10. Taxation of UBI: Subject to regular corp tax on income from a business enterprise that is not related to its tax exempt purpose

11. UBI Annual Return Requirement: Form 990 - due by the 15th day of the fifth month following the close of the tax year

12. UBI Excluded Items of Income: royalties, dividends, interest, annuities, rents from real property, gains/losses on sale of property,activites limited to exempt orgs by state law (bingo games)

13. UBI Specific Deduction: $1,000 deduction from UBI, thus, only UBI in excess of $1,000 is subject to tax

14. Unrelated Business Income (UBI): 1. Derived from an activity that constitutes a trade or business2. Regularly carried on3. Not substantially related to the org's tax exempt purpose(unpaid workers make the business or activity "related" an not taxable)

Exempt Organizations



1. Annual,Inflation-AdjustedExclusion

$13,000 per person/per year (to anyone)

2. Comple gifts qualifies for the annual exclusion

3. Conditionalgifts

a gift is conditional if it is subject to conditions precedent and will not be provided until the conditions have been met

4. Form 709 Paid by person giving the gift

5. FutureInterestGifts

Does not qualify for the annual exclusion

6. GenerationSkippingTransferTax

designed to prevent an individual from escaping an entire generation of gift and estate tax. This is a separate tax that isimposed in addition to federal estate and gift tax. The tax applies when individuals transfer property to a person who istwo or more generations younger than the donor or transferor. Either the trustee or the transferor pays the tax.

7. IncompleteGifts

does not qualify for the annual exclusion. It is not considered complete if it is conditional or revocable

8. PresentInterestGifts

qualifies for the annual exlusion

9. Recepients Nontaxable - takes orginial basis + gift tax paid due tot the appreciation in value inherent in the gift

10. Revocablegifts

A gift is revocable if the donor reserves the right to revoke the gift or change the beneficiaries. The gift is complete whenthose rights terminate by reason other than the donor's death

11. UnlimitedExclusion

1. payments made directly to an educational institution2. payments made directly to a health care provider for medical care3. charitable gifts4. marital deduction

Gift Tax



1. Annual EstateIncome Tax -EstimatedPayments

Required for its first 2 tax years

2. Annual EstateIncome Tax - TaxYear

Calendar year or Fiscal year

3. Annual EstateIncome TaxReturn (Form1041)

required when annual income exceeds$600

4. Annual TrustIncome Tax - DNI

trust may deduct amounts distributed tobeneficiaries up to the DNI

5. Annual TrustIncome Tax (Form1041) - Tax Year

Calendar year

6. CharitableContributions

unlimited deduction if in the will

7. Complex Trusts 1. may accumulate current income2. may distribute principal (corpus)3. may deduct charitable contributions4. $100 exemption

8. Distributed NetIncome (DNI)

Estate (Trust) Gross Income (includescap gains)- Estate (trust) deductions= Adjusted Total Income+ Adjusted Tax-Exempt Interest- Capital gains= DNI

9. EstateDeductions:DiscretionatryExpenses

1. unlimited charitable deduction2. unlimited martial deduction

10. EstateDeductions:NondiscretionatryExpenses

1. medical expenses (income return orestate return)2. administrative expenses (incomereturn or estate return)3. outstanding debts of decedent4. claims against the estate5. funeral costs6. certain tax

11. Estate Tax - FilingDeadline

Form 706 must be filed within 9 monthsafter the decedents death

12. Estate Tax - FilingRequirement

(transfer tax, NOT income tax) Form706 if the gross value of the estate plushistorical taxable gifts by the decedentexceed $5,000,000 in 2011

13. Estate Tax Credits 1. foreign death taxes2. prior transfer taxes (prior gift taxespaid)

14. Gross Estate 1. FMV of property owned (alt. valuationdate is earlier of date property is distributedor 6 months after date of death)2. insurance proceeds3. incomplete gifts (joint accounts)4. revocable transfers5. all property entitled to be received

15. IncomeDistributed totheBeneficiaries

retains the same character as the incomehad at the fiduciary level

16. IncomeDistributionDeduction

Lesser of:1. Actual distribution to beneficiary or2. DNI

17. Simple Trusts 1. can only make distributions out of currentincome2. required to distribute all of its incomecurrently3. cannot take a deduction for a charitablecontribution4. $300 exemption

Estates and Trusts



1. AICPAStatementsonStandardsfor TaxServices

1. Tax return positions2. Answers to questions on returns3. Certain procedural aspects of preparingreturns4. Use of estimates5. Departure from a position previouslyconcluded in an administrative or courthearning6. Knowledge of error - return preparation andadministrative proceedings7. Form and content of advice to taxpayers

2. CoveredOpinion

any written or electronic advice by a practitionerconcerning one or more federal tax issues

3. ExceptionstoWrongfulDisclosures

1. Allowable disclosures (disclosures allowed byany provision of the IRC and disclosurespursuant to a court order)2. Allowable uses (preparation of state andlocal tax returns and preparation of declarationof estimated tax)3. Disclosures and uses permitted by USTreasury regulations (quality and peer reviews,computer processiong, and admin orders)

4. MarketedOpinion

advice that will be used to promote, market, orsell a partnership, investment plan, orarrangement

5. More likelythan not

when there is a greater than 50% likelihood of atax position being upheld by the courts

6. Negotiationof IRSRefundCheck

Any tax return preparer who endorses orotherwise negotiates an IRS refund checkissued to a taxpayer other than the tax returnpreparer shall pay a penalty of $500 withrespect to each check.

7. Notfrivolous

A practitioner cannot advise a client to take atax return position unless the position is notfrivolous

8. Power toLicense

states

9. Reasonablebasis

relatively high standard of tax reporting; thisstandard is significantly higher than notfirvolous or not patently improper. Thereasonable basis standard is not satisfied by areturn position that is merely arguable or that ismerely a colorable claim.

10. RelianceOpinion

written advice concluding at a confidence levelof at least more likely than not greater than50% likelihood that the significant federal taxissue would be resolved in the taxpayer's favor(covered opinion, rely upon to avoid penalties)

11. Requirementsfor a CoveredOpinion(Relianceopinion)

1. practitioner's opinion cannot be basedupon unreasonable factual assumptionsand/or factual representations2. the opinion must relate applicable law tothe facts3. the opinion must set forth the likelihoodthat the taxpayer will prevail on the meritswith respect to each significant federal taxissue

12. Should opinion(Fin. 48)

Should win

13. Substantialauthority

less stringent than the "more likely thannot" standard. There is substantialauthority for the tax treatment of an itemonly if the weight of the authoritiessupporting the treatment is substantial inrelation to the weight of the authoritiessupporting the contrary treatment.

14. SupportingDocumentation

Not always required to obtain supportingdocumentation unless the preparer hasreason to suspect the accuracy of theinformation provided by the taxpayer.However, the preparer must makereasonable inquiries if the informationprovided by the taxpayer appears incorrector incomplete

15. Tax ReturnPreparer

any person who prepares for compensation

16. Unreasonableposition

A position is deemed unreasonable unless: 1. there is substantial authority for theposition2. the position is disclosed, there isreasonable basis for the position, and theposition does not involve either a taxshelter or a reportable transaction, or3. with respect to a tax shelter or areportable transaction, it is reasonable tobelieve that the position would more likelythan not be sustained on its merits

17. Willfull orReckless

A willfull attempt to understate the taxliability or a reckless or intentionaldisregard of tax rules and regulations

18. Would opinion(Fin. 48)

Would win

Ethics and Professional Responsibilities in TaxServices



1. 3 Questions ofan Offer

1. Was there a manifestation of intent tocontract?2. Was there definiteness and certainty inthe essential terms?3. Was there communication of the aboveto the offeree?

2. Acceptance Express (oral or written) or implied(conduct). Only the person to whom theoffer was made may accept (notassignable, except option contracts)

3. Accord an agreement to substitute one contract foranother. Accord and satisfactiondischarges the orignal duty

4. AnticipatoryRepudiation

occurs when one person unequivocallyindicates in advance of performance toanother that he will not performcontractual duties when the time comes.

5. Assignment ofRights

if a party wants to give contract rights to athird party

6. BilateralContract

Two promises, a promise is exchanged fora promise. Contract is formed as soon asthe promises are exchanged.

7. Brach ofContract

material or substantial breach, thenonbreaching party can be discharged.minor breach, the nonbreaching party isnot discharged, but is entitle to damages

8. Common Law non-sale of goods:Real EstateInsuranceServicesEmployment

9. Communication To have the power to accept, the offereemust have knowledge of the offer

10. Consideration the price of contracting. Both sides of thecontract must be suppoerted by legallysufficient consideration

11. Damages intended to put the nonbreaching party inas good a position as he would have beenhad there been no breach

12. Defenses make a contract unenforceable. innocentparty's duty to perform is discharged

13. Definite andCertain

Must include:1. identity of the offeree2. price3. time of performance4. quantity5. nature of work to be performed

14. Delegation ofDuties

if a party wants to have a third partyperform contractual duties

15. Duress if the harm threatened is physical force- VOID. if the harm threatened iseconomic or social - VOIDABLE

16. Elements of aContract

1. An ageement make up of an offer andacceptance;2. An exchange of consideration; and 3. A lack of defenses

17. Elements ofConsideration

1. There must be something of legalvalue given by each party2. There must be a bargained forexchange

18. Elements of LegalValue

a detriment ot the promisee or a benefitto the promisor. The promisor'sporimse is supported by considerationonly if the promisee agrees to dosomething he or she is not alreadyobligated to do

19. Exception to theMailbox Rule

the offeror can state that the acceptanceto the offer must be received to beeffective

20. Executed Contract all the duties under the contract havebeen performed

21. ExecutoryContract

duties remain to be performed

22. Express Offer oral or written

23. Fraud Misrepresentation of material factActual and justifiable (reasonable)reliance by the plaintiff on themisrepresentationIntent to induce plaintiff's relaince onthe misrepresentationDamagesScienter (knowing that the statementwas false or made with a recklessdisregard for the truth)

24. Fraud in theExecution

one party deceives another into signingsomething he does not know is acontract. VOID

25. Fraud in theInducement

defrauded party is aware he is making acontract, but terms are materiallymisrepresented. VOIDABLE

26. Implied Offer based on conduct

27. InnocentMisrepresentation

has all the elements of fraud exceptscienter (MAID)

28. Intent to Contract obvious joke is not an offer. would areasonable person believe the offer isserious?

29. Mailbox Rule acceptances are generally effectivewhen they are dispatched. It isirrelevant if a properly addressedacceptance is lost or delayed

Contracts



30. Mirror Image Rule requires an acceptance to mirror the offer to be effective. An attempted acceptance that changes some of theterms or adds new terms is not a valid acceptance, but rather is a counteroffer

31. Novation occurs when a new contract substitutes a new party for an old party in an existing contract. All parties mustagree to the release.

32. Offer Communication must create a reasonable expectation in the offeree that the offeror intends to make a contact

33. Offeree receives offer

34. Offeror makes offer

35. Rejection by Offeree Once the offer is rejected, it cannot be accepted (expressly or counteroffer). Effective when received

36. Revocation byOfferor

Offeror can revoke an offer any time before acceptance except if there is an option or a firm offer (UCC). Effectivewhen received

37. Six ContractsRequiring a Writing

MarriageYear - contracts which by their terms cannot be performed within a yearLandExecutors to pay estate debts out of personal fundsGoods - sale of goodes for $500 or moreSurety (pay the debt of another)

38. Statute ofLimitations

4 to 6 years

39. Termination byOperation of Law

Automatic termination by death or insanity of parties (except an option contract is not terminated by the death ofa party), destruction of subject matter, or illegality

40. Termination ofOffer

To create a contract, an offer must be accepted before it is terminated. 3 ways:1. Revocation2. Rejection3. Operation of law

41. UCC sale of goods (movable things)

42. Unilateral Contract One promise, which is given in exchane for performance. Contract is not formed until performance is completed

Contracts



1. C.I.F. - Cost, Insurance and Freight: risk of loss is on buyerduring shipment

2. Carrier - Destination Contract: risk of loss passes to thebuyer when the goods reach the destination and seller tendersdelivery

3. Carrier - Shipment Contract: risk of loss passes to the buyerwhen the goods are delivered to the carrier (in the truck)

4. Carrier Cases: if a common carrier is involved, the contract iseither a shipment contract or a destination contract

5. Consideration: quantity only essential item

6. Defenses - Statute of Frauds: Four exceptions to the sale ofgoods for $500 or more must be evidenced by a writing signed bythe party being sued:Sprecialty manufactured goodsWritten merchant's confirmatory memoAdmission in courtPerformance

7. Defenses - Statute of Limitations: 4 years from the time thecontract was breached

8. Delivery and Risk of Loss: the seller's basic duty is to holdconforming goods for the buyer and give the buyer reasonablenotice to enable the buyer to take delivery.

9. Entrusting: if the owner of goods entrusts them to a merchantwho deals in goods of the kind sold, and the merchant sells themin the ordinary course of business to a bona fide purchaser forvalue, the purchaser gets good title even though the merchant didnot have good title.

10. Entrusting and Voidable Title: true owner can recover stolengoods from third parties

11. Exception to Quantity Only: Output and requirementscontracts (valid if reasonable)

12. Exception to Shipment of Nonconforming Goods: Noticeof accomodation - if the seller reasonably notifies the buyer thatnonconforming goods are shipped only as an accomodation tothe buyer, the shipment is not an acceptance. It is a counteroffer.(only if shipment is used as the means of acceptance)

13. Express Warranties: oral or written. The express warranty isthat the goods will conform to the statement of fact, to thedescription or to the sample or model. Statements of value oropinions do not generally create an express warranty. The UCCrequires that the express warranty be a part of the basis of thebargain. Any seller can make an express warranty and it is verydifficult to disclaim.

14. F.A.S. - Free Along Side: risk of loss passes to the buyer whenthe seller gets the goods along side the vessel

15. F.O.B. - Buyer's Place: destination contract - seller must getthe goods to the destination and tender delivery for risk of loss topass

16. F.O.B. - Seller's Place: shipment contract - seller must get thegoods to the carrier for risk of loss to pass

17. Firm Offer: 1. seller must be a merchant2. offer must be in writing and signed by the merchant3. offer must give assurances it will be kept open for a certaintime

18. Firm Offer - Time Irrevocable: max. 3 months, if no timestated, 3 months

19. For Risk of Loss to Pass: Goods must be identified

20. Implied Warranty of Fitness for Particular Purpose:Made wehn seller selects goods suitable for buyer. Fitnessrequires the goods to be fit for the buyer's specific purpose. Can bemade by any seller. Can be disclaimed by selling the goods "as is"or "with all faults."

21. Implied Warranty of Merchantability: Merchants promisegoods fir for ordinary purpose. Made only by merchants.Disclaimed by "As is" sale or by stating no merchantability. "Wehereby dislcaim any and all warrantues" is ineffective.

22. Implied Warranty of Title: Implied in every sales contract isthe warranty that the seller has good title and the right totransfer that title and there are no unstated encumbrances. Canonly be disclaimed by specific language or by circumstances thatindicate the seller is not guaranteeing he has title (judicial sale).No general disclaimers can discllaim title ("as is" or "with allfaults")

23. Modifications Enforceable without Consideration: amodification of a contract for the sale of goods is enforceable,even without consideration, as long as the modification is soughtin good faith

24. Negligence: 1. Duty of care2. Breach of duty3. Damages4. Causation

25. Noncarrier - Merchant Seller: risk of loss passes only uponactual delivery to the buyer (when the buyer takes physicalpossession)

26. Noncarrier - Nonmerchant Seller: risk of loss passes to thebuyer upon to seller's tender of delivery of the goods to the buyer

27. Noncarrier Cases: seller has no duty to deliver. The place ofdelivery is seller's place of business, if he has one, otherwise, theseller's home

28. Remedies of Buyer: Right to reject for any nonconformity(seller must make a "perfect tender" - delivery free from anydefects)Right to canel or rescind (for any defect)Right to sue for damagesRight to specific performance (unique) or replevin (right torecover goods wrongfully in the hands of the seller)Rights on Seller's Insolvency (if buyer has paid part or all of theprice and seller is insolvent, buyer may recover the goods fromthe seller if the goods are identified)

Sales



29. Remedies of Buyer or Seller: Anticipatory Repudiation - sue or waitRight to Demand Assurances if Reasonable Ground ExistPunitive damages - not available in sales (fraud only)Duty to Mitigate - Avoid Damages

30. Remedies of Seller: Right to cancel and sue for damages Right to withhold delivery and stop goods in transit (for buyer's insolvency. Can reclaim delivered goods within 10 days after receipt)Right to resell and sue for damages (difference between the contract price and the resale price)Right to full contract priceLiquidated damages - must be reasonable (if buyer has made a down payment and breaches, the seller may keep the lesser of $500 or 20%of the price)

31. Seller Sends Nonconforming Goods: risk of loss remains on the seller regardless of shipping terms

32. Shipment of Nonconforming Goods: Acceptance and breach of contract

33. Strict Products Liability: 1. Product was defective2. Defect caused injury3. Defect made the product unreasonably dangerous4. Seller was in the business of selling this type of good5. Product reached the user without substantial change in condition

34. Title: Title (ownership) generally can pass as parties agree, but before title can pass, the goods must be identified to the contract. If theparties do not afree, title passes upon delivery. If the buyer rejects the goods (rightfully or wrongfully), title revests in the seller

35. Valid Acceptance: promise to ship or prompt shipment

36. Voidable Title: If the owner of goods is defrauded into givinga thief title, the owner ordinarily can rescind the contract and recover thegoods from the defrauder. However, if the defrauder has since sold the goods to a bona fide purchaser for value, the purchaser gets goodtitle.

Sales



1. "pay to smith, if smith washes my car" or "pay to smithonly"...what do these translate to if they were the on theface of the instrument? If they were endorsements?: Ifthey are on the front, then it becomes a nonnnegotiableinstrument (unconditional and payable to the order violated)

If they were endorsements, then it just becomes translated as"pay to the order of smith". Endorsements cannot prohibit furthernegotiations.

2. Can a CP be payable to two people without beingnonnegotiable?: Yes. It has to be payable to:any person, two persons together or alternatively, or any entity.

3. Can an instrument be payable to the order of more thanone person?: Can an instrument be payable to the order ofmore than one person?

4. Can instruments be payable in golds/stocks?: No, paymentmust be in money. Foreign currency is OK.

5. Can Payee's name be misspelled?: Yes, and he/she canendorse in proper spelling or misspelling, or both.

6. Compensation difference between contractual liabilityand warranty liability: Contractual liabilities entitleswronged party to entire face value of the instrument while asuccessful warranty entitles wronged party to what they paid toacquire the instrument.

7. Conditions to hold secondary party liable: -Presentment ofinstrument to primary party-Dishonor of instrument by PP-Timely notice of dishonor to endorsers... Banks by midnight ofnext banking day, others 30 days.

8. Contractual Liability: Pay the instrument's face value, appliesto any party who signs the negotiable instrument (unless withrecourse)

9. Difference in requirements to recover from secondaryparties under Contractual Liability and WarrantyLiability: CL- has to present, be dishonored, and then notifysecondary parties of dishonor in timely fashion

WL-Good title is necessary

10. Does an ordinary holder of a negotiable instrument havethe same rights as an assignee?: Yes. They are subject to allpersonal defenses of the maker/drawer of the instrument

11. Does having a variable interest rate still retainnegotiability?: Yes, only the principle amount must beindicated on the face. Interest rates can be expressed, or derivedfrom other sources like legal/judgment rates, indices, etc.

12. EFT act and Reg E: Electronic Fund TransferFor stolen/lost debit cards, customer liable for up to -$50 if notifies within 2 days-$500 if after 2 days but within 60 days

13. Exceptions to the forged endorsement rule: 1) ImposterRule- If maker issues instrument to an imposter and impostersigns payee's name, subsequent holders can collect from maker2) Fictitious payee rule-If someone submits a draft for a fictitiousperson and is created by drawee and the endorsement is forged,subsequent holders can cash3) Negligence contributes to forgery

14. If checks has statement that it is nonnegotiable, is it?:Nope. For any other instrument it is, but not for checks.

15. Money order: Draft purchased by one party to pay payee inwhich the third party is typically post office, bank, or company.

16. Name some personal defenses: -Breach of Contract-Lack or failure of consideration-Prior Payment-Unauthorized completion-Fraud in inducement-Nondelivery, usually with bearer instruments-Ordinary duress or undue influence-Mental incapacity- personal if transaction is voidable. Onlydiminished capacity apply.-Illegality-personal if voidable

17. Name some real defenses: -Forgery- forged maker or drawer'ssignature. Forger becomes liable.-Bankruptcy-Fraud in execution-Minority (or infancy)-Minorities aren't liable for negotiablecontracts-Mental incapacity, illegality, or extreme duress.-Material alteration of instrument-If dollar amount is changed,HDC can still collect original amount, same with incompleteinstruments that were completed without authorization. Cannotcollect if change in amount, rate of interest, or days,addition/removal of certain things, completion of instrumentwithout authorization... only a real defense if maker or drawerdidn't contribute (substantially) to the alteration due tonegligence.

18. Oral vs Written stop payments: Oral- good for 14 daysWritten- good for 6 months

19. Presentment Warranty: 1) Warrantor has good title.

If for unaccepted draft, then they must warrant:2) warrantor has no knowledge that drawer's signature is forged 3) The instrument could not have been altered.

20. Primary Liability: Maker of note, acceptor of draft.

Holder/HDC has to seek payment this party first.

21. Secondary Liability: If primary party doesn't pay, holder maysue primary party or seek payment from secondary party.

Includes endorsers, drawers on a draft (unless accepted bydrawee)

22. Sight Draft: Payable upon presentation to drawee

23. Time Draft: Payable at specified date by drawee

Commercial Papers



24. Transfer Liability: 1) Good title- no missing or unauthorizedendorsements2) All signatures are genuine or authorized3) Instrument has not been materially altered4) No personal defense is good against transferor5) Tranferor has no notice of insolvency of maker, drawer, oracceptor

25. Two types of Warranty Liability: Transfer Warranties andPresentment Warranties. Necessary to seek payment fromsecondary parties.

26. UCC requires that negotiable instruments need to be ...:Written, lend itself to permanence, and be easily transferable.

27. What are some valid restrictive endorsements?:Collection endorsements, endorsements in trusts

28. What are the 6 requirement to make an instrumentnegotiable?: 1) Be written2) Be signed by drawer or maker3) Have principle amount of the instrument4) Due on demand or on a definite date5) Be payable to the order of or bearer6) Contain an unconditional promise or order to pay

29. What are the main differences with negotiable andnonnegotiable instruments?: Nonnegotiable instrumentscan only be assigned, and it bears only the rights that thetransferor had. It is also subject to any defense that can beasserted against assignor.

Negotiable instruments are negotiable and may have more rightsthan the endorser of the instrument.

30. What are the requirements to become a HDC?: Be a holderof the instrument, give value for the instrument, take in goodfaith, take without notice that instrument was invalid or that anyperson has a defense or claim of ownership in instrument.

31. What are the two general types of liabilities onnegotiable instruments?: Contractual liabilities andwarranty liabilities.

32. What are the two types of negotiable commercialpaper?: Drafts and Notes.

Drafts are instruments involving three parties (drawer, drawee,and payee). E.g. Checks

Notes are instruments that involve two parties (maker andpayee). Most common form is the promissory note.

33. What are the two ways of transferring instruments?:Assignment and negotiation. Assignment = nonnegotiableinstruments, while negotiations are for negotiable instruments.

34. What can be omitted from a CP without destroyingnegotiability?: Basically anything other than the 6requirements. Includes date (of the inception of the CP unless itis necessary to determine the due date), interest rate, where theinstrument was made or is to be paid.

35. What does it mean to give value (requirement to beconsidered HDC)?: -Someone must pay or perform agreedconsideration. It HAS to be performed; promises do not count.-Take as satisfaction of previous existing debt-Give another negotiable instrument-Acquire a security interest in the instrument (take as collateral)

Value does not have to be full amount of instrument.

36. What happens when a check is certified with regards toliability?: If it gets certified, drawers and all previous endorsersare discharged

37. What is a defense against "take without notice that anyperson has a defense or claim of ownership to theinstrument"? What is NOT a defense?: Defense: Obvioussigns of forgery or alterations, incomplete or irregularinstrument, notice of any party's claim, or that all other partieshave been discharged.

Not a defense: Ante/Postdated, knows of default in payment ofinterest, purchased at a reasonable discount.

38. What is a qualified endorsement?: Signed "Withoutrecourse" which disclaims liability of dishonored instruments.

39. What is the hierarchy of interpretation of ambiguousterms in CP?: Words over figures, handwritten overtyped/printed, typed over printed.

40. What is the one type of CP that allows it being payable toa person (instead of payable to the order of) withoutdestroying negotiability?: Checks. Anything else woulddestroy negotiability.

41. What is the shelter rule? (Holder through HDC): HDCwashes an instrument o that any holder thereafter can be aholder through HDC, and obtains all rights of a HDC. Holdersthrough the shelter rule are NOT HDCs, but they do have thesame rights as HDCs

The exception is when a previous non HDC holder reacquires theinstrument from a HDC, the shelter rule does not apply. Also,people who were involved in fraud or illegal activity with regardsto the instrument may not use the shelter rule.

42. What makes a CP payable to a bearer?: If CP states payableto: bearer, cash, a person or bearer, order of bearer, order ofcash, or if left blank.

43. When are parties discharged of liabilities?: 1) Onceprimary party pays, all endorsers are discharged2) Cancellation of prior party's endorsement discharges thatparty from liablity- has to be written3) Intentional destruction of instrument by holder

44. When does a domestic check become overdue?: 90 daysafter its date.

Commercial Papers



45. When does the FTC rule apply?: CREDIT SALES-Consumer signs installment sales contract containing waiver of defenses-Consumer signs sales contract containing promissory note-Retailer arranges financing with a separate party for consumer financing

Payments via checks NOT covered by FTC

46. Who is liable for forged signatures?: If by "primary party", then forger is liable

If on endorsement, it does NOT transfer title; transferee cannot collect UNLESS exceptions

47. Why was the Federal Trade Commission rule (FTC rules) created?: To take precedence over UCC rules and protect consumersfrom retailers who abuse HDC to avoid liability of defective goods.

Commercial Papers



1. After-acquired property clause (floating lien): Allowssecured party to acquire a security interest in good that the debtoracquires in the future.

-Can't use against consumer goods, but typically used forequipment/inventory

2. Attachment: The moment when security interest is enforceableagainst a debtor by the secured party.

3. Automatic Perfection: Perfection accomplished by completingattachment with no further steps IF:-Purchase money security interest in consumer goods. Sellerretains security interest in same item sold on credit to securepayment.

4. Automatic Perfection vs Bona Fide purchaser: -Ifpurchase did not know and bought for consumer use, thenseller/creditor cannot use automatic perfection

-Can, if filed or if the purchaser knew.

5. Chattel paper: Writing that provides evidence of the monetaryobligation and the security interest in the good. A piece of paperthat recites the indebtedness

6. Consumer Goods: Goods that were purchased for personal use

7. Debtor can reclaim collateral by:: paying the entire debt andfor secured party's expenses

8. Distribution of collateral sale proceeds: 1-secured party'sexpenses2-secured party's debt3-junior security interests4-any remainder goes to debtor

9. Documents of title: Bills of lading, warehouse receipts, etc

10. Equipment: Goods purchased for use in a business

11. Fixtures: Goods that have been attached permanently orrelatively permanently to real property

12. Indispensible paper: Collateral evidenced by a writing.Includes negotiable instruments, stock, bonds, and otherinvestment securities

13. Intangibles: AR, commercial tort claim, Intellectual PropertyRights, goodwill, etc

14. Inventory: Goods purchased for sale or lease to a third party

15. Lien Creditors vs other security interests: Priority oversecurity interests unless perfection occurs before lien or its aPMSI perfected within 20 day grace period.

16. Other automatic perfection: Promissory notes, assignmentof health care insurance to health care provider

17. Perfect Security Interest: Gives notices to other parties thatthe perfecting party claims an interest in the certain collateral.

18. PMSI (Purchase money security interest): Whenseller/bank retains security interest in same item sold. PMSI inconsumer goods except motor vehicles and trailers= automaticperfection, while PMSI in equipment/inventory does not haveautomatic perfection

19. Requirement for Filing financial statements (perfectionrequirement): Requires-Name of debtor and the secured party-Indication of collateral covered

Can be done electronically, lasts for five years but can becontinued with statement filed within 6 months of expiration

20. Requirement for physical possession/control(perfection requirement): -Actual physical possession of thecollateral-Control applies to collateral that cannot be physically possessed(Edocs, deposit accounts, IP)

21. Requirements of a valid security agreement: -Must be inwriting unless creditor has physical possession of collateral-Must be signed by debtor (but not by creditor)-A reasonable description of the collateral

22. Requirements of attachment: -Secured party gives value(could be preexisting claim) -Debtor has rights in collateral (does not have to have actuallegal title, but rather have ownership interest)-A valid security agreement

23. Rights of Parties upon default-claims (receivables):Secured parties have right of collection from third parties-Notify third party to pay secured party directly, must account forany surplus and debtor is liable for any deficiency, may deductreasonable expenses

24. Rights of parties upon default-possessed goods: -Canrepossess if not possessed without breach of peace, use judicialprocess to foreclose on collateral.-If so, send written notice to debtor-Notify other secured parties -May sell collateral using commercially reasonable practices,within a reasonable time, and with notice unless perishable orotherwise may diminish in value

25. Secured Creditor vs other creditors: Possessor ofnegotiable document of title has priority over other creditors

26. Secured creditors vs subsequent buyers of collateral: Abuyer in the ordinary course of business take free of any securityinterest whether perfected or not. Ordinary course of business =buying from inventory of a person or company that normallydeals in those goods.

27. Secured Party: Person/bank that provides credit to the debtorand takes an interest in the debtor's collateral to help assurerepayment of the debt.

28. Secured Party Priorities: -If neither perfected, then interestedthat attached first prevails-Perfected over unperfected-First to perfect over other perfected UNLESS PMSI, in whichcase PMSI wins over prior perfected interests.-If equipment or consumer goods, PMSI has 20 days after thedebtor receives possession of collateral to perfect PMSI-If inventory, perfection must occur prior to or simultaneously tothe debtor receiving the inventory, and written notice must begive to all holders of prior perfected security interest in collateral.

Secured Transactions



29. Three primary ways attached security interest can be perfected: -Filing financial statements in the appropriate state office-Secured party takes possession of collateral, or in certain cases takes control-Automatic perfect can occur, but only with consumer goods

30. To perfect his/her interest, a cosignor must:: File a financial statement under secured transaction law and give notice to thecosignee's creditors who have perfected security interest in the same good. Notice MUST describe goods and be given before the cosigneereceives the goods.

31. Trustees in bankruptcy as a lien creditor: Trustee has the rights of a lien creditor from the date of filing of petition for bankruptcyAlso takes the position of any existing lien creditor

32. Types of collateral: Goods, indispensible paper, intangibles.

Secured Transactions



1. Co-Sureties: 2 or more sureties on the same obligation. joiuntly and severally liable

2. Compensated Surety - Paid: material change increasing risk releases surety

3. Contribution: after payment (of more than his share), a surety is entitled to contribution from his co-sureties on their share of the payment(pro rata share of solvent sureties if not specified).

4. Defenses of Surety: Creditor's a bad guyPayment is made (by someone other than the surety)Release of principal debtorSurety is incapacitated or bankrupt

5. Exoneration: suit to compel payment. if the principal fails to pay the creditor, the surety may bring a suit for exoneration in equity to compelthe principal to pay. occurs before surety pays creditor.

6. Fair Debt Collection Practices Act (FDCPA): curbs abuses by collection agencies in collecting consumer debts. the Act does not applyto a creditor attempting to collect its own debts

7. Garnishment: debtor has propety in the hands of a third party (wages, money in bank accounts, debts owed to the debtor)

8. Gratuitous Surety - Not Compensated: any variation of surety's risk releases surety

9. Judicial Lien: if a debtor is adjudged to owe a creditor money and the judgement has gone unsatisfied, the creditor can request the court toimpose a lien on specific property owned and possessed by the debtor.

10. Reimbursement: suit against principal after payment. the surety is entitled to reimbursement from his principal for any amount the suretypaid on behalf of the debtor.

11. Subrogation: enforcement of creditor's right against principal. after having paid the principal's obligation, the surety steps into the shoesof the lender and may enforce any rights that the creditor had against the principal.

12. Surety: one who is directly liable for the debt or obligation of another

13. The Parties: the creditor (lender)the principal (debtor)the surety

Suretyship



1. Artisan's lien: When one repairs or improves personal propertyfor another and retains possession for payment.

Terminates when creditor receives or is offered payment, or whens/he gives up possession.

Usually has priority over other liens as long as they retainpossession

2. Assignment for the benefit of creditors: Where debtorstransfers all of his assets to an assignee who sells it for thebenefit of creditors

3. Attachment: Court ordered seizure of property due to lack ofpayment prior to court judgment for past-due debt

4. Bond: A contract involving a compensated surety

5. Composition agreement with creditors: Where two or morecreditors creditors agree with debtor to accept less than fullamount of debt as full satisfaction of debt.

New consideration must be given to be enforceable

6. Contribution: When a cosurety pays more than its proportionateshare of the debt it can demand payment from the othercosureties so that each surety is paying its proportionate share ofthe debt

7. Conveyance: The transfer of property from one to another

8. Cosurety: Two or more sureties are guaranteeing the same debt

9. Equal Credit Opportunity Act: Prohibits discrimination inconsumer credit transactions based on marital status, sex, race,color, religion, national origin, age, or receipt of welfare-If creditor denies or revokes credit or worsens terms, mustprovide notice to debtor of specific reasons for adverse action

10. Fair Credit and Charge Card Disclosure Act: Requiresdisclosure of annual percentage rates, membership fees, etc forcredit card solicitations or applicationsCredit card holder's liability is $50 for unauthorized charged dueto lost or stolen cards, unless reported to issuer in which case theholder is not liable

11. Fair Credit Billing Act: Allows consumer to complain ofbilling errors and requires creditor to either explain or correct

12. Fair Credit Reporting Act: Prohibits consumer reportingagencies from including in consumer reports any inaccurate orobsolete information.

13. Fair Debt Collection Practices Act: -Can't contact atinconvenient hours, inconvenient places, or at work if employerobjects-No methods that are abusive or misleading-Must provide debtor with written notice of amount of debt and towhom owed within 5 days of first communication-If debtor contests debt, collectors must cease until collectorsends verification-Debt collectors must bring suit near debtor's residence orjurisdiction in which the contract was signed-If debt collector violates Act, s/he is liable for actual damagesplus other damages like lawyer fees-Federal Trade Commission enforces this Act, and can use ceaseand desist to collector-Only applies to collection agents collecting for another, not forprimary creditor

14. Fidelity Bonds: Forms of insurance that protects an employeragainst losses sustained due to acts of dishonest employees

15. Fraudulent Conveyance: Debtors try to prevent creditors fromsatisfying a judgment by:-Transferring assets (secretly, to family members, for inadequateconsideration, etc)-Maintaining use/possession of property

16. Garnishment: Seizure of debtor's property possessed by thirdparties such as banks or employees.

State and federal laws limit amount of wages that can begarnished.

17. Guarantor: Similar to a surety, but a guarantor is secondarilyliable to the creditor. Thus, in the event that the debtor defaultsthe creditor must at least ask the debtor to pay, but in the eventthe debtor says no, then the creditor may seek payment from theguarantor.

18. Homestead exemption: Unsecured creditors and trustees inbankruptcy cannot satisfy debts from equity in debtor's home,unless it's a mortgage lien or an IRS tax lien

19. Innkeeper's lien: Allows hotels to keep possession of guest'sbaggage until hotel charges are paid

20. Judgment lien: A party is awarded damages by a court and theparty files a lien against property to secure payment

21. Liens: Creditors' claims on real or personal property to securepayment of debt or performance of obligation

22. Mechanic's lien or materialman's lien: A statutory lien onreal property (real estate) to secure payment for debts of servicesor materials to improve real property.

IE Worker puts new roof on building, can put a lien on thebuilding to secure payment and foreclose property in event ofnonpayment

23. Reimbursement: If the surety pays the debt, the surety isentitled to receive whatever it paid to the creditor from the debtor

Debtor-Creditor Relationships



24. Subrogation: After the surety has paid the debt, it acquires the rights of the creditor and may now exercise those rights against the debtor.Thus, if the debtor had given the creditor collateral, the surety would have rights against the collateral.

25. Surety: A party who promises to pay the debts of another party. Sureties are primarily liable to the creditor.`

26. Truth in lending Act: Requires lenders and sellers to disclose credit terms on loans to consumers or debtors-Finance charges/annual percentage rate of interest charged-Consumer has right to rescind within three days-Consumer lenders required to make additional disclosures in credit card statements relating to minimum payments, late fees, andintroductory rates, and provide a number that consumers may call for that information-Required o make disclosure on tax consequences of home equity loans and internet based credit card solicitations

27. Variance in terms and conditions of contracts subsequent to surety's undertaking: -Accommodation (noncompensated) suretyis completely discharged for any change in contract-Commercial (compensated) surety is completely released if modification in principal debtor's contract materially increases risk to surety.If not material, then obligation reduced by amount of loss due to modification

28. Writ of attachment: Writ- a formal written document, usually by judicial/government

Allows creditors to take possession of personal property to satisfy debt pursuant to successful legal action

29. Writ of execution: Remedy in which court order directs sheriff to seize debtor's property which can then be sold at judicial sale to pay offcreditor

Debtor-Creditor Relationships



14. Express actual authority: Explicit power that the principalgives to the agent to enter into a contract.

15. Fiduciary duties: The obligations that an agent owes to aprincipal that require the agent to act in the best interests of theprincipal.

16. General vs restricted: General agent has a broad range ofpowers, a special (restricted) agent is one that engages in onlyone specific type of transaction

17. Implied actual authority: Arises from express authority, butnot explicit

18. Independent contractor.: A party who works for anotherparty, but is not subject to the control of the other party; thereforean independent contractor generally does not create liability forthe other party.

19. Joint and several liability: When a principal and agent canboth be held liable by the third party or the third party maychoose to sever liability and only hold either the principal or theagent liable.

20. Notice of termination to third parties: -Constructive notice(publishing in a newspaper or a trade journal) is sufficient tothird parties who have not previously dealt with agent-Actual notice (orally informing or sending a letter) must begiven to third parties who have previously dealt with agent unlessthird party learns of termination from another source.-Notice NOT required when termination occurs due to operationof law

21. Partially disclosed principal: When the third party knows ofthe existence of the principal, but does not know the principal'sidentity

22. Power of attorney: A person authorizes another person to actas his/her representative

23. Principal: The party for whom the agent acts.

24. Principal's contract liability to third parties: -If agent actswith authority (either actual or apparent) the principle is liable,regardless of disclosure status.-If agent acts with no authority, then the principle is not liable,unless the principal ratifies the contract.

25. Principal's duties to agent: -Most determined by agreementcontract that principal/agent entered into-Compensating agent-Reimburse reasonable expense unless agreement saysotherwise, indemnify agent against loss/liability for dutieswithin scope of employment-Cooperate with agent-Inform agent of risks-Have remedies of discharging agent, restitution, damages, andaccounting, or an injunction

1. Actual authority: The power given by a principal to an agentthat allows the agent to enter into contracts upon the principal'sbehalf

2. Agency by estoppel: Agency can be implied by the conduct orlack of conduct by either the principal or the agent that allowsthird parties to reasonably believe an agency exists

3. Agency coupled with interest: Agent has an interest in subjectmatter through a security interest, like mortgagee with right tosell property on default of mortgagor

4. Agent: A party who works on behalf of another party known asthe principal.

5. Agent's contract liability to third parties: -If principal isdisclosed and agent has authority, agent has no liability-If principal is partially disclosed or undisclosed, the principal ispersonally liable, regardless of authority-If agent acts without authority, then the agent is personallyliable-Always personally liable for tort

6. Agent's duties to principal: -Fiduciary-Carry out instructions on principal exercising reasonable careand skill-Account to principal profit and property that rightfully belong tothe principal and not to commingle funds

7. Apparent authority: When a third party reasonably believesthat an agent has actual authority even though the agent lacksactual authority.

8. Capacity of Agent: -Must have sufficient mental and physicalability to carry out instructions of his/her principal-Can bind principal even if agent is a minor or legally unable toact for self-Principal will be responsible for contract that minor agententered into on principal's behalf and cannot use minor's lack ofcapacity as defense.

9. Capacity of Principal: -Must be able to give legal consent.-Minors may appoint agents, but can disaffirm agency-If act requires some legal capacity (legal age to sell land, etc)principal must meet this requirement.-CAPACITY CANNOT BE INCREASED BY APPOINTMENT OFAGENT

10. Cases in which independent contractors can holdprincipal liable: -Employed to do something inherentlydangerous-Employer was negligent in hiring IC-When they serve as agents in certain cases, like an attorney

11. Del credere: A sales agent who, prior to the creation and as acondition of the agency, guarantees the accounts of thecustomers to his/her principal (if the customers fail to pay)

12. Disclosed principal: A principal who is known by the thirdparty.

13. Estoppel: A bar or impediment preventing a party fromasserting a fact or a claim inconsistent with a position that theparty previously took, especially where representation has beenrelied or acted upon by others.

Agency



26. Principal's liability for agent's tort: -Whether or not tort was committed under scope of employment. If so, respondeat superior-Intentional torts which are foreseeable and relate to the job are normally in the scope of employment-If agent commits a tort in the scope of employment, then the principal and agent are jointly and severally liable.

27. Ratification: When a principal approves of a contract that was entered into by an agent lacking authority. Ratification means that theprincipal is now liable for the contract.

28. Requirements to grant authority to agent: -In writing (unless falls within Statute of Fraud. This is not the case if the contract cannotbe completed within a year)-Signed by principal-Agent must have capacity to be an agent

29. Respondeat Superior: "Let the master answer" Literally means that the superior should be held responsible. When an agent commits atort in the scope of employment, then the principal is liable for the agent's tort.

30. Scope of employment: Agent's actions that occur substantially in the work environment

31. Termination by operation of law: The law automatically ends the relationship-Subject of agreement becomes illegal or impossible-Death, insanity, or court determined incompetence of either party-Bankruptcy of principal (bankruptcy of agent does not affect unless insolvency deters performance)

32. Termination of agent/principal relationship: -By agreement-If no time is specified in agency, then either party may terminate without liability-Agency coupled with an interest is irrevocable

33. Third Party: Term in principal/agent law that applies to a party who is interacting with either the principal or the agent. The principaland agent are the first two parties.

34. Tort: A wrongful act that results in injury to another person, property, reputation, or the like, and for which the injured party is entitled to acompensation

35. Undisclosed principal: When the third party to a contract does not know that a principal exists.

Agency



1. Acts that bar dischargeof ALL debts

-Improper actions during bankruptcy proceedings including making false claims against estate, concealingproperty, transfer of property after filing with intent to defeat the law, false entry in or on any document ofaccount relating to bankrupt's affair.

These also punishable by fines/imprisonment

-Failing to satisfactorily explain any loss of assets-Refusing to obey court orders-Removing or destroying property within 12 months prior to filing with intent to hinder, delay, or defraud-Destroying, falsifying, concealing, or failing to keep books of account or records-Abuse

2. Approval ofreorganization plan

-Over 1/2 of creditors in each committee owed at least 2/3 of the total debt in that class-Acceptance of stockholders holding at least 2/3 in amount of the stock-Vetos can be overridden by courts via "cram down" power

3. Chapter 7 Bankruptcy Debtor liquidates all assets, except exempt assets, to pay creditors

4. Chapter 11 Bankruptcy Debtor reorganizes debts to pay creditors; primarily used by businesses

5. Chapter 13 Bankruptcy Debtor reorganizes debt to pay creditors; primarily used by individuals

6. Chapter 13 BRrequirements

-Have regular income-Owe unsecured debts of less than $360,475-Owe secured debts less than $1,081,400-Only voluntary-Debtor has exclusive right to propose plan to be confirmed or denied by court without approval ofunsecured creditors-Unsecured creditors must receive as much as they would get under Ch 7 and have all debtor's disposableincome committed to plan-If unsecured does not get paid in full, plan must commit to payments for three years-Court must appoint trustee

7. Creditor's Committee A group of unsecured creditors who essentially function as the bankruptcy trustee in Chapter 11 cases

8. Debts not discharged -Taxes within 3 years-Loans for payment of federal taxes-Unscheduled debts unless creditor had actual notice of proceedings-Alimony, separate maintenance, child support-Liability due to theft or embezzlement-Willful/malicious injuries to a person or property (intentional torts)-Harder for student loans to be discharged unless undue hardship-Government fines/penalties within 3 years-Liability incurred while operating a vehicle, vessel, or aircraft while legally intoxicated-consumer debts to a single debtor under specified condition for luxury goods or services made within 60days of filing-cash advances made within 60 days-any debt from violation of security laws including Sarbanes-Oxley Act-Debts owed to pension plans, profit sharing plans, or similar employee plans-Homeowner association, condo, or cooperative fees

9. Discharge After debtor completes bankruptcy, debtor is relieved of all previous debt except debts that arenondischargeable. This allows debtor to get a financial fresh start.

10. Duties of trustees underChapter 7

-Liquidate/sell assets, pay creditors based on priorities, examine property claims by creditors-Makes interim reports and presents final accounting of the administration to court

11. Educationalrequirementssubsequent to filingbankruptcy

-Consumer filers must receive credit counseling by approved agency within 180 days prior to filing-Unless incapacitated, disabled, or on active duty in military zone

-Also attend an approved financial management course or else discharge will be denied

Bankruptcy



12. Estate The debtor's assets that are used to pay the creditors

13. Execution ofreorganizationplan(payment)

-Must be consistent for each class of claims-May provide stock in place of debt

14. ExemptProperty

-$21,625 equity in principal residence-$3450 equity in one motor vehicle-$2175 in books and tools of one's trade-$550 per item qualifying as personal, family, or home use (aggregate ceiling of $11525)-Life insurance up to $11525-Unmatured life insurance contracts-Social security benefits-Unemployment compensation-Disability, illness, or unemployment benefits-Alimony and child support-Veteran's benefits-prescribed health aides-public assistance-pensions and retirement benefits needed for support and ERISA qualified-lost earnings payments-wages up to specific formula (75% of disposable income or 30 times federal minimum wage)

15. Fast tracking Chapter 11 BR which provides small business with debts less than $2,190,000 to cut out much of red tape ofbankruptcy proceedings

16. Insider A party who has a close relationship with the debtor. relevant in the area of preferential transfers. Transactions withinsiders are examined by the trustee for 1 year prior to the filing of the bankruptcy petition.

17. Involuntarypetition

Debtor is sued by creditors and forced into bankruptcy

18. Liquidation The process of turning assets into cash to pay creditors

19. Order forrelief

Granted, in most cases, the debtor upon the filing of the bankruptcy petition. Allows debtor to stop paying creditorsuntil the bankruptcy can be finalized.

20. Powers oftrustees underChapter 7

-Any legal action necessary to carry out duties-With court approval, may employ professionals to assist where it required (trustee may act in professional capacity ifapproved by court)-Set aside liens-Set aside transfers made within one year prior to filing if made with intent to hinder, delay, or defraud any creditor, ordebtor received less than a reasonably equivalent value in exchange for such transfer and debtor was insolvent orbecame insolvent as a result-Set aside preferential transfers made within 90 days prior to the filing (unless to insiders, in which time is extended toa year prior)

21. Preferentialtransfer

When the debtor provides payment or security to a creditor, which would allow creditor to collect more than thecreditor would have under Chapter 7 bankruptcy. If such a transfer took place 90 days prior to the filing of thebankruptcy petition, the trustee may set the transaction aside. This is done to assure all creditors are treated fairly.

Bankruptcy



22. Priority of claims -Secured, then unsecured-Secured gets entire value of collateral to the extent of the debt. Excess goes to paying off junior securityinterests, deficiency is categorized as general obligation-Domestic support obligations-Administration costs-Claims arising from ordinary course of business after petition is filed but before order of relief is entered-Wages, salaries, and commissions up to $11,725 per employee earned within 180 days before petition-Contributions to employee benefit plans within the prior 180 days limited to $11725-Storage of grain or fish up to 5775 per individual-Consumer deposit for undelivered goods or services limited to $2600 per individual-Taxes-Obligations to banks-Debts arising from motor vehicle accidents while under influence-General creditors that filed timely proofs of claim

23. Reaffirmation When a debtor voluntarily chooses to repay a debt that otherwise would be fully discharged under theBankruptcy Code

24. Reclamation A claim against specific property by a person claiming it to be their own property

25. Reorganization(rehabilitation)

A debtor retains assets, as opposed to liquidating the assets, and agrees to pay creditors out of future earningsunder Chapter 11 or 13 of the Bankruptcy Code

26. Reorganization plan Allows for continued operation of business, unless stated otherwise by court. Provides payment of part or all ofdebts over extended period, primarily from future income. Committee will create one, but debtor may submit ownwithin 120 days after order of relief

27. Requirement to forceChapter 7 BR

-If less than 12 creditors, anyone can file if own undisputed claim aggregates $14,425 in excess of any security-Or more than one can combine to have debts more than $14,425 of unsecured claims-If 12 or more creditors, 3 having claims over $14,425 must sign petition-May need to post bond that indemnifies debtor for losses caused by contesting petition-Debtors may be awarded damages including lawyer's fees if successfully defends BR, and even punitivedamages if petition were made in bad faith.

28. Requirements fororder of relief underChapter 7?

-Filing requirements are met-Petition is uncontested-Petition is contested and debtor is generally not paying debts as they become due or during the 120 dayspreceding the filing, a custodian was appointed or took possession of substantially all of the property of thedebtor

29. Stay A court order that prevents further collection actions by creditors. The stay is issued upon the filing of thebankruptcy petition, but does not apply to family law issues.

30. Subrogation to substitute

31. The BankruptcyAbuse andProtection Act of2005

-pertains to voluntary chapter 7 BR-law is trying to assure that debtors with the ability to repay their debts are not declaring bankruptcy-presumes abuse unless debtor's monthly income exceeds certain dollar limits.-special circumstances such as medical conditions/service in armed forced considered-if found to be abusing, then proceed with chapter 13 instead of 7

32. Timing to file claims All claims must be filed within 6 months after first creditors' meeting

33. Trustee The bankruptcy trustee presides over the bankruptcy estate and organizes the estate for the court. The trusteedetermines what the assets and liabilities of the estate are.

34. Trustee underChapter 11

Assigned if debtor's management is not considered capable of running business, or if in the best interest ofcreditors

35. Voluntary Petition A debtor chooses to file bankruptcy, as opposed to being forced into bankruptcy by the creditors

36. Wage Garnishment Legal proceeding where an employer garnishes employee's wage to repay employee's debt to creditors. Usuallylast resort for creditors in lieu of forcing bankruptcy

Bankruptcy



37. What claims are not allowed if creditor objects? -unenforceable claims-unmatured interest as of date of filing-claims that may be offset-property tax claim in excess of property value-insider or attorney claims in excess of reasonable value of services-alimony, maintenance, and support claims for amounts due afterbankruptcy petition is filed-landlord's damages for lease termination in excess of specified amounts-damages for termination of an employment contact in excess of oneyear's wage-certain employment tax claims

38. What happens at the first creditor's meeting? -Debtor gives list of assets and liabilities, their locations, and a list ofcreditors-Claims of debtors are allowed unless disputed, and if filed within 6months of first creditors' meeting-trustee may be elected

39. What happens when death is involved with Chapter 7BR?

Deceased person's estate is not available for Ch 7 BR, but if a person diesduring petition, continues

40. What properties obtained subsequent to the filingdate are considered part of the estate?

-property received within 180 days in the following manners:inheritance, life insurance, property settlement with spouse-Income from property owned by estate

41. Who are exempt from forced chapter 7 BR? -Persons (or partnerships, corporations) who owe less than $14,425-Farmers-Charitable organizations

42. Who are NOT allowed to file Chapter 7 BR? Railroads, banking institutions, insurance companies.

43. Who are NOT allowed to file Chapter 11 BR? Stockbrokers/Commodity brokers

Bankruptcy



1. Burden of Proof Taxpayer has burden of proof (most cases). The IRS has burden of proof in any courtproceedings on income, gift, estate or generation-skipping tax

2. Failure to File Penalty 5% of the amount of the tax due for each month, not to exceed 25% of the amount of tax due

3. Failure to Pay Penalty .5% per month up to a maximum of 25% of the unpaid tax

4. General Avoidance of Penalties 1. Had reasonable cause to support the tax return position (relied upon advice of CPA or taxattorney)2. Acted in good faith and 3. Did not have willful neglect

5. Hierarchy of Authority in the TaxLaw

1. IRC2. IRS Regs3. Tax Court Decisions4. IRS Agents' Reports

6. More Likely than Not Standard position that has more than a 50% chance of succeeding

7. Multi-Jurisdictional Tax Issueson Federal Taxation

transfer pricing

8. Notice of Deficiency 90-day letter is issued. the taxpayer has 90 days to file a petition with the US Tax Court

9. Reasonable Basis Standard position that has at least 20% chance of succeeding

10. Substantial Authority Standard position that has more than 33% chance of succeeding but less than 50% chance

11. Timing of Audits Most individual returns are audited within 2 years from the date of filing the return. Largecorporations are subject to annual audits.

12. US Court of Appeals three judge panel (no jury)

13. US District Courts general trial courts of the US federal court system. Taxpayer must first pay disputed tax liabilityand then sue IRS for refund

14. US Supreme Court highest court in the nation and is the last level of appeal

15. US Tax Court only hear Federal tax cases

Federal Tax Procedures and Legislative Process



1. Age discrimination -Employers with 20 or more employees, unions, employment agencies, federal government-Generally apply to individuals at least 40 years old-Discriminated based on age

2. Age Discrimination In EmploymentAct (ADEA)

Law that prohibits discrimination against people who are 40 and older

3. Amendment of 1950 to the ClaytonAct of 1914

-Added prohibition of the acquisition of assets of another corporation where the effects mightlessen competition-Both assets and stock acquisition covered

4. Americans with disabilities (ADA) -Forbids companies and most other entities from discriminating against qualified personswith a disability-Reasonable accommodations: acquiring new equipment, modifying facilities, restructuringjobs, modifying work schedules, etc unless causes undue hardship on employer-Enforced by attorney general or private legal action

5. Americans with Disabilities Act(ADA)

Prohibits discrimination against differently abled persons. Includes both physical andmental disabilities.

6. Antitrust Law -Promote the production and distribution of goods and services in the most economical andefficient manner by preserving free, competitive markets-Regulated by federal laws

7. Basic programs of the FederalSecurity Act

-Old age insurance-Survivor's and disability insurance-Hospital Insurance (Medicare)-Unemployment insurance

8. Bona fide occupational qualification(BFOQ)

An employer's defense to a claim of employment discrimination based on title VII. Theemployer is claiming to have a legitimate reason, usually related to job qualifications, forwhat appears to be discrimination.

9. Can employers not opt for workers'comp insurance?

Yes, but must show proof of financial responsibility to carry own risk

10. Clean Air Act Establishes air quality standards that states enforce.

11. Clean Air Act -National Ambient Air Quality Standards (NAAQS) by EPA-Protect public health and welfare-States must submit SIP (state implementation plan) on how to achieve NAAQS-New stationary sources must show they are using the best technological system ofemissions reduction-Regulate various toxic pollutants, including those that affect acid rain and ozone layer-Private citizens may sue violators and federal/state officials who fail to take action-Federal government may force recall autos violating emissions regulations-EPA can assess civil penalties per violation: companies violating clean air act can bepenalized equal to benefit company receives by not complying, hit with felony, and can holdcorporate officers criminally liable-Companies can trade rights to pollute

12. Clean Water Act Establishes water quality standards that states enforce.

13. Clean Water Act -Reduce, eliminate, prevent pollution of rivers, seas, ponds, wetlands, etc-EPA creates framework, states responsible for making sure they are met-Provides fines and prison for neglect or knowing violations or endangerment

14. Comprehensive EnvironmentalResponse, Compensation, andLiability Act (CERCLA)

Creates a strict liability system for the cleanup of hazardous waste sites and spills

15. Conglomerate mergers Companies merging together who are not in the same industry, IE food and radio

Regulations of Business Employment, Environment, and Antitrust



16. Consolidated OmnibusBudget Reconciliation Act(COBRA)

Allows former employees, at their own expense, to continue coverage of their group health plan for up to18 months after losing their job.

17. Contracts in restrain thatare legal

-Seller of business agrees not to compete with buyer for reasonable time and geographic area AND ifproper business interest is sought to be protected

18. Contracts in restraintthat are illegal

-Unenforceable by the parties, in addition to possible criminal or civil penalties and injunctions

-Vertical restraints/Horizontal restraints

19. Defense against Title VIIof 1964 Civil Rights Act?

-If discrimination is bonafide occupational qualification reasonably necessary to the normal operation ofthat particular enterprise-Bona fide seniority/merit system-Professionally developed employment testing and education requirements-National security reasonsNO BFOQ exist for discrimination on the basis of race or color.

20. Elective vs CompulsoryStatutes

Elective = election to accept/waive, compulsory = mandatory

Most states have compulsory workers' compensation statutes

21. Employee Retirementincome Security Act(ERISA)

Regulates pension plans for companies that choose to have pensions.

22. Employer's duties forFICA

-Withhold FICA from wages, match dollar for dollar, submit to government -Can be fined for failure to make timely deposits, failure to supply tax ID #-Will be liable if he did not withhold employee's share. Can collect from employee afterwards-Furnish employee with written statement of wages paid and FICA contributions withheld

23. Environmentalcompliance audit

A voluntary review by a company to ensure that it is in compliance with with the various environmentallaws.

24. Environmental impactstatement

A report required for any federal action that will significantly impact the environment.

25. EnvironmentalProtection Agency (EPA)

Primary enforcer and administrator of environmental laws and regulations

26. EnvironmentalRegulation underCommon Law

-Parties may be liable under doctrine of nuisance, must prove that using property in manner thatunreasonably interferes with another's right to use, and that their injury is distinct from harm to public ingeneral. -Businesses may be liable for negligence or under strict liability if involved in ultra hazardous activities

27. EPA -Enforce federal environmental laws using administrative orders/civil penalties, and refer criminal/civilactions to Department of Justice-Adopts regulations and conducts research on effects of pollution-Most environmental statutes provide for criminal liability, but EPA uses civil suits more than criminalprosecutions because civil suits require preponderance of evidence to win but criminal convictions requireproof beyond a reasonable doubt-Private citizens may sue violators or EPA to enforce compliance with laws

28. Equal Pay Act Requires equal pay for equal work for both sexes, difference must be based on merit, quality of work,seniority, shift differentials-Enforced by EEOC-Remedy = backpay




29. ERISA -Employee Retirement Income Security Act-Employers NOT required to set one up-But if he does, then:Employee contribution vest immediatelyEmployee's rights to employers' contribution vest from 5-7 years after beginning employment, based onformulas in lawStandards on investment of fundsCovered plans must give annual reports to employees in planPlan must be in writingPlan manager must be named, who becomes fiduciary-Maximum punishment for violations of Act by individuals: imprisonment of 10 years and fine of$100,000-Max punishment by entity, fine $500,000-Sarbanes Oxley act requires administrators of employee benefit and profit sharing plans to provideparticipants and beneficiaries thirty day advance notice of blackout periods when their rights aretemporarily suspended to make changes in plan

30. Exceptions to antitrustlaws

-Labor unions unless they join with nonlabor group and act in violation-Patents (20 years unless design patent, in which case 14)-Copyrights (author's life + 70 years, for publishers 95 years after publication or 120 years after creation)-Trademarks (indefinite number of renewals-Insurance business that is covered by state regulations-US exporters-State allowed to have quotas on oil marketed for interstate commerce-Agricultural cooperatives-State government actions-Legislative activities such as lobbying-Professional baseball

31. Fair labor Standards Act(FLSA)

Federal law that regulates minimum wage, employment hours, and child labor.

32. Family and Medical LeaveAct

Allows employees to take up to 12 weeks of unpaid leave to deal with family and medical issues.

33. Family and Medical LeaveAct

-Covered employees employed for at least 12 months for at least 1250 hours by employer having at least 50employees-Employees can take up to 12 work weeks of leave during a 12 month period for:Serious Health ProblemCare for serious health problem of parent, spouse, or childBirth and care of babyChild placed with employee for adoption or foster care-When employee returns, must get back same or equivalent position-Returning employees cannot lose benefits due to leave

34. Federal ConsolidatedOmnibus BudgetReconciliation Act

-COBRA-When employee quits, he may keep same group health insurance coverage for 18 months for him and hisspouse if he pays for it, and the employer had 20 or more employees

35. Federal EmployeePolygraph Protection Actand Drug Testing

-Private employers may not require employees to take lie detector test or make adverse employmentdecision based on tests/refusal to take test-Security issue, national defense, drug manufacturer/distributors can use lie detector-Private employer may use lie detector as part of investigation of economic loss when there is reason,limited to questions pertaining to the topic

-Preemployment drug testing ruled legal-If employer has reasonable suspicion, may test current employees




36. Federal Fair LaborStandards Act

-All businesses that affect interstate commerce must pay employees minimum wage (unless under 20 canbe hired for less for 90 calendar days)-Employees working over 40 hours per week must be paid 1.5x-Employees not covered by FFLSA: professionals, executives, outside salesperson, etc-Employees covered by minimum wage but not overtime: taxi drivers, railroad employees-Enforced by Department of Labor and may include fines/prison

37. Federal InsuranceContributions Act (FICA)

Law that requires employers and employees to each pay half of the social security tax. Self-employedindividuals must pay the entire tax.

38. Federal TradeCommission Act of 1914

-Created FTC-Prohibits unfair methods of competition and deceptive practices involving advertising, telemarketing,electronic advertising-Enforces sanction

39. Federal UnemploymentTax Act (FUTA)

Provides temporary payments to workers who have lost their jobs through no fault of their own.

40. FICA payments Only up to base amount that is changed frequently-If employee pays more FICA tax than on base amount, entitled to refund (usually happens whenemployee works two jobs)

UNLESS for Medicare, in which there is no earnings cap for the Medicare portion. Pays tax on all wagesearned.

41. FTC powers -authority to enforce most of the antitrust laws, but not criminal violations-exclusive authority to enforce Act's prohibitions (individuals cant enforce)-authority to determine what practices are unfair or undesirable

42. FUTA -Federal Unemployment Tax Act-Provide unemployment compensation benefit to workers who lose jobs and cannot find replacementwork-Must be paid by employer if employer employs one or more persons covered by act (deductible)

43. Health insuranceportability andaccountability act

-Cant exclude preexisting conditions in employer sponsored group health insurance policies

44. Horizontal restraint An agreement among competing economic entities that limits competition

45. How to treat cost ofWorkers' compensation?

Expense of production

46. Identity Theft -Increased penalties for identity theft-FTC is appointed to help victims to restore credit and minimize impacts

47. Landrum Griffin Act Amended NLRA to regulate union abuses against its own members-Requires extensive financial reporting involving unions-Civil and criminal action against misdeeds of union officers-Bill of rights for union members

48. Merger Two separate economic entities that combine into one company. Only mergers that will result in asubstantially lessening of competition violate the antitrust laws.

49. Monopolization When a firm has monopoly power in the relevant market and keeps others out of the market throughmethods other than legitimate competition.

50. Monopoly power A firm has the ability to exclude competitors and control prices in the relevant market.

51. National EnvironmentalPolicy Act

-Require all federal agencies to consider environmental factors in all major decision, and to prepareenvironmental impact statement (EIS) when proposing action/laws that significantly affect environment-Natural, aesthetic, cultural, etc -Private parties must also submit EIS-If EIS not warranted, then submit public document called Finding of No Significant Impact




52. National Labor Relations Act (NLRA) -Employees may join, assist, form labor orgs-NLRB (board) runs and supervises union elections-Management and union must collectively bargain-MUST: wages, hours, conditions of employment (benefit, safety, seniority rules, etc)-CANNOT: featherbedding (require employer to pay employee for work not actuallyperformed), involving other parties not directly involved in labor dispute-Allows for strikes, but can only be about a mandatory bargaining subject-Not protected by NLRA: employees of government, agriculture, management level,railroad

53. National Labor Relations Act (NLRA) Legislation that regulates the union/management relationship.

54. Occupational Safety and health Act(OSHA)

Creates workplace standards of health and safety.

55. Old age, survivor's, and disabilityinsurance - how to get

Availability of benefits depends upon attainment of insured status by working certainlength of time

56. Old age, survivor's, and disabilityinsurance- amount of benefit dependson...

-Average monthly earnings-Relationship of beneficiary to retired, deceased, or disabled-Cost of living-Time of retirement (delayed = increased, early = decreased)

57. OSHA Occupational Safety and Health Act.

-Applies to all employees except federal/state government, and certain other industrieswho are subject to other safety regulations-Promote safety standards and job safety-Occupational Safety and Health Administration administers this law

58. OSHA duties -Develop and enforce standards in work place on health and safety-Investigate complaints and makes inspections of workplace. May need warrant, canget warrant via high employee complaint rate -Require employers to keep records of job related injuries and to report seriousaccidents to OSHA-Prohibit employers from discriminating against or discharging employees whoexercise OSHA rights-Assess civil penalties for violations

59. Per se rule Applies to inherently anticompetitive activities that are automatically illegal

60. Percentage share of the relevant market todetermine whether monopoly

-Various cases now generally hold that 70% of the relevant market is presumption ofmonopoly power-Less than 50% of the market is presumption of no monopoly power-A much lower percentage will suffice if the charge is attempting to monopolize ratherthan holding monopoly power

61. Price discrimination Sellers charging different buyers different prices for the same product

62. Quid pro quo This for that, as in exchanges.

63. Reduce the potential for monopolythrough mergers

-Acquisitions tending to create monopoly are violations, even if they don't actuallycreate a monopoly. Use percentage of market (product and geography) test

64. Relevant market Refers to the meaningful areas of competition both geographically and by product

65. Remedies for successful claimants underTitle VII

-Back pay-Job or Promotion-Retroactive seniority-Compensatory damages, and in extreme cases punitive damages for cases involvingintentional discrimination

66. Restraint of trade An agreement that limits competition

67. Rights to Email -Employees have no expectation of privacy using employer's email systems, evenwithout warning




68. Robinson-Patman Act of1936

Prohibits price discrimination unless there is cost justification

69. Rule of reason If a restraint of trade does not fall under the per se rule, then it is analyzed under the rule of reason,which balances the procompetitive effects of the agreement versus the anticompetitive effects.

70. Safe Drinking Water Act Regulates safety of tap water supplied to homes-EPA prepares new list every 3 years that identifies contaminants, most recent threat is terrorism-Prohibits discharge of waste into wells for drinking water

71. Sanctions under FTCA Cease and desistCivil penaltyEach day continued violation is separate offenseFTC may use CaD orders for Sherman/Clayton Act

72. Sanctions under ShermanAct

-Injunctions, forced divisions, forced divestiture (by individuals, corporations, or government)-Criminal penalties (by government)-Treble damages (by individuals and corporations)

73. Self EmploymentContributions Act taxdeductions

-Self employed can deduct half of FICA tax paid on his income tax form

74. Social Security Act Provides income/benefits to retirees, disabled workers, and dependents of deceased workers.

75. Sources of financing forSocial Security Programs

-Old age, survivor's, disabilities, and hospital insurance programs are financed out of taxes paid byemployers, employees, and self-employed (FICA and SECA)-Unemployment insurance programs are financed out of taxes paid by employers under FUTA and otherstate laws.

76. State implementation plan Plan submitted by a state to show the EPA how the state will achieve the environmental standards set bythe EPA

77. State unemployment tax -Employers must pay-Entitled to credit against federal unemployment tax for state unemployment taxes paid-May be raised or lowered according to number of claims against employer-If employer pays low rate because of good employment records, entitled to additional credit againstfederal unemployment tax

78. Tax deductions for FICA -Employer may deduct taxes paid on tax return, but employee may not

79. Title VII of 1964 CivilRights Act

-Forbids discrimination in employment based on race, color, religion, sex, or national origin in hiring,promoting, transferring, firing, compensating employees.

80. Title VII of the 1964 CivilRights Act

Prohibits discrimination on the basis of race, color, religion, national origin, or gender in all aspects ofemployment.

81. Treble damages One of the remedies for a private party who successfully proves an antitrust violation; the private partyreceives three times its actual damages

82. Tying Arrangement Seller of a desired product forces a buyer to purchase an additional product if the buyer wants the desiredproduct

83. Tying arrangements -Where seller forces buyer to take one or more other products as a condition to acquiring the desiredproduct-3 elements must be met to be considered illegaltwo separate productsthere must be economic power in the tying market, meaning 30% market share or more in tying market,or that the product is uniqueSubstantial commerce in the tied market

84. Unemployment benefits -Depends on state laws (eligibility, benefits)-Self employed not included-Generally only for people who are unemployed through no fault of their own-Not available for seasonable workers if paid on yearly basis-One must have worked for a specified time and/or earned specified amount of wages




85. Vertical restrain of trade An agreement between separate economic entities in the chain of distribution thatlimits competition.

86. Vocational rehabilitation act of 1973 Any employer with federal contracts over $2,500 must take affirmative action toemploy and advance qualified handicapped individuals

87. What are employer's common law defensesagainst injuries or disease sustained in theworkplace?

Assumption of risk, negligence of a fellow employee, contributory negligence.

These are NOT allowed under the workers' compensation act

88. What are the main purposes of the ClaytonAct of 1914?

-Supplement the Sherman Act to prohibit a corporation from acquiring the stock of acompeting corporation (merger) where the effect MIGHT substantially lessencompetition or create a monopoly-Prohibit interlocking directorates-Prohibits tying arrangements if meets certain conditions

89. What can an employer do against a thirdparty in a work related injury?

-If employee sues and recovers, employer or insurance is entitled to compensation forworkers' comp paid to employee-If employee accepts workers' comp, employer or insurance is subrogated to rights ofemployee, so can sue third party

90. What can/can't an employee who is eligiblefor workers' comp legally do?

-Can't sue employer unless harm was intentionally done by employer-Can sue insurance company if they refuse payment-Sole remedy against employer is that provided for under appropriate workers'compensation act

91. What does the Sherman Act of 1890 do? Makes contracts, combinations, conspiracies, or agreements in restrain of tradeillegal under Section 1.Makes monopolization illegal under Section 2Allows for sanctions (both civil and government prosecutions available)

92. What does the workers' comp cover? -All employees who are injured on the job or in the course of employment-Occupational diseases and preexisting diseases that are aggravated by employment-Does not cover employees travelling to and from work

93. What happens if employer fails to provideworkers' comp or if coverage isinadequate?

-Employee may sue in common law for damages, employer cannot resort to commonlaw defenses-State fund can pay employee, and then state can sue/penalize employer

94. What is necessary for payment underworkers' compensation?

Workers' compensation is a form of strict liability where the employer is liable, so nofault need be shown. Payment automatic upon satisfaction of requirements

95. What is per se? -It means that the restrain is automatically illegal- so inherently anticompetitive thatthere can be no valid justification to engage in such activities-Usually, per se applies to horizontal restrains of trade: price fixing, joint boycotts,territorial limitations

96. What is required to violate Section 2 of SA? -Percentage share-Intent: if monopoly is thrust upon the defendant, then not illegal

97. What is rule of reason? Balances procompetitive effects of the agreement vs the anticompetitive effects ofagreement to determine legality-All vertical restrains are subject to rule of reason: resale price maintenance,interbrand and intrabrand competition, vertical territorial limitations are only illegalif unreasonable

98. What makes restrain on trade illegal underSection 1 of SA?

-Must be between two economic entities-Has to be unreasonable (per se and rule of reason)-Agreement is necessary

99. When can a suit be filed? Before completion (preliminary injunction)After completion (forced divestiture)




100. When can an employee NOT recoverfrom workers' compensation act?

Intentional self infliction or intoxication can bar recovery.

Negligence, gross negligence does not bar or even affect determination of amount ofbenefit awardedDoes not matter if employee did not follow employer's rules

101. Whistle-Blower Protection Act -Federal law that protects federal employees from retaliation by employers for reportingemployer legal violations-Most states have it too

102. Who enforces antitrust laws? -DoJ: enforces Sherman Act and Clayton Act, may seek criminal penalties-Federal trade commission (FTC): enforces Clayton Act and Federal Trade CommissionAct, may only pursue civil enforcement-Private parties: entitled to treble damages and reasonable attorney fees, only pursue civilenforcement

103. Who enforces title VII of 1964 CivilRights Act?

-Equal Employment Opportunity Commission (EEOC), a federal governmentadministrative agency-individuals may also sue

104. Who is subject to Title VII of 1964 CivilRights Act?

Any employers and labor unions having 15 or more employees whose business affectsinterstate commerce, and government employers and employment agencies.

105. Who qualifies as an "employer" forFUTA?

-Employs one person or more for some portion of a day for twenty weeks, or pays $1700 ormore in total wages in any calendar quarter

106. Who regulates workers' compensationact?

States, unless federal government employees, who are covered by federal statute

107. Worker Adjustment and RetrainingNotification Act

Businesses with 100 or more employees must give 60 day notice before closing a plant orhaving mass layoffs to employees, state, and local officialsShorter notice for emergencies or failing companies

108. Worker's Compensation Provides payment to workers for injuries that are sustained at work or that arise out ofwork. There is a no-fault system.




2013 REG Last Minute Study Notes (Bonus)

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Transcript of 2013 REG Last Minute Study Notes (Bonus)