Cash app: $frontindependent38

Qualifying Child - CARES Qualifying Rela6ve - SUPORT

C – Close rela*ve: Child, sibling, or descendent of sibling S - Support- taxpayer must have provided at least 1/2 of support
A – Age: 19 or 24 if a full *me student U - Under gross income limitation of $5,050 (only includes taxable
R – Residency: Must live with taxpayer for ½ year income)
E – Eliminate gross income test P - Precludes dependent filing a joint return (dependent can't file MFJ)
S – Support: Must not have contributed more than half of own support O - Only citizens of US, Mexico, or Canada
R - Relative (basically anybody but foster parents and cousins)
T - Taxpayer lives with individual (if they're a non-relative) for the ENTIRE
Mul6ple Support Arrangements year
To be considered: must provide more than 10% of support and be a
qualifying rela*ve (R in SUPORT)
No taxpayer can provide more than 50% Children of Divorced Parents
Dependent of parent who has custody for greater part of the year
If equal custody, parent with higher AGI can claim
Filing Status
Alimony
QSS: Must pay ½ costs of maintaining a household where a dependent
Divorce 2018 or earlier: Taxable/deduc*ble
lives for en6re taxable year
Divorce 2019 or later: Not taxable or deduc*ble
HoH: Must be unmarried/separated & maintain a household that is the
principal residence of a qualifying person for at least half (half = h =
HoH). Qualifying person: Nontaxable Fringe Benefits
• Dependent child Excluded from employee’s income:
• Rela*ve (SUPORT test) • Employer paid health insurance premiums
• Parent (not required to live with taxpayer) • Meals & lodging (convenience of employer)
• Employer payment of educa*on expenses (up to $5,250)
• Employee adop*on assistance (Up to $5,250)
Tax Exempt Interest Income
• Dependent care assistance (Up to $5,000)
State & local government bonds
o Children under 13 or incapable dependent)
U.S. series EE savings bonds IF:
• Qualified tui*on reduc*on – Undergrads or graduate Tas that are
• Used to pay for higher educa*on
also receiving pay
• Taxpayer is over 24 when issued
• Qualified employee discount
• Married filing jointly
o Merchandise: Exclude GP percentage
• Meets income requirements
o Service: Exclude 20% of FMV
• Bonds must be registered in taxpayer’s name
• Life insurance coverage: excludable up to $50k for group term
• Phase out: $96,800-$111,800 | $145,200-$175,200
Forfeited interest – Amount forfeit is deduc*ble as an adj. in the year the
penalty is incurred
Cash app: $frontindependent38
Social Security Income
Low income: No social security income is taxable (MAGI < 25k | 32k)
Dividend Income Middle income: Up to 50% taxable (MAGI 25k-34k | 32k-44k)
From corporate E&P: Taxable as dividend Upper income: Up to 85% taxable (MAGI > 34k | 44k)
No E&P, taxpayer has basis: Nontaxable and reduces basis (RoC)
No E&P, taxpayer has no basis: Taxable capital gain State & Local Tax Refunds
Qualified dividends Interest paid by the state on a late refund is taxable
Paid by domes*c or certain foreign corps If taxpayer itemized in the PY, refund is taxable to the extent itemized
Preferen*al tax rate deductions exceeded std. deduction
Nonqualified dividends If taxpayer took std. deduction in PY, refund is nontaxable
ESOP
Dividends are taken into account as investment income
Dividends paid by credit unions, mutual savings banks, etc. Rental Income
Calculated on Sch. E
Annui6es Net amount is reported on 1040
Fixed period Net amount = Rental Income – total rental expenses
Annuity exclusion ra*o = Original investment/expected value of annuity
Expected value = number of payments x amount of each payment Scholarships
Taxable = Amount of each payment x (1 – exclusion ra*on) Degree seeking student: Scholarships are excludable up to the amount
Life6me annuity actually spent on tuition, fees, books, and supplies (not R&B)
Nontaxable por*on = Original investment/factor from IRS life expectancy • No services are to be performed as a condition
If taxpayer lives longer • Grant is not made in consideration for past, present, future
Nonqualified dividends services
ESOP Non-degree seeking student
Dividends are taken into account as investment income Scholarships are fully taxable
Dividends paid by credit unions, mutual savings banks, etc.
Life Insurance Proceeds
Proceeds paid because of death of insured or to pay for LT care are not
Foreign Earned Income
taxable
Taxpayers abroad can exclude $126,500 of foreign earned income if: Interest income on deferred payout arrangements is full taxable
• Bona Fide Residence Test: Must have been BF resident
• Physical Prescence: Taxpayer must have been present in the
foreign country for 330 full days out of any 12 consecu*ve month
period
Cash app: $frontindependent38

Nondeduc6ble business expenses

Interest Expense on Business Loans
Salaries paid to sole proprietor
Limita*on on deduc*on for businesses with $30mil+ in avg. gross receipts
Federal income tax
for past three taxable years:
Personal por*on of travel/meal expense
Business interest income + 30% of ATI + Floor plan financing int. exp
• If foreign travel was primarily personal none of the travel expenses
Disallowed interest expense can be carried forward indefinitely
(e.g. air fare) are deduc*ble
Charitable contribu*ons
Entertainment expense
Investment expenses
Roth IRAs
BDE of cash basis taxpayer
Qualified distribu*on must be:
• Made at least 5 years aqer the first day of the year the taxpayer
made their first contribu*on Calcula6on of Self-Employment Taxes
Taxpayer must be: Net earnings from SE = Earnings x 92.35%
• 59 ½ or older Self-employment taxes = Net earnings x 15.3%
Partner’s share of partnership ord. business income is self-employment tax
• Disabled
if partner is ac*vely involved
• First *me homebuyer and uses the distribu*on to purchase a
Does not include interest income
home (max $10,000)
• Distribu*on is made to a beneficiary aqer the taxpayer’s death
Excep6on to IRA Penalty Taxes if used to pay for:
HIM-DEAD-TED Rental Income or Loss
H – Homebuyer: First *me distribu*on used for home purchases (10k) Reported on Sch. E
I – Insurance: If unemployed with 12 weeks of comp Net rental income = Gross rental income + prepaid rental income + rent
M – Medical expenses in excess of % AGI floor cancella*on payment + improvement in lieu of rent – rental expenses
D – Disability: Only permanent/indefinite Nonrefundable deposit is included in year it is paid
E – Educa*on: Books, fees, tui*on Real estate taxes are deduc*ble whether residence is rented or not, but
A - Adop*on/Childbirth: made within one year ($5k max exclusion) rental determines if it is reported as itemized deduc*on or on Sch. E
D – Disaster: Qualified natural disasters Rental of Residence
T – Terminal illness or death of account owner Rented fewer than 15 days:
E – Emergency expense (up to $1,000 per year) • Income is excludable
D – Domes*c abuse vic*ms (lesser of 10k or 50% re*rement) • Mortgage interest & real estate taxes = itemized deduc*ons
Rented more than 15 days:
• Must be used personally for 14 days or 10% of rented days
Tax basis loss limita6ons
• Expenses must be prorated between personal and rental use
Partnership ending capital account:
Nonresidence rental
Beginning capital account
+/- % of income/losses Include in gross income & deduct rental expenses on Sch. E
- Distribu*ons Ac*ve par*cipant in rental ac*vity can deduct up to $25k of rental loss
Ending capital account against nonpassive income
Partnership ending tax basis:
Cash app: $frontindependent38

Capital account Roth IRA contribu6on limit

+ % partnership liabili*es Filing Status MAGI Phase-Out
Ending tax basis Unmarried $146k-$161k
Loss in excess of partners tax basis is Separately Stated Items
MFJ $230k-$240k
suspended un*l tax basis is Taxed when earned, not when distributed to shareholders
MFS $0-$10k
reinstated • Rental real estate income
Loss is carried forward indefinitely • Interest & Dividend income
Guaranteed Payments
Deduc*ble business expense • Royal*es
Separately stated item • Net ST & LT capital gains and losses
Subject to self employment tax • Net sec*on 1231 gains and losses
• Charitable contribu*ons
Cash app: $frontindependent38

Excess business loss limita6ons Adjustments for AGI

Excess of business deduc*ons over business income + threshold ($305k | Student loan interest
$610k) Limited to $2,500
Combined business loss in excess of threshold is carried forward as NOL Married taxpayers must file jointly
NOL before 2017: May not be dependent
• Can offset 100% of future taxable income Only deduc*ble on loans incurred by taxpayer solely to pay for qualified
• CB 2 years, CF 20yrs educa*on expenses
NOL 2018-2020: Phased out: MFJ $165k-195k; All others $80k-$95k
• CB 5 years, CF forever Health Savings Account
• Can offset 100% of taxable income through 2020, 80% aqer Pretax contribu*ons of $4,150 ($8,300 for families)
NOL 2020 onward: Distribu*ons to pay for med. Exp is not taxed
• No CB, CF forever Distribu*ons not used to pay med. Exp is taxed and 20% penalty tax
• Offset 80% of future income High deduc*ble plan: $1,600 annual deduc*ble ($3,200 for families)
Moving expenses
Standard Deduc6on of dependent Deduc*ons are only allowed for members of armed forces on ac*ve duty
Greater of $1,300 or earned income + $450 Alimony
Adj. if divorce is executed before Dec. 2018
Medical Expenses (Itemized Deduc6on) ASorney fees in discrimina6on cases
Qualified med exp paid = Qualified med. Exp. – insurance reimbursement Are an adj and limited to amount claimed from judgment
Med exp. Deduc*on = Med exp paid – 7.5% of AGI Bank Penal6es
Allowable: Prescrip*on drugs, doctors, ins. Premiums, necessary surgery, Adjustment for AGI
transport to/from med facility, physically disabled costs Educator Expenses
Nonallowable: Elec*ve surgery, illegal drugs, travel, vitamins, funerals, Full *me K-12 teachers can deduct up to $300 of qualified expenses
cemetery, life insurance, health club memberships Individual Re6rement Accounts (Adj. allowed for deduc*ble trad. IRAs)
Cost of a home improvement is an allowable itemized medical deduc*on Annual max contribu*on is limited to the lesser of earned income and:
to the extent it exceeds any increase in the fair market value of the home Under 50 50+
• Includes increase in u*lity bills Married $7,000 $8,000
Unmarried $14,000 $16,000
Casualty losses (Itemized Deduc6on)
Adjustments for Self-Employed taxpayers
Amount of loss is lesser of
1. FMV of property before casualty – FMV immediately aqer Not deducted on Sch. C – deducted on face of 1040
2. Adjusted basis 50% of self-employment tax is an adjustment
Smaller loss Self Employed health insurance premiums paid for taxpayer, spouse, &
(insurance recovery) dependents
Self-employed re6rement plans
Taxpayer’s loss (SE Net income – Half of SE tax deduc*on) = SE Net income
($100) SEP IRA: Max contribu*on is lesser of a) 69k or b) 20% x SE Net income
Eligible loss Simple IRA: Max cont. is lesser of a) $16k or b) 100% of SE Net income
(10% of AGI) Solo 401k: Max cont. is lesser of $69k or b) 20% of SE net income
Deduc6ble loss
Cash app: $frontindependent38
SALT (Itemized Deduc6on)
Deduc*on limited to $10,000 in aggregate of income, prop, and sales tax Gambling Losses (Itemized Deduc6on)
Deduc*ble to extent of gambling winnings
Real estate
Prorated in year of sales or purchase Interest (Itemized Deduc6ons)
Taxes allocated to home office is deduc*ble on Sch. C Home mortgage interest
Personal Property taxes Only for 1st/2nd home
Tax must be based on value of prop & paid during the year Interest on up to $750k of home related indebtedness is deduc*ble
Income Tax (State & Local) Points to purchase à Deduc*ble
Taxes withheld from paycheck during year are deduc*ble Points to refinance à Capitalized and amor*zed
Est. taxes paid during the year are deduc*ble Investment Interest
Sales tax Limited to net taxable investment interest income
Can deduct SALT income tax or SALT gen. sales tax Include in taxable inv. Income: Interest, nonqualified dividends, STCG,
Amount is determined by actual sales tax or IRS table royal*es
Non-Deduc6ble taxes Personal Interest
Federal taxes Not deduc*ble
State inheritance taxes Prepaid interest
Business Deducted when incurred and paid
Rental property taxes Interest income is taxable in the year received
Educa6on loan interest
Charitable Contribu6ons (Itemized Deduc6on) Not deduc*ble – adj. for AGI
Ordinary income property: Deduc*on is lesser of adj. basis or FMV at
QBI: Under beginning threshold
contribu*on
Taxable income less than $191,950 single | $383,900 MFJ
Public/Private Ops Private Non-Ops
1. QBI deduc*on = 20% of QBI
Cash 60% of AGI 30% of AGI
2. Overall limit = (Taxable income before QBI deduc*on – net capital
Ord. income property 50% of AGI 30% of AGI
gains) x 20%
LTCG property 50% of AGI 20% of AGI
3. Choose lesser of step 1 and 2
Excess is carried forward 5 years
No difference for QBI vs. SSTB
Student living in home: Deduct $50 per month
QBI: Over ending threshold
Refundable tax credits Taxable income more than $241,951 single | $483,900 MFJ
Child tax credit (limited) SSTB: No QBI deduc*on
Earned income credit QTB: 5 step process
Federal income tax withheld 1. Tenta*ve QBI deduc*on = QBI x 20%
Excess social security tax paid 2. Choose greater of A and B
American opportunity credit (40% refundable) a. Share of W-2 wages x 50%
b. (Share of W-2 wages x 25%) + (UBIS of qual. Prop x 2.5%)
3. Calculate the lesser of step of 1 and 2
4. Calculate overall limit = taxable income x 20%
5. Choose lesser of step 3 and 4
Cash app: $frontindependent38
Educa6on Tax Incen6ves Residen6al Energy Credits
American Opportunity Credit Energy efficient home improvement
For tui*on, fees, and course materials for first four years of college Max 30% of energy efficiency improvements ($1,200 limit)
Max credit is $2,500 per student Residen6al clean energy credit
Up to $1,000 (2,5000 x 40%) is refundable Max 30% of installa*on costs for solar, wind, geothermal
Life6me Learning Credit (non-refundable) Clean vehicle credit
For tui*on and fees for unlimited number of years for 1 student per Max $7,500 for new electric vehicles
taxpayer Max $4,000 for pre-owned electric vehicles
20% of expenses up to $10k ($2k max) Alt. Fuel Refueling
Cordell Educa6on Savings Account (non-refundable) 30% of installa*on cost of qualified alt. fuel vehicle refueling (max
Pays for educa*on expense of beneficiary $1,000)
Must be distributed before taxpayer turns 30 Addi6onal Medicare Tax
Max contribu*on is $2k Addi*onal .09% imposed on wages in excess of $200k | $250k
Nonrefundable tax credits
Child & dependent care Foreign Tax credit
Available for taxpayers who a) maintain a household, b) work, c) incur eligible Could itemize or take the credit
expenses for a dependent under 13 Credit = (taxable income from all foreign opera*ons/total taxable worldwide
Max. qualifying expenditures: $3,000 for 1 qualifying person, $6,000 for 2 income) x US tax
• If AGI <15k: Take 35% of expenditures Limited to foreign taxes paid
• If AGI >43k: Take 20% of expenditures CB 1 year or CF 10 years
• If AGI 15k-43k: Decrease credit by 1% for each 2k over 15k
Limited to lowest earned income of either spouse
Elderly or Permanently Disabled Small business Re6rement plan start up
15% of eligible income for 65+ or permanently disabled Greater of:
Calculate Credit Single MFJ a) 100% of first $1k eligible startup costs for employees with <50
Base amount $5,000 $7,500 employees
Less: SS Benefits (All SS Benefits) (All SS Benefits) b) Lesser of: $250 for each employee who is eligible or $5,000
Less: ½ taxpayer’s AGI (1/2 AGI over $7,500) (1/2 AGI over $10k)
x tax credit rate 15% 15%
Credit Amount Credit Amount
Adop6on Credit Max credit allowed = $16,180 Work opportunity credit
CF for up to 5 years For employees who hire from targeted groups
Phase out for MAGI $252k-$292k 40% of first 6k of first year wages (first 3k for summer youth)
Medical expenses do not qualify
Re6rement Savings Contribu6ons Credit General Business Credit
For taxpayers who are 1) 18+, 2) not a FT student and 3) not a dependent Max credit = 100% of tax liability up to $25k + (Excess liability x 75%)
Max contribu*on is $2,000 CB 1 year, CF 20 years
Credit is contribu*on x 50%, 30%, 10% or 0%, depending on AGI
Cash app: $frontindependent38
Refundable tax credits Es6mated taxes Net investment income tax
Child tax credit Taxpayer must make quarterly payments of: 3.8% tax to NII if AGI exceeds 200k | 250k
$2,000 for each qualifying child (CARES rules) a) 90% of CY tax liability Used on lesser of NII or excess AGI over
• Child must be under 17 b) 100% of PY tax liability threshold
Reduce credit by $50 for each $1k MAGI exceeds limit (200k | 400k) If AGI > $150k, 110% of PY tax liability
Addi*onal $500 for each dependent who is not a qualifying child
under 17 that is not refundable
Earned income credit
Must be 25-65 years old (if no children)
Live in U.S. for more than half the year
Meet low-income thresholds
Not have more than a specified amount of disqualified income

Kiddie Tax
Net unearned income of a dependent child under 18 is taxed at
parent’s rate
Net unearned income = Child’s unearned income - $2,600
Cash app: $frontindependent38

Gi[ed Property Property converted from personal to business

Donee’s tax basis Basis for deprecia6on
General rule: Donor’s basis (NBV) becomes donee’s basis Lesser of:
Excep0on: If FMV at date of giq is < donor’s NBV, basis depends on 1. Original cost basis adj for improvements
future sales price of asset 2. FMV on date of conversion
1. Sales price > NBV à NBV is basis (normal) Tax basis for gain/loss Adjusted basis = OG cost basis - deprecia*on
2. Sales price < NBV à FMV is basis (loss is recognized) Sold for a gain (sales price > adjusted basis): Adj. basis of property at date of
3. Sales price between NBV and FMV à Sales price is basis sale
Basis for deprecia6on Sold for a loss (Sales price < adj. basis): Lesser of adj basis or FMV at *me of
Lesser of: conversion reduced by an deprecia*on deduc*ons taken aqer conversion
1. NBV of donor at date of giq
2. FMV at date of giq Intangibles
Sec6on 197
Holding period
Intangible assets acquired in connec*on with the purchase of a business
LT gain à pay tax at capital gain rates
Por*on of lump sum purchase price is allocated to intangibles
ST gain à pay tax at ordinary income tax rates
R&D – Expensed immediately
General rule: Recipient gets to absorb the donor’s holding period
Patents – Basis is purchase price
Excep0on: If sales price < FMV, holding period begins at date of giq
• If self created, includes cost of development, legal, and gov fees

Organiza6on costs and start up costs

Inherited Property Immediately expense first $5k of org costs and first $5k of start-up
Basis $5k allowance is reduced dollar for dollar when total costs exceed $50k
General rule: FMV of property at the date of death Costs immediately expensed are amor*zed over 15 years (180 months)
Alternate valua*on date
FMV on AVD may be used to value estate property Assets
Basis of asset is FMV at earlier of distribu*on date of asset or 6 months Capital assets: Held or used for investments or personal use
aqer death • Taxed as capital gain/loss
Holding period: Always long term Noncapital assets: Assets held for sale to customers in ordinary course of
business
Purchasing property for a business • Inventory, AR, assets used in taxpayer’s trade or business
General rule: If useful life is >1 year, capitalize • Taxed as ordinary income/loss
Repairs & maintenance are expensed in period incurred
De Minimis Safe Harbor Rule
Taxpayer with AFS: Deduct items cost up to $5,000
Without AFS: Deduct up to $2,500 per item
If cost is more than allowable amount, en*re cost must be capitalized
Cash app: $frontindependent38
Capital gains and losses rules MACRS – Useful life
$3,000 max deduc*on (per year, individuals only) 3 years: Special tools & racehorses
Deduc*ble against ordinary, passive, or porxolio 5 years: Cars, trucks, computers, copiers
Excess NCL carried forward forever; no CB 7 years: Furniture & fixtures, machinery, other equipment
QSBS – Gain on sale is taxed at 28% 10 years: Boats and other transport equipment
Exclude $10 million gain or 10x taxpayer’s basis in stock- remained is taxed 15 years: Improvements to interior of nonresiden*al buildings
at 28% 20 years: Farm buildings & municipal sewers
Neang Process
Deprecia6on
Gains and losses are neyed within each tax rate group
Half year conven6on
1. Offset STCL against 28% (highest) group
Half year deprecia*on in year of acquisi*on and disposi*on
2. Offset any remaining STCL against LTCG
Mid quarter conven6on
C-Corps
If more than 40% of property is place into service in last quarter of the year
Capital gains taxed at ordinary rates
If disposed of before last year, mul*ple by midquarter conven*on
Losses carried back 3 years and forward five years
• Q1: .5/4 Q2: 1.5/4 Q3: 2.5/4. Q4: 3.5/4
Non-Deduc6ble Losses Real property – Mid month
WRaP Half month of deprecia*on is taken in the year property is placed into service
Wash sales – security is sold for a loss and repurchased within 30 days and disposed of
before/aqer sale ResidenAal: Straight line over 27.5 years
Related party transacAons – loss is disallowed NonresidenAal: Straight line over 39 years = 1/39 = 2.564%
Personal losses – No deduc*on allowed on disposi*on of personal losses

Sec6on 179 Bonus deprecia6on

Max annual deduc*on for 2024: $1,220,000 Allowable bonus deprecia*on percentage depends on the year
Dollar for dollar phase out if property exceeds: $3,050,000 Cannot have been converted from personal to business
1. Phase out = Property placed into service – total phase out amount 1. Property placed into service in year – 179 deduc*on
2. 179 deduc*ons = Max deduc*on – phase out 2. Step 1 x bonus deprecia*on percentage
Cannot be used to create a loss or if you already have an NOL
Cash app: $frontindependent38
Dividends received deduc6on
Trade or business deduc6ons
DRD is lesser of: DRD
Ordinary and necessary expenses paid or incurred during the taxable
1. % x dividends received 0% to < 20% 50%
year are generally deduc*ble
2. % x income 20% to < 80% 65%
Execu6ve compensa6on – Deduc*ble up to $1mil paid to top 5 highest
If DRD results in NOL, use greater value 80% or more 100%
paid officers (Includes CEO & CFO)
Bonus Accruals Deduc*ble in the tax year events occurred that establish Income for calculaAon does not include DRD, NOL CF, or capital loss CB
liability and bonuses are paid within 2.5 months of TP year end
Book income vs taxable
Bad debt expense
Sch. M-1 and M-3 reconcile net income to taxable income
Accrual method: Deduc*on taken when receivable is wriyen off
M-1: Does not dis*nguish between temp. and perm. Differences
Cash method: Never deduc*ble except for uncollec*ble checks
M-3: Dis*nguishes between temp & permanent
Business interest expense
• Large corps with assets of $10mil+ must use M-3
Most interest paid or accrued is deduc*ble
ExcepAon: Limita*on on deduc*on for businesses with $30mil+ in avg. Es6mated Payments
gross receipts for past three taxable years: Corp must pay ¼ of est. taxes on 15th day of 4th, 6th, 9th, 12th months
• Business interest income + 30% of ATI + Floor plan financing int. Under payment penalty assessed if payments are not made on a *mely
exp basis & amount owed on return is $500 or more
• Disallowed interest expense can be carried forward indefinitely
Charitable contribu6ons Corpora6ons other than large corpora6ons
Max deduc*on of 10% of taxable income Never having >$1mil taxable income in past 3 years
Disallowed can be CF 5 years Required to pay lesser of:
Total taxable income: Income before charitable contribu*on deduc*on, • 100% of tax shown on return of CY; or
DRD, and capital loss carryback • 100% of tax shown on return for preceding year
Business or casualty losses General business credit
ParAally destroyed: Loss is limited to lesser of: Includes:
1. Decline in value – ins. reimbursement • Investment credit
2. NBV immediately before the casualty – ins. reimbursement • Work opportunity credit
Fully destroyed: Loss is NBV – ins. reimbursement • Alt. fuels credit
Business gi[s, meals, and entertainment
• R&D credit
GiHs: Deduc*ble up to $25 per recipient per year
• Low-income housing credit
Meals: 50% deduc*ble
• Small employer pension plan start-up credit
Entertainment: Not deduc*ble
Limited to net income tax less 25% of net regular tax liability above $25k
Taxes
Unused credit is CB 1 year and CF 20 years
State, local, and federal payroll taxes are deduc*ble
Federal income taxes are not deduc*ble Foreign tax credit
Capital loss Can be taken as a credit or deduc*on
Deduc*on not allowed – only used to offset capital gains LimitaAon:
CB 3 years; CF 5 years a. U.S. tax liability = U.S. tax rate x WTI
b. Ra*o of FI to WTI = FI/WTI
c. Foreign tax credit limita*on = U.S. tax liability x Ra*o
Cash app: $frontindependent38
Addi6onal Taxes NOLs
Some corps may have to pay accumulated earnings tax or personal holding Prior to 2018: CB 2 years, CF 20; offset 100% of future taxable income
company tax, but never both 2018-2020: CB 5 years, CF forever
Accumulated earnings tax • Offset 100% of TI for 2018-2020
RE > $250k • Offset 80% of TI for 2021 onward
Undistributed money taxed at 20% 2021 onward: No CB, CF forever; offset 80% of taxable income
Personal Holding Company
PHC’s have: S-Corp eligibility
a) More than 50% owned by 5 or less individuals Must be a domes*c corp
b) 60% of adj. ordinary gross income consis*ng of NIRD (passive) All shareholders must consent to elec*on
NIRD: Must have no more than 100 shareholders
N – Net rent (if less than 50% of OGI • Family members may elect to be treated as one shareholder
I – Interest that is taxable May only have one class of stock
R – Royal*es Corpora*ons, partnerships, and nonresident aliens cannot be shareholders
D – Dividends from an unrelated domes*c corp Individuals, estates, and certain trust may be shareholders
Shareholder – own stock held by family members (siblings, ancestors, S-Corp may own an interest in a C-Corp
lineal descendants) S-Corp cannot file consolidated tax return with C-Corp
Undistributed money taxed at 20% S-Corp elec6on 6ming
Exis6ng calendar year corpora6ons:
Filed by March 15 à Effec*ve January 1 of that year
S-Corp income or loss
Filed aqer March 15 à Effec*ve January 1 of next year
Alloca*ons to shareholder are mode on a per share, per day basis
Exis6ng non-calendar year corpora6ons:
Not subject to self-employment
Filed by 15th day of 3rd month à Effec*ve 1st day of that year
Separately stated items Filed aqer 15th day of 3rd month à effec*ve 1st day of next year
Rental real estate income or loss New corpora6ons: Two month graced period from date of incorp.
Interest income Termina6on of S-Elec6on
Dividend income Will terminate as a result of:
Royal*es 1. >50% of vo*ng stock consents
STCG/L 2. Corp. fails to meet any qualifica*ons for S-status (terminated
LTCG/L immediately)
Sec*on 1231 G/L 3. >25% of gross receipts are from passive investment income for 3
Charitable contribu*ons consecu*ve years & corp. has prior c-corp E&P (terminated at
Sec*on 179 beginning of 4th year)
Cannot be reelected un*l 5th year aqer termina*on
Fringe Benefits
Non-shareholder employees à Deduc*ble Tax basis limita6on
Shareholder employees that own 2% or less à Deduc*ble Loss can only be flowed through to extent of shareholder’s basis
Shareholder employees that own 2% or more à Non-deduc*ble Excess loss is suspended un*l tax basis is reinstated
Cash app: $frontindependent38
Accumulated Adjustments Account S-Corp Shareholder Stock basis
Holds E&P Ini*al stock basis (contribu*ons)
AAA is accumulated E&P the year the corpora*on is an S-Corp + Addi*onal Contribu*ons
Earnings are reported on K-1 even if it is not distributed + Income/gain
Distribu*ons may not reduce AAA below 0, but AAA may be nega*ve due - Distribu*ons
to losses & deduc*ons - Nondeduc*ble expenses
- Loss/deduc*on items
Guaranteed Payments Ending basis
Reasonable compensa*on paid to partner for services provided Do not include S-Corp debt in stock basis
Deduc*ble as a business expense Stock basis + debt basis = tax basis
Ordinary & taxable income to the partner Debt basis is increased with loan made from shareholder to S-Corp
Same loss limita*ons as S-Corps
Partner’s Tax Basis
Types of 501(c)(3) Partner’s basis capital account + Share of partnership debt
Private Founda0ons: Must meet two requirements: Partner’s share of debt includes debt partner has personal liability for and
a) Founda*on will distribute income each year as required under tax share of partnership debt secured by property
law Increases in basis: Addi*onal contribu*ons, income/gain, increases in
b) Founda*on will not engage in self-dealing or excess business partnership debt
holdings Decreases in basis: Distribu*ons, loss & deduc*on items, decreases in
Main ac*vity is making grants partnership debt
Public founda0ons: falls into one of the excluded categories:
• Churches Nexus
• Schools Minimum level of contact a taxpayer may have with a state to be subject to
• Colleges is tax
• Hospitals Events that trigger nexus:
• Qualified medical research orgs • Owning or leasing tangible or real property
At least one third of total support must come from government and • Sending employees for training or work
general public • Solici*ng sales in a state
• Providing installa*on, maintenance to customers in state
Alloca6on • Accep*ng/rejec*ng sales or returns in a state
Nonbusiness income Does not apply to sales, franchise, gross receipts tax
Investment income: Allocated to taxpayer’s state of commercial domicile
Rental Income: Allocated to state property is located Federal Limita6ons
Protected under 3 circumstances:
Appor6onment 1. Only business ac*vity is solicita*on of orders for tangible goods
Business Income a. Not services
Average of: 2. Those orders are sent outside the state for acceptance/rejec*on
Property & rent expense in state/total property 3. If accepted, filled by shipment or delivery outside the state
Payroll in state/total payroll
Sales in state/total sales
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Subpart B – Du6es and Restric6ons Circular 230 – Tax returns
Informa6on to be furnished – May withhold informa*on believed to be privileged Prac**oner may not willfully or recklessly sign a tax return
- Must direct IRS to anyone they think possesses the requested informa*on or advise a client to take a posi*on they know or should
Knowledge of omission – Must no*fy client & advise to avoid penal*es and of the know:
consequences 1. Lacks a reasonable basis
Diligence as to accuracy – Must exercise due diligence when relying on work product of 2. Is a willful ayempt to understate tax liability
another 3. Recklessly or inten*onally disregards the tax rules
Prompt disposi6on of pending maSers – Cannot unreasonably delay IRS mayer and regula*ons
Assistance to/from former IRS employees – Cannot accept help from disbarred/suspended
Subpart A – Authority to prac6ce
prac*ce before IRS
Unlimited representa*on rights: Ayorneys, CPAs, Enrolled
Prac6ce by ex-gov employees – No firm can represent government employee unless
agents
isolated
- If employee personally parAcipated in a maTer à can never represent those par*es Documenta6on & Affidavits
- If employee had “official responsibility” for a maTer à cannot represent those Cannot advise taxpayer to take a posi*on that is frivolous
par*es for 2 yrs Cannot advise client to submit document to IRS that will
- If employee parAcipated in development of a rule à Cannot appear before IRS disregard a rule or regula*on unless you believe in good
regarding rule for 1 year faith they can challenge rule
Notary – Can never act as notary for their clients on any tax mayer
Fees – Cannot charge grossly unfair fee rela*ve to industry standard Compliance
ConAngent fees are only allowed in 3 situaAons: Firms procedures: Good internal controls & must show
1. IRS audit of original tax return good faith ayempts to comply
2. Claim for refund of interest or penal6es Poten6al failures to comply: Payern of noncompliance
3. Judicial proceedings through willfulness, recklessness, or gross incompetence
Return of client records – Must promptly return client records necessary to comply w/ - Must educate & test employees
federal tax obliga*ons but can retain copies
Fee dispute:
Sanc6ons
• Must s*ll return records that must be ayached to returns
Secretary of treasury enforces if prac**oner is:
• Addi*onal records may be retained by client must have reasonable access
1. Shown to be incompetent
to review & copy
2. Fails to comply with regula*ons in circular 230
Conflict of interest – May not represent if there is a conflict of interest unless:
3. Willfully misleads/threatens a client with intent to
1. Believes they can competently represent each client
defraud
2. No law prohibits representa*on
3. Each client waives conflict of interest and gives informed consent
Solicita6on – Cannot be false or misleading
- Cannot guarantee you will eliminate or reduce taxes
- Must honor wriyen fees for 30 days aqer publica*on
- Can communicate fee anyway but copies must be retained for 36 months
Nego6a6on of taxpayer checks – Never allowed
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Incompetence & Disreputable conduct Authority
Convicted of federal tax law or dishonest criminal offense Provisions of IRC, revenue rulings & procedures (U.S. treasury department), court
Giving false/misleading informa*on to treasury cases
Willfully evading taxes/helping others evade Reportable transac6on: Transac*on where informa*on is required to be
Threatening IRS employees included with return because it has poten*al for tax avoidance or evasion
Recklessly giving false opinions Listed transac6on: Reportable transac*on that is the same as a transac*on
Willfully failing to sign a tax return specifically iden*fied as a tax avoidance transac*on
Willfully disclosing a tax return without authoriza*on Covered opinion: Any wriyen or electronic advice concerning transac*ons
Willfully preparing/signing return w/o a PTIN specified by IRS as listed transac*ons
Must wait 5 years to pe**on for reinstatement Ordinary negligence: Failure to make reasonable ayempt to comply
Not fraud
Tax Return Preparer
Any person who prepares or employees to prepare tax returns and Tax Preparer Standard
refunds for compensa*on Posi*on Likelihood of being
Any tax professional with a PTIN can prepare federal tax returns upheld
Not a tax preparer: Reasonable basis Disclosed 20%
1. Someone who does admin tasks Substan6al authority Undisclosed 40%-50%
2. Prepares returns for an employer More-likely than not Listed/Reportable >50%
3. Prepares returns as a fiduciary
Regulatory Agencies Appeals
AICPA: Professional code of conduct & Joint Ethics Enforcement 30-day leMer à Taxpayer has 30 days to request an appeal with appeals officer
Program 90-day leMer à no*ce of deficiency – taxpayer has 90 days to pay the
- Can sanc*on members, but cannot touch CPA license deficiency or file a pe**on with U.S. tax court
- May suspend or terminate membership for failure to pay
dues or abide by membership requirements State boards of accountancy
IRS: Can impose criminal or civil penal*es Only state board can grant, revoke, or suspend CPA
- Can prohibit accountant from prac*cing before IRS 3 broad categories of misconduct:
SEC: Only inves*gates criminal cases 1. Misconduct while performing accoun*ng services
- Can suspend or revoke right to prac*ce before SEC 2. Misconduct outside scope of accoun*ng services
3. Criminal convic*on
5 Poten0al penal0es:
Aiding & Abeang understatement 1. Suspension/revoca*on of license
2. Monetary fine
IRS has burden of proof
3. Reprimand or censure
Civil penalty of $1k ($10k for corpora*ons)
4. Proba*on
In criminal case, IRS has burden of proof beyond a reasonable
5. CPE courses
doubt
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Audits
5 ways it can be selected: Ordinary negligence: Greater of $1,000 or 50% of income
1. Sta*s*cal models – Selects returns most likely to contain Fraud: Greater of $5k or 75% of income
errors and yield significant addi*onal revenue
2. Random selec*on Trial courts
3. PY Audit – If taxpayer was audited & substan*al deficiency U.S. Tax court:
found - No payment required to pe**on
4. Informa*on return discrepancy – Informa*on’s do not - No jury
match amounts reported on return - Only for federal tax cases
5. Deduc*ons that exceed established norms - Small case division: Disputes <$50k & unappealable
Types of audits U.S. District court:
Correspondence audit: Review for mathema*cal errors - Must pay first
- No need for formal mee*ng with IRS - Op*on of a jury
Office/Field audit: Formal examina*on - Sues IRS for refund
- Office: Audit conducted by IRS revenue agent for individual U.S. Court of Federal claims:
returns with few or no items of business income - Must pay first
o Either in IRS office or via correspondence - No jury op*on
- Field: Conducted by IRS representa*ve at taxpayer’s office, - Sues IRS for refund
home, or TPs representa*ves place of business Court of Appeals
A[er the audit Court of appeals: Hears appeals from district & tax courts
Issue resolved: Revenue agent either accepts return and issue no Circuit court of appeals: Hears appeals from Court of Federal Claims
change report or recommend changes and if taxpayer agrees, U.S. supreme court: Highest court & last level of appeal – hardly ever hears tax cases
waive the right to appeal
Issue unresolved: Taxpayer receives 30-day leyer no*fying them of Substan6a6on and disclosure
right to appeal and has 30 days to request admin. appeal
Frivolous tax return: <20% chance of succeeding
- No defense – must pay full penalty
Private leSer Ruling - Disclosure of posi*on will not help taxpayer
IRS interpreta*on of federal tax law as it applies to specific taxpayer Reasonable basis: >20% chance of succeeding
situa*on - Avoids negligence penalty if understatement is not substan*al
- Avoids underpayment penalty if taxpayer disclosed tax return posi*on
FBAR
- General rule: Reasonable basis standard avoids most penal*es if disclosed
US person must file an FBAR if: Substan6al authority standard: >40% chance of succeeding
- They have a financial interest in any financial accounts - Avoids penal*es for most undisclosed posi*ons
outside of the U.S. - Congress, IRS, and court case decisions cons*tute substan*al authority
- Aggregate value of accounts exceeds $10k at any *me - Tax ar*cles and trea*ses do not cons*tute substan*al authority
during calendar year More-likely-than-not: >50% likelihood of succeeding
Max aggregate value: Highest value during the calendar year - Applicable to reportable & listed transac*ons & tax shelters
measure in foreign currency, then converted to US dollars at
treasury rate on last day of calendar year
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7 Taxpayer Penal6es
Elements of Fraud (MAIDS)
Earned Income penalty Cannot claim credit for 2-10 years
Failure to make sufficient est. payments penalty M – Misrepresenta*on of material fact
- Did not have sufficient withholding A – Actual & jus*fiable reliance by plain*ff
Failure to file penalty I – Induce plain*ff’s reliance on misrepresenta*on
- Penalty is 5% of tax due for each month return is late, max 25% D – Damages
- If failure to file and failure to pay penalty are due, failure to file is reduced S – Scienter – intent to deceive
by failure to pay Three ways CPA legal liability can arise
Failure to pay penalty 1. Breach of contract
- ½ of 1% per month, max 25% 2. Commission of tort
- No penalty if 90% tax is paid by unextended due date & balance is paid by 3. Viola*on of a statute
extended due date
Negligence leading to understatement penalty To prove malprac6ce, plain6ff must demonstrate:
- Accuracy based penalty – 20% of understatement 1. Tax preparer owed a duty to taxpayer
- Not willful, inten*onal, or reckless 2. Duty was breached
Penalty for substan0al valua0on misstatement - 20% penalty if understatement 3. Plain*ff suffered injuries
>$5k 4. Breach of duty cause plain*ffs injuries
Fraud penal0es – Civil penal*es – 75% of understatement; Criminal penal*es up to
$100k Levels of Negligence
1. Reasonable care à No negligence
Commission of a tort
2. Lack of reasonable care à Ordinary negligence
Uninten0onal tort: Ordinary negligence, lacks reasonable care 3. Lack of even slight care à Gross negligence or construc*ve
- Compensatory damages only fraud
- Best defense is to prove due diligence – document everything in 4. Actual fraud à Intent to deceive (civil ac*on)
workpaper’s 5. Actual fraud à Intent to deceive (Criminal ac*on)
Inten0onal tort: Fraud (common law)
- Construc*ve fraud = gross negligence Workpapers
- Fraud: CPA acts in bad faith with intent Workpapers can be shown without clients permission in the following
- Compensatory & puni*ve damages cases:
1. In response to subpoena
CPA Privileges 2. Prospec*ve purchaser of prac*ce with signed confiden*ality
AMorney-client privilege à When CPA has been engage by an ayorney agreement
Work product privilege à Protects tangible materials produce in prepara*on for 3. State CPA society voluntary quality-control review panel
li*ga*on as requested by an ayorney 4. In defense of lawsuit brough by a client
Tax prac00oner-tax payer privilege à Applies to tax advice that would qualify 5. To be used in defense of inves*ga*on by AICPA/state trial
under ayorney-client privilege board
- Does not apply to criminal cases or tax shelters 6. When GAAP requires disclosure of such informa*on in
financial statements
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Methods of forma6on
Termina6on of offer (3 ways)
Express contract: Contract formed by language, oral or wriyen
Revoca6on by offeror
Implied-in-fact: Contract formed by conduct
General rule: Offeror can revoke offer at any *me before acceptance by
Implied-in-law/Quasi: Not a contract at all – remedy to prevent unjust enrichment
communica*ng revoca*on to offeree
of defendant
- True even if offeror promises to keep offer open
Unilateral contract: Accepted with complete performance
If the offeree pays to keep the offer open, it is an irrevocable op*on
- Contract is not formed un*l performance is complete
Selling to someone also is a revoca*on through conduct
Bilateral contract: Accepted with a promise
Effec*ve when received by the offeree
- Contract is formed as soon as the promises are exchanged
Rejec6on by offeree
Acceptance Once offer is effec*vely rejected, it cannot be accepted
Who may accept – General rules is only person offer was made to may accept Counteroffer is a rejec*on
Methods of acceptance – Any way reasonable under circumstances Termina6on by Law (DIDI)
If offeror specifies a method of communica*on, that method must be used D – Death of either party
Common law: Mirror image rule – acceptance must mirror offer I – Incompetency of either party
UCC: Minor changes to acceptance can be made without it being a counteroffer D – Destroyed subject mayer terminates offer
I – Illegality of subject mayer
Elements of a legally enforceable contract
1. Offer & acceptance Offer
2. Exchange of considera*on Offer must be sufficient for a reasonable person to assume the offer was
3. No defenses to enforcement serious
Offeror’s subjec*ve intent is irrelevant
Source of contract law Adver0sements: Not offers because they are not addressed to anyone in
Common law: Contracts involving RISE par*cular
- Real estate - If ad limits who can accept it is an offer (e.g. reward for doing
- Insurance something)
- Services Terms must be definite and certain
- Employment UCC: Must include quan*ty term
Uniform commercial code (UCC): Contracts for the sale of goods Common law: Must include offeree, price, *me, quan*ty, and nature of
Exchange considera6on work
Two elements:
1. Must be something of legal value given by each party
2. Must be a bargained for exchange – cannot be something they were
already going to do
a. Something given/done before the bargain was made does not
count as considera*on
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Mailbox Rule
Acceptance is effec*ve on dispatch if properly addressed – irrelevant if Defenses
acceptance is lost or delayed Most defenses only make a contract voidable at the op*on of the
Opt out: Offeror can opt out of mailbox rule by sta*ng in offer that party adversely affected
acceptance must be received to be effec*ve Voidable defenses:
Steps for mailbox ques6ons: - Fraud in the inducement
1. Was the offer revocable? (Normally, yes) - Innocent misrepresenta*on
2. Determine if mailbox rule applies - Economic/social duress
a. Acceptance is effec*ve on dispatch rather than receipt - Undue influence
3. Compare any effec*ve revoca*on date with effec*ve acceptance date - Mutual/unilateral mistake
a. Revoca*on effec*ve first: Offer terminated - Minor
b. Acceptance effec*ve first: Contract made - Intoxica*on
Defenses that void: DA PIE
Statute of Limita6ons D – Destruc*on of subject mayer
Legal ac*on must be commenced with a certain *me period (4-6 yrs) A – Adjudicated incompetence
Ac*ons for breach are measured from *me breach occurred P – Physical threat
Does not make a contract void I – Illegality
E – Execu*on (fraud in the..)
Statute of Frauds Effects of noncompliance (Statute of Frauds)
Contracts that require some type of wri*ng to be enforceable Does not prevent contract from being formed – makes contract
Only defendant signature is needed unenforceable by one or both par*es
MY LEGS - Only a problem if someone wants to back out
M – Marriage – considera*on is marriage Excep*on: Wri*ng is not required to enforce contract if it has already been
Y – Year – terms cannot be performed within a year performed, admiyed to, or when it involves sale of specially manufactured
L – Land – Contract involves interests in land goods (SWAP)
E – Executors – Contracts by executors to pay estate debts out of personal
funds Accord/Sa6sfac6on/Subs6tu6on
G – Goods – Contract is for sale of goods of $500 or more Accord – Agreement to subs*tute one contract for another
S – Surety – Contracts to act as surety Sa0sfac0on – Execu*on of the accord
Year - Accord and sa*sfac*on discharge original duty
One year period runs from date of contract, not when performance begins Subs0tu0on – Du*es under contract are discharged immediately
Land Contracts Nova6on & Recission
Sale of land or a lease greater than a year Nova0on - A defense to party who has been released from a contract
Leases for less than one year do not require wri*ng - Subs*tutes a new party for an old party in an exis*ng contract
Goods - All par*es must agree to release
If contract is modified, it is contract as modified that determines if wri*ng is - Discharging one party without replacement is just release
required Recission – “Undoes” a contract – returns par*es to previous state
Modifica*on can be oral if modified below $500
Do not need to pay for a change to be enforceable (UCC)
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Fraud (defenses) Mutual Mistake
MAIDS If both par*es are mistaken of a material fact, adversely affected party
M – Misrepresenta*on of material fact can void it
- Doesn’t include opinions or statements of value unless by expert Does not apply to mistakes of value
A – Actual and jus*fiable reliance by plain*ff If subject mayer is not in existence when contract is made and neither
I – Induce plain*ff’s reliance by misrepresenta*on party knows, contract is void
D – Damages
S – Scienter – made knowingly or inten*onally
Fraud in the execu0on (void) – Party is deceived into signing something
that does not look like a contract
Fraud in the inducement (voidable) – Defrauded party is aware of
making a contract, but terms are materially misrepresented
Innocent misrepresenta6on Unilateral Mistake
Has all elements of fraud except scienter Generally, not a defense – must do due diligence before entering
Defrauder only pays compensatory damages, not puni*ve contract
Excep*on if other party knew or should have known of the mistake
Duress Undue influence
Harm threatened through physical force: Contract is void Defendant’s abuse of a posi*on of trust or confidence makes a contract
Harm threatened through emo*onal/social means: Contract is voidable voidable
Illegality Minor
If considera*on or subject mayer is illegal, contract is void May disaffirm contract at any *me as minor or within reasonable *me
Licensing requirement aqer becoming an adult
If license is required to raise revenue, contract is enforceable (ex. Permits Minor must return whatever they possess if they disaffirm
for a vendor) Being a minor is not a defense if item is a necessity
If license is required to protect the public, contract is void (ex. CPA) Ra0fica0on – Cannot ra*fy un*l they are an adult
Mental Incompetency Intoxica6on
Any contract made by someone who is adjudicated mentally Voidable at op*on of intoxicated party if:
incompetent is void - Intoxica*on prevents promisor from know the nature and
significance of promise
Other party knew of impairment

Parol Evidence Rule Remedies: Common law

Cannot introduce informa*on that happened before the contract was Major breach: Non-breaching party can be discharged
signed as evidence in a lawsuit - Includes preven*on of performance
Subsequent modifica*ons are admissiable Minor breach: Non-breaching party isn’t discharged, but en*tled to
damages
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Damages
Merchants
Compensatory damages – Awards enough money to obtain subs*tute
Deal in goods of the kind sold and held to a higher standard
performance and cover consequen*al damages if foreseeable
Must observe reasonable standards of fair dealing in the trade
(incidentals)
Specific performance – Used with land or unique items Offer
- Court order that breach party must perform Considera*on is needed to make offer irrevocable
- Cannot be used for personal service contracts Excep0on: Merchant’s Firm offer
Liquidated damages – Damages agreed to in a contract that specifies - Irrevocable without considera*on for *me stated or a reasonable
what damages will be if there is a breach *me if no *me is stated, max 3 months
- Enforceable if the amount is reasonable and not a penalty To qualify as Merchant’s Firm Offer:
Puni0ve damages – Not available for breach of contract, only fraud - Seller must be a merchant
Recission – Restores par*es to former posi*on - Offer must be in wri*ng
- Could be granted if contract has not already been substan*ally - Offer must give assurances that it will be kept open for a certain *me
performed
- If breaching party acted in bad faith, substan*al performance Acceptance
rule does not apply An offer specifying means of acceptance must be accepted by those means
Limita6ons on monetary damages Mirror image rule does not apply
Foreseeability – Consequen*al damages are only awarded for damages Promise to Ship (Bilateral) – Acceptance
that could be reasonably foreseen from breach Prompt shipment (Unilateral) – Accepted with performance
Mi0ga0on – Non-breaching party cannot recover for damages that could - Shipment of nonconforming goods is both an acceptance & a breach
have been reasonably avoided of contract
- If seller no*fies buyer that it is an accommoda*on, shipment is
Considera6on counteroffer
Modifica*ons are enforceable without considera*on - Accommoda*on does NOT apply for bilateral contract
Sales contract may be paid by check, unless seller demands cash, and
Delivery & Risk of Loss
seller must give reasonable *me to obtain cash
General rule: Seller’s duty is to hold conforming goods for buyer and give
Sale on approval/Sale or return contracts buyer reasonable no*ce to take the goods
Sale on approval – Risk of seller un*l approval For risk of loss to pass:
- Buyer has X number of days to return goods 1. Goods must be iden*fied
- Title and risk of loss remain with seller 2. Par*es must agree on contract terms
Sale or return – Risk on buyer un*l returned 3. Default rules apply in the absence of agreement
- Completed as sale on delivery but buyer has right to return the Carrier cases
goods (consignment) Contract is either shipping point or des*na*on
- Risk of loss passes to buyer when seller completes delivery If seller ships nonconforming goods, risk of loss remains on seller regardless of
requirements shipping terms, unless buyer accepts defec*ve goods
- Risk remains with buyer un*l goods are completely returned Non-carrier cases
If seller isn’t a merchant, risk of loss passes to buyer upon seller’s tender of
delivery of goods
If seller is a merchant, risk of loss passes only on actual delivery
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Warran6es Remedies of buyers & sellers
Four types of warran*es An0cipatory Repudia0on – Sue or wait
Express warranty – Anything done to induce buyer to purchase goods Occurs when party indicates in advance that they will not perform
- Cannot be disclaimed Nonbreaching party may:
Implied warranty of 0tle – Implied in every sales contract that seller has *tle - Sue immediately
- Can only be disclaimed by specific language or circumstances that - Cancel contract
indicate seller is not guaranteeing *tle - Demand assurances
Implied warranty of merchant – Goods are fit for ordinary purposes - Wait un*l *me for performance & sue then
- Made only in sales by merchant Right to demand assurance
- Can disclaim by saying “as is” or “with all faults” Under UCC, if one party has grounds to believe other party won’t perform,
- Cannot be disclaimed in fine print they can demand assurance of performance
Implied warranty of fitness – Buyer relies on seller to select goods suitable - Failure to give assurance is an an*cipator repudia*on
for buyer’s par*cular purpose. Seller must know: Seller’s Remedies
- Of the purpose Cancel or rescind and/or sue for damages
- That buyer is relying on them to select goods Has right to resell goods & sue for losses, usually difference between
- Can be disclaimed with “as is” or “with all faults” contract price and resale price, plus incidental damages
Seller can sue for full contract price:
Du6es of agent to principal - Goods cannot be resold for any price (specially manufactured)
Agent owes implied du*es: LORA - Goods are destroyed aqer risk of loss has passed
Loyalty – Agent must act solely in principal’s interest Buyer’s remedies
- No self-dealing, compe*ng, or kickbacks Buyer has right to reject for any nonconformity
Obedience – Agent most obey all reasonable direc*ons
Buyer can cancel and sue for damages
Reasonable care – Duty not to be negligent If buyer accepts nonconforming goods, can sue for difference in value
Account – Agent has duty to account to principal for all property/money
For rejected or undelivered goods, buyer may:
received or paid - Cover: Purchase comparable goods elsewhere and sue seller for the
Principals remedies difference
Tort damage – Principal can sue and recover damages - Sue for difference between market price and contract price
Contract damage – Can only sue for breach if receiving compensa*on Right to specific performance – If goods are unique/buyer cannot reasonably
Withhold compensa0on – Principal can refuse to pay agent if they cover
commiyed an inten*onal tort or inten*onally breached duty Replevin – Right to recover goods wrongfully in hands of seller
- Goods are iden*fied
Du6es of principal to agent - Buyer cannot reasonably cover
Buyer’s rights of sellers insolvency
Implied by law – Unless agreed otherwise, principal has implied duty to
Buyer has paid part or all of price and seller is insolvent, buyer can recover
give agent reasonable compensa*on
goods from seller if goods are iden*fied
Reimbursement/indemnifica0on – Implied duty to reimburse agent for all
expenses incurred in carrying out agency
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Power to terminate vs. right to terminate Apparent Authority
Either party has power to terminate rela*onship at any *me Principal’s conduct has caused 3rd par*es to reasonably believe agent had
Party does not have right to terminate if they agreed to a set contract term authority
and they are trying to back out before then Requires holding out by principal or negligent inac*on by principal
Agency coupled with an interest Principal is bound to 3rd party, but can hold agent liable
Principal does not have power or right to terminate Termina6on of apparent authority
Arises when agent has security interest in property of principal Agent con*nues to have apparent authority un*l principal no*fies 3rd par*es
Principal defaults, creditor is automa*cally given power as agent Construc*ve no*ce must be given to terminate apparent authority to
Death, incapacity, or bankruptcy does not terminate agency w/ interest poten*al customers who may have known of the agency
Agents Power to bind May be terminated through BID LID (no no*ce needed)
Estoppel to deny existence of agency
Actual authority – Agent has power and right
If principal does not correct someone’s incorrect claim of being their agent,
- Principal can’t sue for damages
they are estopped from denying agency rela*onship
Apparent Authority – Agent has power but not the right to bind
Ra0fica0on – Agent has no power or right
Ra6fica6on
Allows principal to choose to become bound by unauthorized act
Actual authority
- Agent had neither power nor rights
Authority agent reasonably believes they possess because of principal’s
Agent must have indicated they were ac*ng on behalf of principal
ac*ons
All material facts must be disclosed & en*re transac*on must be ra*fied
Includes implied authority
Only a disclosed principal may ra*fy
Termina6on of actual authority
Act of par0es: Agent’s liability to 3rd par6es
Agent quits (renuncia*on) or gets fired (revoca*on) Iden0fied and disclosed à Agent is not liable
Accomplishment of objec0ve or expira0on Uniden0fied/undisclosed à Agent is liable
If agency is for a limited purpose, terminated when objec*ve is met Uniden6fied/disclosed à Agent is liable
If agency is for a stated period, terminated upon expira*on Principal is bound if agent had authority, regardless of whether principal was
If no *me is stated, terminated aqer a reasonable *me disclosed, uniden*fied, or undisclosed
Termina0on by opera0on of law Agent can be held personally liable if principal is uniden*fied or undisclosed
BID LID
B – Bankruptcy of principal Power to terminate vs. right to terminate
I – Incapacity of principal Either party has power to terminate rela*onship at any *me
D – Death of principal or agent Party does not have right to terminate if they agreed to a set contract term
L – License (agent’s failure to acquire) and they are trying to back out before then
I – Illegality Agency coupled with an interest
D – Destruc*on of subject mayer Principal does not have power or right to terminate
Arises when agent has security interest in property of principal
Principal defaults, creditor is automa*cally given power as agent
Death, incapacity, or bankruptcy does not terminate agency w/ interest
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Respondeat Superior 3rd party debtors
General rule: Principal is not liable for torts commiyed by agent Surety – Directly liable on the contract; requires wri*ng
Excep6on for employees: Respondeat Superior Guarantor – Liable only if debtor does not perform their duty
Under respondeat superior, employer can be liable for employee’s torts
commiyed within scope of employment Surety’s rights against principal debtor
Does not relieve agent of liability Exonera6on – Surety brings suit against principal to compel them to pay,
Injured person may sue both the employer and agent before the surety pays the debtor
Scope of employment – Injury must have occurred while employee was Subroga6on – Surety can enforce any rights creditor had against debtor, aHer
working for the employer within *me and geographic are employee was to surety pays
work Reimbursement – Surety sues principal for amount surety paid to creditor
Ac0vi0es – Only needs to be of the same general type employee was hired
to perform Cosure6es
Inten0onal torts – Usually liable only for an employee’s negligence and not Jointly and severally liable
inten*onal torts Defenses of Cosure6es
Cannot limit liability by agreement with employee Exonera6on – Brought by surety against Cosure*es before creditor is paid to
compel payment of pro rata share of debt
Defenses of surety
Contribu6on - Brought by surety against cosure*es aqer surety pays debtor
Defrauded principal – Surety is not liable if creditor defrauded principal - If there are 3 sure*es but 1 is insolvent, 2 solvent sure*es would be
Duress upon principal – Principal debtor’s promise was obtained by duress liable for ½ each
and surety did not know of duress
Illegality of principal’s obliga6on – Surety is not liable if underlying Creditors rights outside of suretyship
obliga*on is not legal Creditors’ Composi6on – Agreement between debtor and at least two
Discharge of principal’s obliga6on – If creditor releases principal, surety is creditors that debtor pays less than full amount in full sa*sfac*on of claims
discharged unless creditor reserved their rights against surety - Each creditor takes less than their full claim
- If underlying obliga*on is tendered or creditor refuses to accept, Assignment for benefit of creditors – Debtor transfers property of a trustee,
surety is discharged who uses the property to sa*sfy debts
Surety’s incapacity/bankruptcy – Surety is no longer liable - Debtor is not discharged from unpaid debts
Lack of considera6on – Unpaid surety will be bound only if they make the
Prejudgment aSachment
promise to act as surety before considera*on flows from creditor to principal
Varia6ons of Surety’s risk – Any changes of the contract that changes a Property of debtor is seized before final judgment to prevent debtor from
gratuitous surety’s risk will discharge them selling it
- If change increases risk and is material, it discharges compensated Judicial Liens
surety Court imposes lien on specific property of debtor and it is seized, sold, and
Extension of 6me – If principal and creditor agree to extend *me, gratuitous proceeds are turned over to creditor
surety is discharged & compensated surety is discharged if it is material & Homestead exemp6on – Protects debtors primary residence from being
increases risk seized
- If creditor delays in collec*on, surety is not discharged - Does not apply to people with PMSIs against property (i.e. mortgage)
Release of cosurety – If one surety is released without cosurety’s permission,
first cosurety is discharged the amt they would have received from
contribu*on
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Garnishment Purchase Money Security Interest
Debtors property in hands of 3rd part is garnished Has priority over all other types of interest in the same collateral
Social security payments cannot be garnished Arises when a creditor sells the collateral to the debtor on credit, retaining a
Amount of employee’s wages that can be garnished is usually limited security interest for the purchase price, or the creditor advances funds
specifically for the debtor to purchase the collateral
Mechanic & Ar6san’s Lien
Mechanic or ar*san who works on property has an automa*c lien on Security Interest: Perfec6on
property for the price of repairs as long as property is in their possession Five methods of perfec*on:
If property is given back, lien automaAcally dissolves 1. Filing
2. Taking possession of collateral
Fraudulent Conveyances 3. Control
Fraudulent conveyances will be set aside in proceeding 4. Automa*c perfec*on
Court will consider: 5. Temporary Perfec*on
- Transfer was to an insider Filing
- Debtor retained possession/control of property Filing statement that includes names & addresses of debtor and creditor and
- Transfer was not disclosed or was concealed collateral covered
- Transfer was of substan*ally all of debtors’ assets Perfec6on by control
- Value received by debtor wasn’t reasonable Relates to investment property – creditor has control when they are able to
- Debtor was insolvent/became insolvent shortly aqer sell investment property without further ac*on of owner
Automa6c perfec6on
Security Interest: ASachment
PMSI in consumer goods – MUST be personal use
Security interest is effec*ve as soon as steps are taken to ayach the interest
Temporary perfec6on
Ayachment does not provide creditor rights against 3rd par*es who also have
If creditor has perfected security interest in collateral that is sold, they have
and interest
20 day perfec*on of proceeds
Three requirements:
If debtor moves to a different state, perfec*on is valid for 4 months aqer
1. Agreement
2. Creditor gives value Reten6on of collateral
3. Debtor has rights Transac6ons not involving customers – Aqer default, secured party may
Agreement keep collateral in full or par*al sa*sfac*on of debt
Can be wriyen or oral – creditor must take possession of collateral if oral Transac6ons involving customers – Secured party may keep collateral only in
Property debtor acquires a future interest full sa*sfac*on of debt
Done if collateral is expected to lose value over *me using “aqer acquired No*ce of full/par*al sa*sfac*on must be given to debtor and other creditors
property clause”

Order of priority
1. Buyer in ordinary course of business
2. Perfected PMSI
3. Non PMSI perfected creditor
4. Non perfected creditor
5. Debtor
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Rights on fault
Secured party may take possession by self-help (repo man) or can use
replevy ac*on through judicial order
Sale
Aqer default and repo, secured party may sell or lease collateral
No*ce of sale is required & sale must be commercially reasonable
Other creditors must be given no*ce of sale
Sale wipes out any subordinate interests, but good faith purchaser of
collateral is subject to superior interests
Debtor has right to redeem by paying of indebtedness and costs before sale
Proceeds
Order of distribu*on
1. Pay expenses of repo and sale
2. Pay creditors with security interest in collateral in priority order
3. Creditor with highest priority must be paid in full before proceeds
can go to next highest priority
4. Surplus is paid to debtor
If sale doesn’t bring in enough money, secured party can bring court ac*on
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6 types of bankruptcy Automa6c stay of execu6on
1. Chapter 7 – Liquida*on Stops almost all collec*on efforts
2. Chapter 9 – Municipal debt adjustment Does not apply to criminal prosecu*ons, paternity suits, or alimony/child
3. Chapter 11 – Reorganiza*on support cases
4. Chapter 12 – Family farmers with regular income
5. Chapter 13 – Adj. to debts of individuals with regular income Involuntary Cases
6. Chapter 15 – Ancillar/cross border cases Unsecured creditors may pe**on debtor into Ch. 7 or Ch. 11 bankruptcy
Does not apply to farmers & charity debtors
Chapter 7 Features Who must join pe66on:
Goal à Give honest debtor a fresh start my discharging all debts Only creditors owed $18,600 in unsecured, undisputed debt
Individuals: Debts are discharged Fewer than 12 creditors à One or more creditor
En*ty: Dissolved 12 or more creditors à Three owed $18,600 in aggregate
Requires trustee
Voluntary or involuntary Sec6on 341: Creditors’ Mee6ng
All interest par*es, including creditors, bankruptcy trustee and debtor must
Who can be a debtor under Ch. 7 be given no*ce of mee*ng
Individuals, partnerships, or corpora*ons Property of bankruptcy estate
Excluded: RIBS Includes all of debtor’s real and personal property at *me of filing
R – Railroads DIII – Things included received 180 days a[er filing
I – Insurance companies D – Divorce – property debtor receives from divorce
B – Banks I – Income from estate property (Rent, dividends, interest income)
S – Savings Ins*tu*ons I – Inheritance
Who can be a debtor under Ch. 11 I – Insurance received
Individuals, partnerships, or corpora*ons
Excluded: BIBS Power over fraudulent transfer
B – Brokers Trustee has power to set aside fraudulent transfers made within 2 years of
I – Insurance companies filing date
B – Banks
Claims against estate
S – Savings Ins*tu*ons
Unsecured creditors must file a proof of claim
Dismissal/Conversion of Ch. 7 Case Shareholders must file a proof of interest
General rule: Perfected security interest survives bankruptcy even if creditor
Determine if income is lower than state median:
does not file proof of claim
- If income < state median à stay in chapter 7
- If Income > state median à move to means test
Means test
(Average monthly income – allowed expenses) x 60
- > $9k à stay in chapter 7
- > $15k à dismissal/voluntary conversion to ch. 13
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Trustee can disaffirm preferences Distribu6on of debtors estate
Debtor cannot choose who gets paid, how much is paid, or what order Claimants are paid in order:
Preference is transfer made to par*cular creditor 1. Secured claimants
Preferen*al payment is: 2. Priority claimants (SAG WEG CTI)
- Transfer made to or for the benefit of a creditor 3. General creditors who filed claims on *me
- Prepaying an exis*ng debt SAG WEG CTI
- Made within 90 days of filing
In order of priority
- Made while debtor was insolvent
S – Support obliga*ons owed to spouses and children
- Results in creditor receiving more than they would’ve under code
A – Administra*on expenses for bankruptcy
Court will set aside transfer and take it back from creditor
G – Gap claims accrued in ord. course of business aqer involuntary pe**on
Features of Ch. 11 bankruptcy
Voluntary, but could be involuntary W – Wage claims of employees for sums earned within 180 days (max $15k)
Trustee is not required – debtor is presumed to be best person to the run E – Employee benefits owed (Whatever is leq of $15k)
business G – Grain farmers and fishermen’s claims
Creditors’ CommiSee
Commiyee of 7 largest unsecured creditors C – Consumer deposits (up to $3,350)
Equity Security Holders’ CommiSee T – Tax claims
If debtor is a corp, commiyee of 7 largest holders of securi*es I – Personal injury claims from DUI

Chapter 11 Reorganiza6on plan

Commiyees can consult with debtor, inves*gate finances, and par*cipate
in preparing reorganiza*on plan Debtor may file plan at any *me during case
Debtor has a exclusive right to file plan during first 120 days
Objec6ons to Ch. 7 discharge Commiyees vote on plan (unanimous consent not required)
Raise objec*ons to discharge (destroys en*re case) Contents of plan
1. Debtor is not an individual Classify all claims
2. Fraudulent transfers/concealment of property Describe treatment of each class and each claim in class is treated the same
3. Unjus*fiably failed to keep books and records Establish ways to implement
4. Prior discharge within 8 years Acceptance of plan
Excep6ons to discharge: WAFTED Any creditor or shareholder who has filed a claim must be given an
W – Willful and malicious injury opportunity to accept or reject plan
A – Alimony Acceptance by creditors
F – Fraud - At least 2/3 in amount of claims
T – Taxes - At least ½ in number of claims
E – Educa*on loans Acceptance by shareholders: At least 2/3 in number of shares
D – Debts undisclosed in bankruptcy pe**on Confirma6on of plan by court
Will be confirmed if:
1. Acceptance by all impaired classes
2. Provides for payment in full of admin expenses and gap claims
3. Plan is feasible
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Features of Ch. 15 case Unemployment (FUTA)
Commenced by foreign representa*ve filing pe**on for recogni*on of Excludes self-employed
foreign proceeding State-run system of insurance for workers who have lost jobs through no
Pe**on must show: fault of their own
- Existence of foreign proceeding Par6cipa6on
- Appoint and authority of foreign representa*ve All employers with quarterly payrolls of at least $1,500 or employe one
Goal is to prevent discrimina*on against foreign creditors person for 20 weeks in a year
FICA Funding Funding
Only employer pays
Taxed on income earned from labor
6% on first $7k of compensa*on of each employee
Employer’s must match employee’s contribu*on
Employers with below average unemployment claims can get a credit
- Employer’s that fail to withhold are liable to pay employees half,
against tax due of up to 5.4% of first $7k
but have a right to reimbursement
Deduc*ble by employer
Employee responsibility
FICA contribu*ons of 6.2% of net taxable wages up to $160,200
Medicare contribu*ons of 1.45% of en*re gross wages Affordable care act
Individuals exceeding threshold amount à addi*onal .09% Medicare tax
Health care coverage may be offered through:
Self-employed person Must pay both halves à 15.3%
1. Plan provided by employer
Only imposed if net profits exceed $400
2. Plan purchased through marketplace
Deduc6bility
3. Coverage provided by gov. sponsored plan
Employer’s contribu*on à deduc*ble
4. Direct purchase by employee from insurance
Employee’s contribu*on à Not deduc*ble
Funding
Self-employed à 50% deduc*ble
Both employer and employee contribute
Benefits Meant to benefit 4 major programs:
ALE: Employees with 50+ FT employees
1. Disability
Benefits
2. Medicare
ACA sets standard for how HI is structured and price
3. Old age/survivors’ insurance
Does NOT create na*onal health insurance plan
4. Supplemental security income
Penal6es
Workers Compensa6on Type 1: must pay $2,880 for employee (not first 30) if:
If employees get hurt on the job, they are en*tled to workers comp as - Do not offer min. essen*al cover to at least 95% of employees
long as they did not inten*onally hurt themselves - At least one FT employee receives PTC
- Strict liability Type 2: must pay $4,320 for each FT employee who receives PTC if:
- Get workers comp even if it is through their own negligence - Minimum coverage is not affordable
Only requirement is injury occurred while ac*ng in scope of employment - Does not provide minimum value
Funding Deduc6bility:
Employer pays by purchasing through state or private carrier Premiums are deduc*ble
Can self-insure if financially responsible Penal*es are not
Employer who elects not to par*cipate gives up defense of contributory
negligence, assump*on of risk, fellow servant doctrine
Premiums are deduc*ble by employer
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Premium $frontindependent38
credit
Sole Proprietorship
Refundable credit – helps cover premiums for health insurance purchased
Sole proprietor is not considered an en*ty separate from business
through marketplace
- Personally liable for all obliga*ons of business
Eligibility
- Cannot exist beyond life of sole proprietor
Taxpayer must meet al requirements:
- Has household income within a certain range General Partnership
- Does not file MFJ Nothing needs to be filed with the state
- Cannot be claimed as a dependent GP à Ongoing business
- Be enrolled in coverage through marketplace for at least one Joint venture à Single transac*on
month and is not able to get affordable cover through employer Opera0on
sponsored plan or not eligible for gov. health coverage All partners have equal rights to manage
General rule: Majority vote for mayers in ordinary course of business
Foreign corrupt prac6ces act Consent of all partners for mayers outside ordinary course of business
Prohibits payment of bribes to foreign officials Rights of partners
Elements of viola6on May assign interest in profits at any*me
Applies if offered bribe was made through any instrument of interstate Deceased partner’s share of profits vest in heirs & right to partnership
commerce property vests in surviving partners
Also covers payments or promises made to someone other than gov Liability
official if offeror knows that pary of what is being offered will be used to Each partner is joint and several liable for all partners obliga*ons
bribe gov official Profit & Loss
Penal6es: Partners share profits equally, and losses in the same manner as profits
Civil fines of twice the expected benefit Termina0on
Imprisonment of up to 5 years Dura*on is not unlimited
Appointment of independent auditor Dissociated partners may be held liable for up to 2 years
Events causing dissolu*on:
1. Partnership is at will & partner gives no*ce of withdrawal
Limited Liability Partners
2. Partners agree to dissolu*on
Similar to GP in most respects, including profit & loss sharing 3. Court order dissolu*on
Liability Death of a partner does not cause dissolu*on if remaining partner’s agree
Partners are generally not liable for acts of other partners or empl. to con*nue
Liable for own negligence and those under direct control
Forma0on
Must file cer*ficate with the state that includes
- LLPs name
- Name & loca*on of registered officer
- Number of partners
- Descrip*on of partnership business
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Limited Partnership Limited Liability Company
Made up of one or more general partners and one or more limited Provides owners with two main features:
partners 1. Limited liability like shareholders of corpora*on
Limited partner 2. Ability to be taxed like a partnership
Passive investment Forma0on
Liability limited to their own investment Formed by filing ar*cles of organiza*on with the state
No right to take part in management of business Ar*cles include:
Limited partner can assign interest, but ceases to be limited partner - Name of LLC
Limited partner can only vote on fundamental changes - Street address of registered office and agent name
Profit & Loss - If mgmt. is to be vested in managers
Agreement governs - Names of people who will be managing
Unless otherwise agreed, partners share P&L in propor*on to value of Opera0on
partner’s contribu*ons Opera*ng agreement is an oral or wriyen internal agreement
Termina0on Generally, all members may par*cipate in management
Methods: If LLC is member managed, each member is an agent of the LLC
1. Occurrence of *me or event stated in partnership agreement If LLC is manager managed, each manager is an agent of the LLC
2. Wriyen consent of all partners VoAng strength: Propor*onal to contribu*ons
3. Withdrawal or death of general partner Profit & Loss
4. Judicial decree Allocated according to contribu*ons unless ar*cles state otherwise
Order of distribu0on of assets ULLCA is only followed by a few states, but requires P&L to be shared
1. Creditors – including partners who are creditors equally, regardless of contribu*ons
2. To former partners in sa*sfac*on of liabili*es not paid on their Transferability
withdrawal Can assign interest in distribu*ons but cannot assign any rights to manage
3. To partners, first to return contribu*ons, then to distribute profits Member may not transfer all of their interest w/o consent of other
members
Termina0on
LLC will dissolve upon:
1. Expira*on of period stated in ar*cles
2. Consent of all members
3. Death, re*rement, resigna*on, bankruptcy, or incompetence of a
member (unless remaining vote to con*nue)
4. Judicial decree
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Forma6on
Sole proprietorship No formali*es
GP/JV No formali*es
LLP File statement of qualifica6on
LP File cer6ficate of LP
LLC File ar6cles of organiza6on
Corpora0on File ar6cles of incorpora6on or corporate charter
S-Corpora0on File same as corpora*on plus S elec6on
Liability of owners
Sole proprietorship Unlimited personal liability
GP/JV Unlimited personal liability
LLP Partners are generally not liable for partnership obliga*ons, unless from own negligence
LP GP: Unlimited personal liability LP: Only investment is at risk
LLC Members not personally liable beyond their own investment
Corpora0on Shareholders not personally liable beyond their own investment
S-Corpora0on Shareholders not personally liable beyond their own investment
Management
Sole proprietorship Sole proprietor manages or directly appoints manager
GP/JV Owners manage directly or can agree to appoint managing partner
LLP Partners manage directly or can agree to appoint managing partner
LP GP: Exclusive managers LP: Ordinarily do not manage
LLC Members manage directly or can agree to appoint a manager
Corpora0on Managed by BoD who appoint officers
S-Corpora0on Managed by BoD who appoint officers
Transferability
Sole proprietorship Sole proprietor can sell business at will
GP/JV Partners cannot transfer ownership interest without unanimous consent
LLP Partners cannot transfer ownership interest without unanimous consent
LP Partners cannot transfer ownership interest without unanimous consent
LLC Members cannot transfer ownership interest without unanimous consent
Corpora0on Shareholders are free to transfer ownership interest
S-Corpora0on Shareholders are free to transfer ownership except to foreign or en*ty shareholders
Taxa6on
Sole proprietorship Flow through taxa*on
GP/JV Flow through taxa*on
LLP Flow through taxa*on
LP Flow through taxa*on
LLC Flow through taxa*on
Corpora0on Taxed at corporate level and again when dividends are distributed
S-Corpora0on Flow through taxa*on
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Nature of Corpora6on Shareholder rights, du6es, and obliga6ons

Only corpora*on is liable for corporate obliga*ons Vo6ng Rights
Ownership and management Shareholders have right to vote on:
Owned by shareholders & managed by BoD - Elec*on or removal of directors
Shareholders have right to vote on board members - Approving fundamental changes to corpora*on
Corpora*on has perpetual life & is freely transferable General rule: One share, one vote
Forma6on of a corpora6on - Excep*on: Cumula*ve vo*ng for directors
Promoter - Each share is en*tled to one vote for each director posi*on that is being
Procures capital commitment to form corpora*on filled, and shareholder can cast any of the votes in any way
Personally bound on contracts – corpora*on is not bound un*l Distribu6ons
ra*fica*on and promoter is liable unless there is a nova*on Dividends – not legally required
Ar6cles of incorpora6on Shareholders do not have a right to distribu*on unless & un*l it is declared by
Must include BoD
1. Name of corpora*on Upon declara*on, risk of financial distress increases
2. Names & addresses of corpora*on’s registered agent Preferred shareholders
3. Names & addresses of each of the incorporators Cumula*ve dividends accumulate even if not declared, but preferred shareholders
4. Type and number of shares authorized to be issued s*ll do not have a right to them
Not required to be included: No dividend can be paid to common shareholders un*l all cumula*ve dividends
1. Type of business are paid
2. Business purpose Stock dividends
3. Where offices are located Shareholders receiving stock do not owe taxes
4. Ini*al directors or officers name Solvency of corpora*on remains the same
Ultra vires clause Right to inspect books and records
Clause in ar*cles sta*ng purpose With 5 days wriyen no*ce and proper purpose, shareholder may inspect and copy
Director or officer who authorizes an ultra vires act may be liable to corpora*ons records
the corpora*on for damages caused by act
Disregard of corporate en6ty Deriva6ve ac6on vs. direct ac6on
Piercing the corporate veil Deriva6ve ac6on
Court has authority to hold them personally accountable if they did Corpora*on is not the defendant
any of the three: Brought by shareholders against someone corpora*on has a legal cause of ac*on
1. Commingle personal funds with corporate funds against
2. Corpora*on was inadequately capitalized at the *me of Direct ac6on
forma*on Corpora*on is the defendant
3. Corpora*on was formed to commit fraud on exis*ng creditors
I C Fraud
I – Inadequate capitaliza*on
C – Comingling personal funds
Fraud – Commi•ng fraud on exis*ng creditors
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Directors: Rights, du6es, & obliga6ons Officers: Rights, du6es, & obliga6ons
Directors’ du6es Officers Du6es
Elec*on, removal, supervision of officers Officers owe fiduciary du*es and are agents (LORA)
Adop*on, amendment, and repeal of bylaws Authority
Fixing management compensa*on Officers are corporate agents and agency rules determine authority and
Ini*a*ng fundamental changes to corporate structure power
General vo6ng requirements
Must be present – cannot vote by proxy Fundamental Du6es
Majority vote is needed to approve Require both board and shareholder approval
Declara6on of distribu6on DAMS
Directors who authorize a distribu*on in viola*on of law are personally liable to Dissolu*on
the extent distribu*on exceeds what would have been lawful Amendments of the ar*cles
Business Judgment Rule Mergers, consolida*ons, & share exchanges
Director will not be liable to the corpora*on for acts performed in good faith & in Sale of substan*ally all corpora*ons assets
a manner director believes to be in best interest of corpora*on General procedure
Conflict of interest Board resolu0on
Ac*on in which director has a conflict of interest will be upheld only if: Ini*ates fundamental change to corpora*on
- Aqer full disclosure, transac*on is approved by disinterest majority of Bod Majority of BoD must approve se•ng forth of proposed ac*on
or shareholders; or No0ce
- Transac*on was fair & reasonable to the corpora*on Corpora*on must no*fy all shareholders
Indemnifica0on Shareholder’s approval
Corpora*ons are allowed to indemnify directors for expenses for any lawsuit Change must be approved by majority of shareholders at mee*ng
brought against them in their corporate capacity Filing of ar0cles
Corpora*on may also pay judgment except in shareholder deriva*ve suit Document se•ng forth ac*on taken must be executed & filed w/ state
Right to dissent/Appraisal Rights
Termina6on of corpora6on Shareholders who have right to vote generally have right to dissent if:
- Shareholder voted against fundamental change; and
Requires director and shareholder approval
- It is nevertheless approved
Aqer dissolu*on, corpora*on con*nues in existence for purposes of winding
Dissenter right gives shareholder right to be bought out at FMV at *me of
up
approval
Liquida*on involves:
- Collec*ng corporate assets
- Paying expenses involved
- Sa*sfying creditors’ claims
- Distribu*ng net assets
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Mergers, Consolida6ons, and Share Exchanges Fending off unwanted takeover aSempts

Mergers Persuade shareholders to reject the offer
Involves one or more corpora*ons joining with another Sue person/company ayemp*ng to takeover for misrepresenta*on/omission
One corpora*on survives, other corp ceases to exist Merge with a white knight
A+B=A Make a self-tender: Offer to acquire stock from its own shareholders
Consolida6on Paying “greenmail:” Pay person trying to takeover to abandon ayempt
One or more corpora*on join to form a new corpora*on Locking up crown jewels: Give 3rd party an op*on to purchase company’s most
Each corpora*on ceases to exist aqer consolida*on valuable assets
A+B=C “Scorched earth” policy: Sell of assets or take out loans that would make the
Share Exchange company less financially ayrac*ve
One corpora*on acquires all outstanding shares of another corpora*on Apply “shark repellent:” Amend ar*cles of incorpora*on/bylaws to make take
Both corpora*ons con*nue to exist as separate en**es over more difficult
A+B=A+B
Foreign corpora6on must qualify
Only corpora*on whose shares are being acquired needs to follow
procedure Corpora*on created under laws of another state
General Procedure Must obtain a cer*ficate of authority from each state in which it does
No*ce must include summary of the plan intrastate business
Plan must include:
- Terms & condi*ons of the plan
- Manner of conver*ng corpora*ons securi*es
Short form merger
Parent corpora*on owning 90%+ of subsidiary can merge the sub into the
parent without approval of shareholders or approval of subsidiary board