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20. S corporations are subject to the net investment income tax. [¶314]21. Each S corporation shareholders stock basis is decreased by the income of the corporation that is not separatelycomputed. [¶317]22. An S corporation cannot carry forward items from a year in which it was not an S corporation. [¶319]23. Shareholders increase their stock basis when an S corporation makes a charitable contribution of property. [¶321]24. Cash or property distributions received by a shareholder from an S Corporation are not taxable. [¶323]25. S corporations are not required to file Form 1120S if there is no taxable income for the year. [¶351]26. Limited partners are responsible for partnership liabilities beyond the amount of their investment. [¶401A]27. An unincorporated organization may choose not to be treated as a partnership if the entity is used only for investmentpurposes. [¶402]28. For federal income tax purposes, a state-registered limited liability company can be taxed as a partnership. [¶402B]29. A partnership filing an incomplete return is liable for a 500 penalty per month unless reasonable cause is shown. [¶406]30. A person with substantial presence in the United States must be designated as a partnership representative. [¶413]31. Innocent spouse relief is not available to partnership-level proceedings. [¶415]32. Deductions for charitable contributions are not allowed when computing taxable income for a partnership. [¶417]33. Any guaranteed payments made to a partner without regard to partnership income are treated as a return of capital thatis not taxable to the partner. [¶421]34. Only one allocation method is permitted when allocating tax items to property contributed to a partnership. [¶428]35. Partnership contributions and distributions made within two years of each other are presumed to be a sale. [¶432]36. A partnership must file an information return describing any exchanges of partnership interests involving unrealizedreceivables or inventory. [¶435]37. Payments made to the successor of a deceased partner are not considered income in respect of a decedent. [¶440]38. Partnership liabilities for which no partner bears the economic risk of loss are called recourse liabilities. [¶448]39. Generally, no gain or loss is recognized by a partnership on a distribution of property to a partner. [¶453]40. Guaranteed payments made to partners for partnership organization services are deductible by the partnership. [¶477]41. Trusts and decedents’ estates are separate taxable entities for federal income tax purposes. [¶501]42. The income from a unit investment trust set up to hold shares of regulated investment companies for investors is taxeddirectly to the investors. [¶502]43. A liquidating trust formed to liquidate and distribute assets is taxed as an association. [¶503]44. When a bankruptcy case is brought under Chapter 13, a separate taxable entity is not created. [¶505]45. An estate is only recognized as a taxable entity during the period of administration or settlement. [¶507]46. Estates and trusts generally are required to make estimated quarterly tax payments. [¶511]47. Discharge of a fiduciary terminates the fiduciary’s personal liability for payment of debts of the estate without satisfyingprior tax claims. [¶512]48. Income from a trust or estate is reported on Form 1041. [¶514]49. Alternative minimum tax does not apply to estates or trusts. [¶516]50. Income accumulated or held for future distribution under the terms of the trust is includible in the gross income of thetrust. [¶520]51. The estate of a nonresident alien is taxed on its U.S. income, but excludes dividends and capital gains. [¶527]52. Generally, an estate or trust may deduct reasonable amounts paid for fiduciary fees and litigation expenses only if it isengaged in a trade or business. [¶529]53. An estate or trust cannot deduct losses from a trade or business. [¶531]Page 2CCH 2021 U.S. Master Tax Guide (40 hours)2021–2022

54. Interest paid or accrued in a tax year is deductible by an estate or trust. [¶533]55. A complex trust can claim a personal exemption of 600. [¶534]56. Complex trusts and estates are generally allowed an unlimited charitable deduction for payments to recognized charitiesfrom gross income. [¶537]57. The fiduciary of a complex trust can elect to treat distributions to a beneficiary made within the first 100 days of a taxyear as having been distributed in the previous tax year. [¶546]58. Unused loss carryovers and excess deductions of an estate or trust are allowed to certain beneficiaries when the estateor trust terminates. [¶556]59. The treatment of separate shares as separate estates or trusts cannot be applied to obtain more than one deduction forthe personal exemption. [¶557]60. No part of a net capital loss of an estate or trust is deductible by the beneficiaries. [¶562]61. A grantor trust is subject to the 3.8% net investment income tax. [¶571]62. Retaining administrative powers over a trust will cause the trust income to be taxed to the grantor. [¶581]63. Form 3520 must be filed by U.S. persons who are treated as owners of foreign trusts under the grantor rules. [¶588]64. Form 1023 is used to apply for recognition of Section 501 (c)(3) federal tax-exempt status. [¶602]65. If an organization fails to file a notice with the IRS about its intention to claim public charity status, it will be considereda private foundation. [¶623]66. An organization that fails the public support test for three consecutive years will be treated as a private foundation asof the beginning of the third year of failure. [¶631]67. Exempt operating foundations are not subject to tax on investment income. [¶633]68. A private foundation generally must distribute 3% of its net investment assets annually. [¶637]69. Private foundations which terminate voluntarily are not subject to a termination tax. [¶649]70. Generally, a social club is tax-exempt only if it is supported entirely by membership fees, dues, and assessments. [¶692]71. Severance pay is considered taxable compensation. [¶713]72. Interest on U.S. savings bonds is tax-exempt income. [¶730]73. In order to be subject to income tax as a dividend, a distribution must be made from the distributing corporation’searnings and profits. [¶747]74. If made under a divorce agreement executed after 2018, alimony payments are included in the recipient’s gross income.[¶771]75. Gains from illegal transactions such as embezzlement or fraud are excluded from gross income. [¶785]76. Income flow from property acquired by bequest, devise, or inheritance is excludable from gross income. [¶847]77. Qualified disaster relief payments must be included in the victim’s gross income. [¶887]78. Pension amounts received for personal injuries resulting from combat-related armed forces service are excludable fromgross income. [¶891]79. Capital expenditures are deductible business expenses. [¶901]80. A length of service award given to an employee within her or his first five years is not deductible by the employer.[¶919]81. A partnership can deduct its payments of state income taxes as a business expense. [¶924]82. A taxpayer who works in two places in one day may not deduct the commuting expenses for getting from the first placeto the second. [¶945]83. The standard mileage rate for business travel is 58 per mile for 2019. [¶947]84. If an ordinary and necessary expense of a business, a premium paid for insurance against storm losses is a deductiblebusiness expense. [¶968]CCH 2021 U.S. Master Tax Guide (40 hours)2021–2022Page 3

85. Medical expenses paid by credit card qualify as medical expenses in the year the expenses were charged. [¶1015]86. Estate taxes can be deducted as an itemized deduction by an individual taxpayer. [¶1025]87. Active duty armed forces members may claim a moving expense deduction in any tax year if expenses were incurreddue to a military order and a permanent change of station. [¶1075]88. Losses from Ponzi-type investment schemes are subject to the two-percent-of-AFI limit for miscellaneous itemizeddeductions. [¶1095]89. Losses sustained during demolition of buildings may be deducted by the taxpayer. [¶1105]90. Professional gamblers report gambling income and losses on Schedule C of Form 1040. [¶1113]91. The deduction for personal casualty losses is limited only to losses attributable to federally declared disasters for taxyears beginning in 2018 through 2025. [¶1123]92. A net operating loss arising in tax years ending after 2017 cannot be carried back or forward. [¶1151]93. The passive activity loss rules do not apply to closely held C corporations. [¶1173]94. If more than 25% of a closely held corporation’s annual gross receipts are from real property trades or businesses inwhich it materially participates, it qualifies as a real estate professional for purposes of the passive activity loss rules.[¶1185]95. The maximum amount that may be expensed under IRC Sec.179 for the cost of a new SUV that is exempt from luxurycar caps is 25,500 for 2019. [¶1214]96. The Modified Accelerated Cost Recovery System must be used for depreciation for most tangible property placed intoservice after 1986. [¶1216]97. A taxpayer can deduct the cost of some energy efficiency improvements installed in a depreciable building located inthe United States and placed in service before January 1, 2018. [¶1286]98. Capital expenditures include amounts paid for incidental repairs and maintenance of property. [¶1305]99. The retirement savings contribution credit is completely phased out when AGI exceeds 65,000 for married filing jointlytaxpayers for 2020. [¶1404]100. A taxpayer may deduct foreign income taxes paid or accrued as an itemized deduction, or he or she may claim them asa credit against her or his U.S. income tax liability. [¶1461]101. The general business credit is nonrefundable. [¶1465]102. For partnership property, the investment credit is usually apportioned among partners in the same ratio the partnersdivide the partnership’s general profits. [¶1465A]103. The maximum allowed employer-provided childcare credit for any given year is 250,000. [¶1465V]104. An S corporation must use a fiscal year for its tax year unless a business purpose is established for using a different taxyear. [¶1501]105. Taxpayers may choose to use a fiscal tax year which varies from 52 to 53 weeks. [¶1503]106. A short period return is a tax return for a period of less than six months. [¶1505]107. A change in the accounting period will generally not be approved when the sole purpose of the change is to maintainpreferential tax status. [¶1513]108. Any change in the method of inventory valuation is considered a change in accounting method. [¶1529]109. Taxable income from a long-term contract generally must be accounted for under the percentage-of-completion methodof accounting. [¶1551]110. A taxpayer is required to obtain advance permission from the IRS to use the LIFO method. [¶1565]111. Taxes paid on the acquisition of property are treated as part of the cost of the property. [¶1611]112. The basis of property inherited from a decedent is generally the property’s fair market value on the date of death or thealternate valuation or special use valuation date. [¶1633]113. A taxpayer takes a fair market value basis in property acquired in a tax-free exchange. [¶1651]Page 4CCH 2021 U.S. Master Tax Guide (40 hours)2021–2022

114. For a transfer of property to a former spouse, no gain or loss is recognized if the transfer is incident to the divorce ofthe parties. [¶1693]115. Married taxpayers filing jointly may exclude from gross income up to 500,000 of gain realized on the sale of a principalresidence. [¶1705]116. Under IRC Sec. 1035, the exchange of one life insurance contract for another life insurance contract does not triggergain or loss. [¶1724]117. If a person transfers property to a corporation solely in exchange for stock and, immediately after the transfer, is incontrol of the transferee corporation, gain or loss must be recognized. [¶1731]118. Only the sale or exchange of a capital asset can create capital gain or loss. [¶1735]119. S corporations are treated as real estate dealers if they subdivide a tract of land for sale. [¶1762]120. Amounts paid for the transfer of a franchise, trademark, or trade name are amortized over 20 years. [¶1774]121. Depreciation recapture is never required when depreciable property is involuntarily converted. [¶1779]122. Intangible personal property cannot be Code Sec. 1245 property. [¶1785]123. The installment method is a way of reporting losses from sales of property when at least one payment is received in atax year after the year of sale. [¶1801]124. The entire gain is reported in the year of the sale if the taxpayer elects not to use the installment method of accounting.[¶1803]125. A special interest charge applies to certain nondealer installment sales of property over 75,000. [¶1813]126. The installment method generally may not be used for a sale of depreciable property to a related person. [¶1835]127. The mark-to-market rules generally apply to all securities held as inventory by a broker/dealer. [¶1903]128. A security that becomes worthless will be treated as exchanged or sold on the first day of the tax year. [¶1916]129. Stock options used as an employee incentive plan must be granted within five years of the date the plan was adopted.[¶1927]130. A wash sale of stock occurs if a taxpayer sells stock, and within 90 days before or after the disposition date the taxpayeracquires substantially identical stock. [¶1935]131. A short sale is a transaction in which the taxpayer sells property at a loss. [¶1944]132. Unused losses realized with respect to a tax straddle are carried forward to the taxpayer’s next tax year. [¶1948]133. Hedging transactions generally result in capital gain or loss. [¶1949]134. Dealers in tax-exempt obligations must amortize premiums as if the interest had been taxable. [¶1970]135. In an established stock exchange transaction, a cash-basis taxpayer realizes gain or loss on the settlement date, not onthe trade date. [¶1973]136. Commissions paid to facilitate security sales usually must be capitalized. [¶1983]137. A full-time employee for purposes of the employer health insurance mandate is an employee who works on average atleast 30 hours of service per week or 130 hours in a calendar month. [¶2001]138. An employer may accrue and deduct unpaid welfare benefits. [¶2011]139. Group health plans provided by employers with 10 or more employees must offer COBRA continuation coverage.[¶2021]140. The maximum amount allowed to be contributed to a health flexible spending account for 2019 is 3,700. [¶2041]141. Elections for cafeteria plans must be made before the beginning of the plan year. [¶2045]142. No-additional-cost services provided to employees free of charge are excludable from the employee’s income if theservices are available to employees on a nondiscriminatory basis. [¶2087]143. An employer with 5,000 or fewer employees may combine a defined benefit plan with a 401(k) plan. [¶2105]144. Employer matching contributions to a 401k plan are treated as an employee’s elective contributions and thereforesubject to the annual deferral limit. [¶2121]CCH 2021 U.S. Master Tax Guide (40 hours)2021–2022Page 5

145. Generally, all types of qualified retirement plans must satisfy a minimum distribution requirement by April 1st of thecalendar year following the calendar year in which the participant retires or reaches age 65½, whichever is later. [¶2127]146. A 401(k) plan can allow unlimited hardship distributions which are excluded from employee income. [¶2129]147. A qualified retirement plan generally must provide detailed information on Form 5500 every year. [¶2137]148. A penalty of 10% additional tax generally applies to early distributions from a retirement plan. [¶2151]149. Retirement plan loans can never be excluded from the participant’s gross income. [¶2152]150. Calendar year taxpayers generally have until April 15 of the following year to make contributions to their IRAs for thetax year. [¶2155]151. Excess contributions to an IRA are subject to a cumulative 6% excise tax. [¶2161]152. For 2019, IRA distributions up to 100,000 may be made to certain charitable organizations tax-free if the participantis 70½ or older. [¶2165]153. Contributions to a Roth IRA can be deducted from income. [¶2171]154. Qualified distributions from a Roth IRA are not subject to income tax or the additional tax for early withdrawal. [¶2173]155. Form 5329 is used to report both the distributions and the 10% additional tax for Roth IRAs. [¶2173]156. A reconversion is not allowed for amounts converted from a traditional IRA to a Roth IRA for tax years beginning after2017. [¶2179]157. Employee contributions to a SIMPLE IRA under a salary reduction agreement are limited to 3,000 for 2019. [¶2183]158. In order for an employer to deduct SEP contributions for a year, contributions must be made by the due date (includingextensions) of its tax return for that year. [¶2189]159. Under a Section 403(b) annuity plan, the employee’s rights in the annuity must generally be nonforfeitable. [¶2191]160. A Type G reorganization is a change in the identity, form, or place of the organization of one corporation. [¶2209]161. To qualify as a recapitalization, a transaction must include a reshuffling of the capital structure of the corporation.[¶2225]162. In a complete corporate liquidation, the shareholder’s gain or loss from a liquidating distribution is capital assuming thestock is a capital asset. [¶2253]163. Carrybacks of net operating losses and net capital losses are permitted in any type of reorganization. [¶2277]164. Regulated investment companies may avoid corporate taxation because they are entitled to a deduction for dividendspaid. [¶2301]165. Tax-exempt interest cannot be paid to the shareholders of regulated investment companies (RIC). [¶2307]166. Foreign corporations are eligible to be real estate investment trusts (REITs). [¶2326]167. NOLs may only reduce 60% of a REIT’s taxable income for tax years beginning after 2017. [¶2329]168. A real estate mortgage investment conduit (REMIC) is treated like a corporation for federal tax purposes. [¶2343]169. A taxable mortgage pool may not file a consolidated return with any other corporation. [¶2368]170. Net capital gains of a life insurance company generally are taxed at a rate of 21% for tax years beginning after 2017.[¶2370]171. A life insurance company cannot claim an operations loss deduction when calculating taxable income. [¶2377]172. Banks are not subject to the capital loss limitations with respect to the worthlessness of debt securities; they may treat themas bad debts. [¶2383]173. For 2020, a qualifying U.S. citizen who works abroad generally may exclude up to 15,064 of foreign housing expenses.[¶2403]174. A person cannot be both a resident alien and a nonresident alien during a tax year. [¶2411]175. A 30% branch profits tax may apply to a foreign corporation that operates a trade or business in the United States.[¶2433]Page 6CCH 2021 U.S. Master Tax Guide (40 hours)2021–2022

176. A non-resident alien is subject to U.S. income tax on income connected effectively with a U.S. trade or business. [¶2446]177. All U.S. source income paid to a foreign individual is subject to a 40% withholding rate. [¶2455]178. A U.S. person must disclose any financial interest in a foreign financial account electronically on FinCEN Form 114 ifthe aggregate value of the accounts exceeds 20,000 at any time during the calendar year. [¶2465]179. Generally, it is a disadvantage for a U.S. taxpayer to elect the foreign tax credit over the deduction for foreign taxes.[¶2476]180. An individual with up to 300 of creditable foreign taxes is exempt from the overall foreign tax credit limitation if heor she has no foreign source income other than qualified passive income and he or she elects the de minimis exemptiondirectly on Form 1040. [¶2479]181. Generally, employers who withhold taxes from their employees must file Form 941 on a quarterly basis. [¶2501]182. A trust is required to file a tax return by the fifteenth day of the fourth month following the close of the tax year. [¶2505]183. A corporation can obtain a nine-month extension of the time to file its tax return by filing Form 7004. [¶2509]184. An individual preparer with primary responsibility for the overall substantive accuracy of the preparation of tax returnsor refund claims is considered a signing tax return preparer. [¶2517]185. An individual should use Form 1040-V to pay the balance due on her or his Form 1040. [¶2525]186. The IRS does not accept income tax payments made with debit cards. [¶2545]187. Form 1098 is filed with the IRS if 600 or more in mortgage interest is received from an individual in the course of atrade or business. [¶2565]188. If an employer fails to withhold income taxes from an employee’s wages, the e

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