Taxation & Regulation (REG)

Individual Income Tax Formula

Filing Requirements & Status

Who Must File?

An individual must file if their gross income is equal to or greater than the sum of the regular standard deduction and any additional standard deduction amounts (for age 65+ or blindness). A return is also required for self-employment income of $400 or more.

When to File

The deadline for individual tax returns is April 15th. A 6-month extension to file (to October 15th) can be requested using Form 4868. This is an extension to file, not to pay; taxes are still due by April 15th.

Filing Statuses

• Single: Unmarried or legally separated as of the last day of the year.
• Joint Returns: For married couples. Can be filed if married at year-end, living in a common law marriage, or if one spouse dies during the year. Cannot be filed if divorced during the year.
• Married Filing Separately: In separate property states, each reports their own income. In community property states, most income is split 50/50.
• Qualifying Widower: Allows use of joint return rates for two years after the spouse's death, if the taxpayer has a dependent child (includes adopted, not foster) living at home for the WHOLE year and pays for over half the cost of the home.
• Head of Household: For unmarried, non-nonresident alien individuals who maintain a home for more than HALF the year for a qualifying child or a dependent relative. A dependent parent is not required to live with the taxpayer.
• An individual is considered unmarried for HoH purposes if they have lived apart from their spouse for the last 6 months of the year.
• The taxpayer cannot be a "qualifying widower."

Qualifying Child Tests

To be claimed as a qualifying child for various tax benefits, an individual must meet all of the following tests.

• Relationship Test: The child must be the taxpayer's son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (e.g., a grandchild or nephew).
• Age Test: The child must be:
  • Under age 19 at the end of the year and younger than the taxpayer, OR
  • Under age 24 at the end of the year, a full-time student for at least part of five months, and younger than the taxpayer, OR
  • Any age if permanently and totally disabled.
• Residency Test: The child must have lived with the taxpayer in the same principal residence for more than half of the tax year. Temporary absences (e.g., for school, vacation, medical care) are counted as time lived at home.
• Support Test: The child must not have provided more than half of their own support for the year. Scholarships received by a full-time student do not count as support provided by the child.
• Joint Return Test: The child cannot have filed a joint tax return for the year, unless it was filed only to claim a refund of withheld income tax.

Tie-Breaker Rules

When a child can be claimed as a qualifying child by more than one person, the following rules apply in order:

1. If only one person is the child's parent, the parent claims the child.
2. If both people are parents, the parent with whom the child lived for the longer period of the year claims the child.
3. If the child lived with each parent for the same amount of time, the parent with the higher Adjusted Gross Income (AGI) claims the child.

Qualifying Relative Tests

To be claimed as a qualifying relative, an individual must meet all of the following tests.

• Not a Qualifying Child Test: The individual cannot be your qualifying child or the qualifying child of any other taxpayer.
• Relationship or Member of Household Test: The individual must either:
  • Be related to you in one of the specified ways (e.g., child, parent, sibling, grandparent, aunt/uncle, in-law), OR
  • Live with you as a member of your household for the entire year (if not a relative). A person who was your spouse at any time during the year does not meet this test.
• Gross Income Test: The individual's gross income for the year must be less than the inflation-adjusted exemption amount ($5,150 for 2025). Gross income does not include non-taxable income like certain Social Security benefits, tax-exempt interest, or scholarships.
• Support Test: You must provide more than half of the individual's total support for the year. An exception to this rule exists for multiple support agreements where no single person provides over 50% of the support.
• General Dependent Tests: The individual must also meet the joint return test and the citizen or resident test, just as a qualifying child must.

Gross Income: Concepts & Accounting

• Realization: The economic event that triggers income (e.g., a sale).
• Recognition: Recording the income on the tax return.

Accounting Method

• Cash Method: Recognition occurs when revenue is actually or constructively received.
• Accrual Method: Recognition occurs when revenue is earned.

Gross Income: Taxable Items

• Salaries and Wages: Money, property (at FMV), and bargain purchases from an employer.
• Guaranteed Payments to Partners: Taxable income to the partner.
• Taxable Fringe Benefits: The FMV of benefits is included unless specifically excluded. Life insurance premiums for coverage above $50,000 and employer contributions to a Roth 401(k) are taxable.
• Business Income (Schedule C): Gross business income less business expenses.
• State/Local Tax Refunds: Taxable if the taxpayer itemized deductions in the prior year. Not taxable if the standard deduction was taken.
• Unemployment Compensation: Fully taxable.
• Prizes and Awards: FMV is taxable, unless the winner assigns the prize to a charity without taking possession.
• Gambling Winnings: Fully included in gross income. Losses are an itemized deduction to the extent of winnings.
• Cancellation of Debt: Generally taxable income.
• Damage Awards: Awards for lost profit are income. Punitive damages are fully taxable.

Gross Income: Investment & Other Income

Interest Income

• Taxable Interest: Includes interest from corporate bonds, bank accounts, and seller-financed mortgages. Amortization of a bond discount is also treated as taxable interest income.
  • Interest on U.S. Treasury bonds is taxable at the federal level but is exempt from all state and local income taxes.
• Tax-Exempt Interest:
  • Interest on State and Local government (municipal) bonds is generally exempt from federal income tax.
  • Interest from U.S. Series EE Savings Bonds may be excluded if used for qualified higher education expenses (this exclusion is subject to an AGI phase-out).

Dividend Income

The tax treatment of a corporate distribution is determined by the following "waterfall":

1. The distribution is a taxable dividend to the extent of the corporation's Earnings & Profits (E&P).
2. If the distribution exceeds E&P, it is a non-taxable return of capital that reduces the shareholder's stock basis.
3. If the distribution exceeds both E&P and the shareholder's basis, the excess is treated as a taxable capital gain.

Qualified dividends that meet specific source and holding period requirements are taxed at lower long-term capital gains rates.

Annuities

Each annuity payment is split between a non-taxable return of capital and taxable ordinary income. This is calculated using an exclusion ratio ($$\frac{\text{Investment in Contract}}{\text{Expected Total Return}}$$). If the annuitant lives beyond their life expectancy, any additional payments are fully taxable as ordinary income.

Social Security Income

Taxability depends on the taxpayer's Provisional Income.

• Low Income: 0% of benefits are taxable. (Provisional income below $25,000 Single / $32,000 MFJ).
• Middle Income: Up to 50% of benefits are taxable. (Income between the low and upper thresholds).
• Upper Income: Up to 85% of benefits are taxable. (Provisional income above $34,000 Single / $44,000 MFJ).

Gross Income: Nontaxable & Partially Taxable Items

Nontaxable Exclusions

• Life Insurance Proceeds: Generally excluded from the beneficiary's gross income.
• Gifts and Inheritances: Nontaxable to the recipient.
• Medicare Benefits: Excluded.
• Workers' Compensation: Excluded.
• Personal Physical Injury or Illness Awards: Excluded.
• Accident Insurance: Excluded if the taxpayer paid the premiums.
• Foreign-Earned Income Exclusion: Up to $130,000 (2025) can be excluded if residency tests are met.

Partially Taxable Items

• Scholarships (Degree-Seeking): Excludable for amounts spent on tuition and fees. Amounts for room and board are taxable.
• Scholarships (Non-Degree-Seeking): Fully taxable at FMV.
• Tuition Reductions (Graduate Students): Taxable if it is their only compensation, but not taxable if it is in addition to other taxable compensation.

Schedule C Details & SE Tax

Business Interest Expense Limitation

For businesses with average gross receipts over $30 million, the business interest expense deduction is limited to the sum of:

• Business interest income
• 30% of the adjusted taxable income
• Floor plan financing interest

Common Nondeductible Sch. C Expenses

• Salaries paid to the sole proprietor (these are considered a draw/withdrawal)
• Federal income tax
• Bad debt expense for a cash-basis taxpayer
• Personal portion of auto, travel, and meal expenses
• Charitable contributions (these are an itemized deduction on Schedule A)

Self-Employment Tax Calculation

Nontaxable Fringe Benefits

• Employer-Paid Health Insurance: Premiums are excludable. Amounts paid to an employee are includable unless they are a reimbursement for medical expenses or compensation for permanent loss of a body part.
• De Minimis Fringe Benefits: Benefits too small to account for are excluded.
• Meals and Lodging: Excluded if for the convenience of the employer.
• Employer Payment of Educational Expenses: Up to $5,250 may be excluded for payments on behalf of student loans.
• Employee Adoption Assistance: Up to $16,810 can be excluded. Phased out for MAGI between $252,150 - $292,150.
• Dependent Care Assistance: Up to $5,000 can be excluded.
• Parking & Transit Passes: Up to $315 per month for each can be excluded.
• Flexible Spending Arrangements (FSAs): Pre-tax contributions (up to $3,200) to pay for medical expenses. Funds are "use it or lose it" within the plan year (plus a 2.5-month grace period).

Rental & Hobby Income/Loss

Rental Income (Schedule E)

• Rented Less than 15 Days: Treated as a personal residence. Rental income is excluded from income. Mortgage interest and real estate taxes are itemized deductions.
• Rented More than 15 Days: Expenses must be prorated between personal and rental use. Rental expenses are deductible only to the extent of rental income (no loss allowed).

Hobby Losses

If an activity is not engaged in for profit, expenses are not deductible. Income is still included in gross income. The IRS uses a nine-factor test to determine if an activity is a hobby or a business.

Taxation of Retirement Plan Distributions

The taxability of IRA distributions depends on the type of IRA and whether contributions were deductible.

Distributions before age 59½ generally incur a 10% penalty, but exceptions exist for death, disability, medical expenses, first-time home purchase (up to $10k), education, and birth/adoption ($5k).

Tax Treatment of Divorce-Related Payments

• Alimony (Divorce agreements executed ≤ Dec 31, 2018): Taxable income to the recipient and an "above the line" deduction for the payor.
• Alimony (Divorce agreements executed after Dec 31, 2018): Not taxable to the recipient and not deductible by the payor.
• Child Support: Not taxable to the recipient and not deductible by the payor. Payments are treated as child support first if they are reduced based on a child-related contingency.
• Property Settlements: Not a taxable event. The basis of the property is a carryover basis.

Additional Tax Credits & Savings Plans

Retirement Savings Contribution Credit

The credit percentage (50%, 20%, or 10%) depends on AGI. The maximum contribution that qualifies for the credit is $2,000 per taxpayer, and there is no carryover for any excess credit.

Work Opportunity Credit

Part of the General Business Credit, this is for employers who hire individuals from targeted groups (e.g., certain veterans, food stamp recipients). The credit is typically 40% of the first $6,000 of first-year wages.

Coverdell Education Savings Account

This is a tax-advantaged account designed to pay for the qualified education expenses of a designated beneficiary. A maximum of $2,000 can be contributed annually per beneficiary.

Adjustments for AGI ("Above the Line")

• Educator Expenses: Up to $300 for K-12 teachers.
• IRA Contributions: Traditional IRA contributions may be deductible subject to income limits.
• Student Loan Interest: Up to $2,500 per year. Phased out for AGI between $80k-$95k (Single) or $165k-$195k (MFJ).
• Health Savings Account (HSA): Pre-tax contributions are deductible (up to $4,150 self / $8,300 family for 2024). Distributions not used for qualified medical expenses are taxable and subject to a 20% penalty.
• Moving Expenses: Only for active-duty military members.
• Self-Employment Tax: 50% of SE taxes paid is deductible.
• Self-Employed Health Insurance: 100% of premiums are deductible.
• Self-Employed Retirement Plans: Contributions to plans like SEP IRA (lesser of $69k or 20% of SE net income), SIMPLE IRA (lesser of $16k or 100% of SE net income), or Solo 401(k).
• Penalty on Early Withdrawal of Savings: Deductible.
• Alimony Paid: For divorce agreements executed on or before Dec 31, 2018.
• Attorney Fees Paid in Discrimination Cases: Limited to the amount claimed from the judgment.

Itemized Deductions (Schedule A)

• Medical Expenses: Qualified expenses in excess of 7.5% of AGI.
• State and Local Taxes (SALT): Limited to $10,000 per year. Includes property, income, or sales taxes. For cash-basis taxpayers, deductible in the year paid.
• Home Mortgage Interest: On up to $750,000 of indebtedness for a primary and secondary home.
• Investment Interest Expense: Limited to net taxable investment income.
• Prepaid Interest: Must be allocated over the period of the loan.
• Charitable Contributions: Subject to AGI limitations (e.g., 60% for cash, 30% for LTCG property). For ordinary income property, deduction is the lesser of FMV or adjusted basis. 5-year carryforward for excess. A deduction of $50/month is allowed for hosting a student.
• Casualty Losses: Only for losses in a federally declared disaster area. Loss is reduced by insurance, $100, and then 10% of AGI.
• Gambling Losses: Deductible only to the extent of gambling winnings.

Standard & Additional Deductions

Taxpayers can take the greater of their standard deduction or itemized deductions.

Additional Standard Deduction

An additional deduction is available for taxpayers who are age 65 or older and/or blind.

• Unmarried: $1,950 for each condition (age or blindness).
• Married: $1,550 for each condition, per taxpayer.

Casualty Loss Calculation

Remember, personal casualty losses are deductible only if they occur in a federally declared disaster area. The calculation is as follows:

1. Determine Loss Amount: Take the lesser of the property's lost cost (adjusted basis) or its decreased FMV.
2. Subtract Insurance: Reduce the loss amount by any insurance reimbursement you receive.
3. Apply $100 Floor: Subtract $100 from the loss for each separate casualty event.
4. Apply 10% AGI Floor: Subtract 10% of your Adjusted Gross Income (AGI) from the remaining loss.
5. Deductible Loss: The remaining amount is your itemized deduction on Schedule A.

QBI Deduction (Section 199A)

A deduction of up to 20% of Qualified Business Income from flow-through entities.

• Qualified Trade or Business (QTB): Any business other than a Specified Service Trade or Business (SSTB).
• Specified Service Trade or Business (SSTB): Health, law, accounting, consulting, athletics, financial services, etc.

Deductibility Thresholds (2025)

• Below Threshold ($201,550 S / $403,100 MFJ): Full 20% deduction for both QTB and SSTB. Limited to 20% of (Taxable Income before QBI - Net Capital Gains).
• Above Threshold ($251,550 S / $503,100 MFJ): No QBI deduction for SSTBs. QTB deduction is subject to W-2 wage and property limitations.
• Between Thresholds: Phase-in of limitations for QTB and phase-out of deduction for SSTB.

Tax Credits: Nonrefundable

Can reduce tax liability to zero, but no refund for any excess credit.

• Child and Dependent Care Credit: For expenses to care for a dependent under 13 or a disabled dependent. Credit is 35% of expenses, phased down to 20% for AGI over $43k.
• Credit for Elderly or Disabled: 15% credit for individuals age 65+ or permanently disabled. The base amount is reduced by Social Security benefits and 1/2 of AGI over certain limits.
• Education Credits: American Opportunity Tax Credit (AOTC - max $2,500 per student) and Lifetime Learning Credit (LLC - max $2,000 per taxpayer).
• Adoption Credit: For qualified adoption expenses up to $16,810 (2024). Any excess can be carried forward for 5 years.
• Retirement Savings Contribution Credit: For low-to-moderate income taxpayers contributing to an IRA.
• Foreign Tax Credit: For foreign income taxes paid.
• General Business Credit: A combination of various business credits.

Tax Credits: Refundable

Can reduce tax liability below zero, resulting in a refund.

• Child Tax Credit: Up to $2,000 per qualifying child. Refundable portion is the lesser of excess credit, (earned income - $2,500) * 15%, or $1,700 per child (2024). A $500 nonrefundable credit is available for other dependents.
• Earned Income Credit: For low-to-moderate income working individuals who live in the US for more than half the year.
• American Opportunity Tax Credit: 40% of the credit is refundable.
• Excess Social Security Paid: If an individual had two or more employers and paid excess SS tax.

Other Tax Concepts

Kiddie Tax

The net unearned income of a dependent child is taxed at the parents' marginal rate.

Other Credits

• Small Employer Retirement Plan Startup: Credit for costs to establish a new plan.
• Energy Efficient Home Improvement Credit: 30% credit, limited to $1,200 annually.
• Residential Clean Energy Credit: 30% credit for solar, wind, geothermal installations.
• Clean Vehicle Credit: Up to $7,500 for new EVs, $4,000 for used EVs.

Advanced Individual Tax Concepts

Net Investment Income Tax (NIIT)

A 3.8% tax applies to the lesser of net investment income or the excess of modified AGI over a threshold ($250,000 for MFJ, $200,000 for Single/HoH).

U.S. Series EE Savings Bonds Phase-Out

The tax exemption for interest on these bonds used for education is phased out. For 2024, the phase-out ranges are:

• Single/Head of Household: $96,800 - $111,800 MAGI
• Married Filing Jointly: $145,200 - $175,200 MAGI

Hobby vs. Business: Nine-Factor Test

The IRS considers these factors to determine if an activity is a business (for profit) or a hobby:

1. Carrying on the activity in a businesslike manner.
2. The expertise of the taxpayer or their advisors.
3. The time and effort expended by the taxpayer.
4. Expectation that assets used in the activity may appreciate in value.
5. The success of the taxpayer in carrying on other similar or dissimilar activities.
6. The activity's history of income or losses.
7. The amount of occasional profits, if any.
8. The financial status of the taxpayer.
9. Elements of personal pleasure or recreation.

Estimated Taxes & Underpayment Penalty

Taxpayers must make estimated tax payments if they expect to owe at least $1,000 in tax and their withholding is insufficient.

Avoiding the Penalty

To avoid a penalty, withholding and timely estimated payments must equal or exceed the lesser of:

• 90% of the current year's tax liability, OR
• 100% of the prior year's tax liability (110% if prior year AGI > $150,000).

Federal Estate & Gift Taxation

The gift tax (paid by donor) and estate tax (paid by estate) are unified. A single lifetime exclusion applies to cumulative transfers.

Gift Tax Overview

• Annual Exclusion: An individual may gift up to an inflation-adjusted amount ($18,000 in 2024) to any number of individuals per year, tax-free.
• Unlimited Exclusions:
  • Payments made directly to an educational institution for tuition.
  • Payments made directly to a medical provider for healthcare.
  • Gifts to a spouse (marital deduction).
  • Charitable contributions.
• Taxable Gift: A gift that exceeds the annual exclusion. This amount reduces the lifetime unified credit. A gift tax return (Form 709) is required.

Estate Tax Formula

Property Basis & Acquisition

Purchased Property

Basis is the cost plus capital improvements and any costs to place the asset into service. If useful life is greater than one year, it should be capitalized.

Inherited Property

Basis is the Fair Market Value (FMV) at the date of death or the alternate valuation date (earlier of 6 months after death or date of distribution). The holding period is always considered long-term.

Gifted Property

Basis is generally the donor's basis (NBV). See detailed card for rules when FMV is less than NBV.

Property Converted from Personal to Business Use

• Basis for Depreciation: Lesser of the property's adjusted basis or its FMV on the date of conversion.
• Basis for Gain/Loss: For gains, use adjusted basis. For losses, use the lesser of adjusted basis or FMV at conversion.

Stock Splits & Dividends

Stock splits and stock dividends are generally nontaxable. The original basis is allocated over the new total number of shares ("Basis Spreading").

Basis of Gifted Property

The general rule is that the donee's basis is the same as the donor's basis (NBV). However, an exception applies if the FMV at the date of the gift is lower than the donor's basis.

Holding Period & Depreciation Basis

• Holding Period: If the donor's basis is used, the holding period tacks. If the FMV is used, the holding period starts at the date of the gift.
• Depreciation Basis: The basis for depreciation is the lesser of the donor's adjusted basis or the FMV at the date of the gift.

Business Property Deductions & Amortization

De Minimis Safe Harbor

Allows immediate expensing of low-cost property. The limit is $5,000 per item if the taxpayer has an applicable financial statement (AFS), and $2,500 per item without an AFS.

Section 179 Deduction

Allows immediate expensing of qualifying business property. The maximum deduction for 2024 is $1,220,000. The deduction is phased out dollar-for-dollar for property placed in service exceeding $3,050,000. The deduction cannot create a net loss.

Organizational & Start-Up Costs

Can immediately expense the first $5,000 of each type of cost. This allowance is reduced dollar-for-dollar for costs exceeding $50,000. Any remaining costs are amortized over 180 months (15 years).

Section 197 Intangibles

Purchased intangibles (goodwill, franchises, trademarks) are amortized using the straight-line method over 180 months (15 years).

Depreciation (MACRS)

Personal Property

• 3-Year: Special tools, certain racehorses
• 5-Year: Cars, light trucks, computers, copiers
• 7-Year: Furniture, fixtures, machinery, equipment
• 10-Year: Boats, water transportation equipment
• 15-Year: Qualified improvements to interior of nonresidential buildings

Convention: General rule is the Half-Year convention. The Mid-Quarter convention must be used if more than 40% of personal property is placed in service in the 4th quarter. (Q1: 87.5%, Q2: 62.5%, Q3: 37.5%, Q4: 12.5% of first year's depreciation).

Real Property

• 20-Year: Farm buildings, municipal sewers
• 27.5 Years (Straight-Line): Residential Rental Property
• 39 Years (Straight-Line): Non-Residential (Business) Property

Convention: Always uses the Mid-Month convention. Land is never depreciated.

Advanced Depreciation Rules

Additional Section 179 Rules

• The property cannot have been acquired from a related party.
• Land and improvements to land do not qualify.
• The deduction is not available for investment, rental, or most real property (though qualified improvements to non-residential buildings do qualify).

Depreciation in Year of Disposal

• Half-Year Convention: In the year of disposal, you take a half-year of depreciation (multiply the normal annual depreciation amount by 50%).
• Mid-Quarter Convention: Treat the property as sold in the midpoint of the quarter it was disposed in. For a 7-year asset sold in Q1, you would take the full year's depreciation and multiply it by 12.5%.
• Mid-Month Convention (Real Property): In the year of disposal, depreciation is taken for the number of full months plus a half-month for the month of disposal.

Capital Gains & Losses

Special Cases

• Collectibles & QSBS: Taxed at a maximum rate of 28%.
• Worthless Stock: Treated as a capital loss as if sold on the last day of the tax year.

Nondeductible Losses

• Wash Sales: A loss on the sale of a security is disallowed if an identical security is repurchased within 30 days before or after the sale. The disallowed loss is added to the basis of the new stock.
• Related Party Transactions: Losses between related parties are disallowed.
• Personal Losses: Losses on personal-use assets are not deductible.

C-Corporation: Filing & Estimated Taxes

Filing Requirements

C-Corps must file Form 1120 by the 15th day of the 4th month after their year-end. A 6-month extension is available.

Estimated Taxes

Corporations must pay estimated taxes in four quarterly installments.

• Small Corps (<$1M TI): Required to pay the lesser of 100% of the current year's tax or 100% of the prior year's tax.
• Large Corps (>$1M TI): Must pay 100% of the current year's tax.

Corporate Accounting & Key Concepts

Accrual vs. Cash Method

The accrual method is required for:

• Accounting for inventory (purchases and sales).
• Tax shelters.
• C-Corporations and partnerships with C-Corp partners with average annual gross receipts exceeding $30 million for the prior 3-year period.

Bonus Accruals (for Accrual-Basis Taxpayers)

Bonuses are deductible in the tax year they are accrued if they are paid out within 2.5 months of the taxpayer's year-end.

Bad Debts

• Accrual Basis: Deductible only in the year the specific debt is written off (direct write-off method). The allowance method is not permitted for tax.
• Cash Basis: Not deductible, as the income was never recognized.

C-Corporation: Book-to-Tax Reconciliation (Schedule M-1)

Reconciles book income (GAAP) with taxable income. Start with Net Income per books and adjust for differences.

Additional GAAP vs. Tax Differences

C-Corporation: Key Deductions & Losses

Dividends Received Deduction (DRD)

Deduction for dividends received from other domestic corporations. The DRD is the lesser of the percentage of dividends received or the percentage of taxable income.

• 0-20% Ownership: 50% DRD
• 20-80% Ownership: 65% DRD
• >80% Ownership (Affiliated): 100% DRD

Charitable Contributions

Deduction is limited to 10% of taxable income (before DRD, NOL/Capital Loss carrybacks). Accrued contributions are deductible if paid within 3.5 months of year-end. 5-year carryforward.

Net Operating Losses (NOLs)

For NOLs arising after 2020, there is no carryback, but they can be carried forward indefinitely. The NOL deduction is limited to 80% of taxable income.

Capital Losses

Corporate capital losses can only be used to offset capital gains. They can be carried back 3 years and carried forward 5 years.

Advanced NOL & S-Corp Rules

Net Operating Loss (NOL) Carryover Rules

• NOLs before 2018: Carry back 2 years, carry forward 20 years. Offsets 100% of future income.
• NOLs in 2018-2020: Carry back 5 years, carry forward indefinitely. Offsets 100% of future income.
• NOLs after 2020: No carryback, carry forward indefinitely. Deduction is limited to 80% of taxable income.

S-Corporation Fringe Benefits

The tax treatment of fringe benefits depends on the employee's shareholder status:

• Non-Shareholder Employees: Benefits are deductible by the S-Corp.
• Shareholders owning 2% or less: Benefits are deductible by the S-Corp.
• Shareholders owning more than 2%: Benefits are generally not deductible by the S-Corp unless the cost is included in the employee-shareholder's W-2 income.

Partnership K-1 Flow-Through

Separately stated items from a partnership's K-1 flow to the partner's individual return. For example: Ordinary Business Income/Loss flows to Sch. E; Interest Income to Sch. B; Capital Gains/Losses to Sch. D.

Additional Corporate Deductions

Executive Compensation

A publicly held corporation cannot deduct compensation expenses in excess of $1,000,000 paid to its highest-paid employees.

Business Gifts

Deductible up to a maximum of $25 per recipient per year.

Life Insurance Premiums

• Corporation as Beneficiary (Key Person): Premiums are not deductible.
• Employee as Beneficiary (Fringe Benefit): Premiums are deductible as an employee benefit.

Business Casualty Losses

If business property is damaged, the loss is the lesser of the change in FMV or the adjusted basis, reduced by any insurance proceeds. If fully destroyed, the loss is the adjusted basis less insurance proceeds.

C-Corporation: Special Taxes & Credits

Accumulated Earnings Tax

A penalty tax of 20% on undistributed earnings accumulated beyond reasonable business needs. C-Corps are entitled to a minimum credit of $250,000.

Personal Holding Company (PHC) Tax

A penalty tax of 20% on the undistributed income of a PHC. A company is a PHC if:

1. More than 50% of the stock is owned by 5 or fewer individuals.
2. 60% or more of adjusted ordinary gross income consists of passive income (Net rent, Royalties, Interest, Dividends).

Foreign Tax Credit

Calculated as the lesser of foreign taxes paid or the US tax liability on foreign income. (Worldwide TI * US Rate) * (Foreign TI / Worldwide TI). Carry back 1 year, forward 10 years.

S-Corporations

Eligibility & Election

Must be a domestic corp with one class of stock, <= 100 shareholders (individuals, estates, certain trusts), and no nonresident alien shareholders. Election via Form 2553 by March 15 for current year.

Shareholder Basis & Loss Limitation

Losses are deductible to the extent of the shareholder's basis, which includes both stock basis and debt basis (loans made directly by the shareholder to the S-Corp).

Income and losses are allocated to shareholders on a per-share, per-day basis. Unlike partnership income, S-Corp earnings passed through to shareholders are generally not subject to self-employment taxes.

Accumulated Adjustments Account (AAA)

The AAA tracks the cumulative earnings and profits of an S-Corp during the time it has been an S-Corp. Distributions from AAA are tax-free to shareholders.

Termination of S-Election

• Voluntary: Shareholders holding more than 50% of the stock consent.
• Involuntary: Fails to meet any qualification requirement (e.g., ineligible shareholder).
• Excess Passive Income: More than 25% of gross receipts are from passive income for 3 consecutive years (only applies if the S-Corp has prior C-Corp E&P).

Pass-Through Entity Details

S-Corp Election Timing

To be effective for the current year, the election must be made by the 15th day of the 3rd month of the tax year. An election made after this date becomes effective on the first day of the next tax year.

Common Separately Stated Items

The following items are not included in ordinary business income and must be passed through separately to shareholders/partners:

• Net rental real estate income/loss
• Interest and dividend income
• Capital gains and losses
• Section 179 deduction
• Charitable contributions

Shareholders and partners are taxed on these items when the entity earns them, not when they are distributed.

Partnerships

Tax Forms

• Form 1065: Informational return filed by the partnership.
• Schedule K: Reports the partnership's total income, deductions, credits, etc.
• Schedule K-1: Provided to each partner, showing their individual share of the items on Schedule K.

Partner Basis & Loss Limitation

A partner's basis includes their capital account plus their share of partnership liabilities. Losses are deductible to the extent of this total basis. Withdrawals are nontaxable but decrease basis.

Guaranteed Payments

Payments to a partner for services or use of capital, made without regard to partnership income. They are a business expense to the partnership and taxable ordinary income to the partner.

Estates & Trusts: Income Taxation

Estates and trusts are separate income-tax paying entities. Fiduciary accounting is used to manage these entities, and income is taxed at either the entity or beneficiary level, limited by Distributable Net Income (DNI).

Types of Trusts

• Simple Trust: Required to distribute all income currently, cannot make charitable contributions, and cannot distribute principal (corpus). Has a $300 exemption.
• Complex Trust: Any trust that is not a simple trust. It may accumulate income, make charitable contributions, and distribute principal. Has a $100 exemption.
• Grantor Trust: The grantor retains control, and the trust is disregarded for tax purposes. All income is taxed to the grantor on their personal return.

Distributable Net Income (DNI)

DNI is the maximum amount of income that can be taxed to beneficiaries and deducted by the trust or estate. It is calculated as follows:

Income Distribution Deduction

The trust or estate may deduct the lesser of:

1. The actual amount distributed to beneficiaries, OR
2. The amount of Distributable Net Income (DNI).

Beneficiaries are taxed on the income distributed to them, limited to the trust's DNI.

Tax-Exempt Organizations & Nexus

Tax-Exempt Organizations

Most common is a Section 501(c)(3) organization. They are exempt from federal income tax but may be subject to tax on Unrelated Business Income (UBI).

• Private Foundations: Receive support from a single major source and primarily make grants to other organizations.
• Public Charities: Receive broad public support (at least 1/3 of total support must be from the public/government). Includes churches, schools, hospitals.

Nexus & Apportionment

Nexus is the minimum level of contact a business may have with a state to be subject to its taxes. This can be triggered by owning property, sending employees, or soliciting sales in the state. Business income is then apportioned to states based on a formula (typically property, payroll, and sales factors).

State Taxation: Apportionment & Allocation

Apportionment Factors

Business income is apportioned using a formula based on the corporation's presence in a state:

• Property Factor: (Avg. value of property in state) / (Total property avg. value)
• Payroll Factor: (Payroll paid in state) / (Total payroll)
• Sales Factor: (Sales from sources in state) / (Total sales)

Allocation of Non-Business Income

Non-business income (e.g., investment income) is not apportioned. It is allocated entirely to a specific state, typically the state where the corporation is domiciled.

Circular 230: Practice Before the IRS

Overview

Circular 230 provides regulations governing practice before the IRS. It covers authority to practice, duties and restrictions, sanctions for violations, and disciplinary proceedings.

Tax Preparer Roles

A tax preparer is anyone who prepares a substantial portion of a tax return for compensation. They must have an IRS Preparer Tax Identification Number (PTIN).

• Signing Tax Preparer: The individual with primary responsibility for the overall accuracy of the return.
• Non-Signing Tax Preparer: An individual who prepares all or a substantial portion of a return but does not have primary responsibility (e.g., assists the signing preparer).

Key Practitioner Duties & Restrictions

• Information to Be Furnished: Must promptly provide records to the IRS, unless believed in good faith to be privileged.
• Knowledge of Client Omission: Must advise the client of noncompliance and potential penalties. Not required to notify the IRS or withdraw.
• Diligence as to Accuracy: Must exercise due diligence in preparing and filing documents.
• Conflicts of Interest: Cannot represent a client if there is a conflict, unless representation is not prohibited by law, the practitioner believes they can competently represent all clients, and all affected clients waive the conflict in writing.
• Fees: Cannot charge an "unconscionable fee." Contingent fees are generally not allowed, with exceptions for IRS examinations, refund claims, and judicial proceedings.
• Return of Client Records: Must return client records upon request, even if a fee dispute exists.
• Practice by Former Government Employees: Restrictions apply. For example, if an employee "personally and substantially participated" in a matter, they can never represent clients on that matter.

Tax Return Position Standards & Penalties

Tax Return Position Standards

Taxpayer Penalties

• Failure-to-File: 5% per month (max 25%). Minimum penalty if >60 days late is lesser of $510 or 100% of tax due.
• Failure-to-Pay: 0.5% per month (max 25%).
• Negligence / Substantial Understatement: 20% of the understatement.
• Fraud: Civil penalty is 75% of the understatement. Criminal penalties are even higher.

Tax Practice Standards & Authority

Primary Authoritative Sources

The determination of a tax position's authority is based on sources like:

• The Internal Revenue Code (IRC) and other statutes.
• Regulations construing such statutes.
• Revenue rulings and procedures.
• Court cases.

Levels of Fault in Legal Liability

1. Reasonable Care: No negligence.
2. Lack of Reasonable Care: Ordinary negligence.
3. Lack of Even Slight Care: Gross negligence (constructive fraud).
4. Actual Fraud: Actual intent to deceive (scienter).
5. Criminal Fraud: Actual intent to deceive with criminal intent.

Unsupported Tax Positions

• Frivolous Position: A position with less than a 20% chance of success; has no basis in law or authority.
• Listed Transaction: A transaction identified by the IRS as a tax avoidance transaction.

Key Taxpayer Penalties

Failure to Make Estimated Payments

A penalty applies if tax due is over $1,000. It can be avoided by paying the lesser of:

• 90% of the current year's tax liability, or
• 100% of the prior year's tax liability (110% if prior AGI > $150,000).

Substantial Understatement

A 20% penalty on the understatement of tax. An understatement is "substantial" if it exceeds the greater of 10% of the correct tax or $5,000.

Fraud Penalties

• Civil Penalty: 75% of the understatement due to fraud. The IRS must prove by a "preponderance of the evidence."
• Criminal Penalty: Fines up to $100,000 ($500,000 for corporations) and imprisonment. The government must prove "beyond a reasonable doubt."

Additional Taxpayer Penalties

• Earned Income Credit Penalty: Taxpayers who negligently claim the Earned Income Credit may be disallowed from claiming the credit for two years (ten years in cases of fraud).
• Penalty for Substantial Valuation Misstatement: A 20% penalty on the understatement of tax if the valuation of property claimed on a return is 150% or more of the correct value. The penalty increases to 40% for gross valuation misstatements.

Private Letter Ruling (PLR)

A PLR is a written statement from the IRS to a taxpayer interpreting and applying tax laws to that taxpayer's specific set of facts. It provides assurance on how the IRS will treat a transaction.

Tax Preparer Penalties & Legal Liability

Preparer Conduct Penalties

• Understatement due to Unreasonable Position: Penalty is the greater of $1,000 or 50% of the preparer's fee.
• Willful or Reckless Conduct (Fraud): Penalty is the greater of $5,000 or 75% of the preparer's fee.
• Aiding and Abetting Understatement: Civil penalty of $1,000 for individuals ($10,000 for corporations). IRS has the burden of proof.
• Wrongful Disclosure/Use of Information: $250 penalty for each instance (max $10,000). Exceptions include court orders, quality reviews, and client consent.

Preparer Compliance Penalties

A penalty of $60 per failure (max $31,500) for failures to sign the return, provide a copy to the taxpayer, furnish an ID number, or retain records for 3 years. A $635 penalty applies for endorsing a client's refund check.

IRS Audits, Appeals, and Courts

Types of Audits & Selection

Audits: Correspondence (mail), Office (IRS office), Field (taxpayer's location). Selection Methods: Statistical models, random selection, prior year audits, information return discrepancies.

Appeals Process

1. After an audit, if issues are unresolved, the taxpayer receives a 30-day letter.
2. The taxpayer can request an administrative appeal with the IRS Appeals Office.
3. If no agreement is reached, a 90-day letter (Notice of Deficiency) is issued.

Trial Courts

• U.S. Tax Court: No payment required to petition. No jury trial. Judges are tax experts.
• U.S. District Court: Must pay tax first and sue for a refund. Jury trial is an option. Located in taxpayer's geographic area.
• U.S. Court of Federal Claims: Must pay tax first. No jury trial.

Regulatory Bodies & Legal Concepts

Regulatory Power

• State Boards of Accountancy: Have the sole power to grant, suspend, and revoke a CPA's license. Can impose fines and require CPE.
• AICPA & State Societies: Can sanction members (e.g., suspend membership), but cannot revoke a CPA's license.
• SEC: Can censure, suspend, or revoke the right to practice before the SEC for CPAs.

Burden of Proof

• Civil Cases: "Preponderance of the evidence." Generally on the taxpayer.
• Criminal Cases: "Beyond a reasonable doubt." On the government.

Elements of Actual Fraud (Intentional Misrepresentation)

To establish a claim for actual fraud, a plaintiff must typically prove all of the following elements:

• Misrepresentation of a Material Fact: The defendant made a false statement about a fact that is significant to the transaction.
• Scienter: The defendant made the statement with the intent to deceive, meaning they knew it was false or acted with a reckless disregard for the truth.
• Intent to Induce Reliance: The defendant intended for the plaintiff to rely on the false statement.
• Justifiable Reliance: The plaintiff actually and reasonably relied on the misrepresentation when making their decision.
• Damages: The plaintiff suffered a monetary loss as a direct result of relying on the misrepresentation.

Audit Process & Legal Concepts

Audit Resolution Details

• No Change Report: If an agent accepts the return as filed, this report is issued.
• Fast Track Mediation: An option for small businesses and self-employed individuals to resolve disputes quickly with the help of an IRS appeals officer.

Elements of CPA Malpractice (Negligence)

To prove malpractice, a client must demonstrate all four elements:

1. The CPA owed a duty of care.
2. The CPA breached that duty by failing to act with due care.
3. The client suffered an injury.
4. The CPA's breach was the cause of the client's injury.

Taxpayer Privileges & Workpapers

The tax practitioner-taxpayer privilege can protect confidential communications. However, it does not apply to criminal cases or tax shelters. Workpapers are the preparer's property but generally cannot be shared without client consent, except for:

• A valid court subpoena.
• A quality or peer review.
• In defense of a lawsuit.

Contract Law: Formation & Sources

Methods of Formation

• Express Contract: Formed by language, oral or written.
• Implied-in-Fact Contract: Formed by conduct.
• Unilateral Contract: One promise given in exchange for performance.
• Bilateral Contract: Two promises; a promise for a promise.

Sources of Contract Law

• Common Law: Governs contracts for services, employment, insurance, and real estate.
• Uniform Commercial Code (UCC): Governs contracts for the sale of goods (moveable tangible property).

Contract Law: Enforceability & Remedies

Elements of a Legally Enforceable Contract

1. Agreement: Offer and Acceptance (Mutual Assent).
2. Consideration: A bargained-for exchange of legal value. A promise to perform an existing duty is not valid consideration.
3. Lack of Defenses: The contract must be free from any defenses.

Remedies for Breach

• Compensatory Damages: Puts the non-breaching party in the position they would have been in had the contract been performed.
• Specific Performance: Ordered when monetary damages are inadequate (e.g., for unique items like land).
• Liquidated Damages: A clause in the contract that specifies damages. Must be a reasonable estimate and not a penalty.
• Parol Evidence Rule: Prohibits prior or contemporaneous oral statements from varying the terms of a fully integrated written contract.

Contract Law: The Offer & Acceptance

The Offer

Must be a serious offer with definite and certain terms. Advertisements are generally invitations, not offers.

Termination of Offer:

• Revocation by Offeror: Effective when received by the offeree. An option contract (consideration paid to keep offer open) is irrevocable.
• Rejection by Offeree: A counteroffer is a rejection. Effective when received by the offeror.
• By Operation of Law: Death or incompetency of parties, destruction of subject matter, or illegality.

The Acceptance

• Mailbox Rule: Acceptance is effective when SENT (dispatched), regardless of when it is received.
• Common Law (Mirror Image Rule): Acceptance must exactly mirror the offer's terms.
• UCC (Sale of Goods): Mirror Image Rule does not apply. Minor changes are acceptable.

Contract Law: Defenses

• Fraud: Misrepresentation of a material fact, scienter (intent to deceive), intent to induce reliance, justifiable reliance, and damages. Fraud in the Execution is void; Fraud in the Inducement is voidable.
• Duress: Physical threat makes a contract void. Economic or social threats make it voidable.
• Mutual Mistake: A mistake by both parties on a material fact makes the contract voidable.
• Illegality: If the subject matter is illegal, the contract is void.
• Incapacity: Contracts with minors are voidable. Contracts with adjudicated incompetent individuals are void.
• Statute of Frauds: Contracts that must be in writing to be enforceable
• Marriage Contracts: Agreements where marriage is the basis, like prenuptial agreements.
• One-Year Rule: Agreements that cannot be completed within one year from the date they are made.
• Real Property: Contracts involving land or real estate, such as sales, mortgages, or leases longer than one year.
• Estate Debts: Promises by an estate executor to personally pay a deceased person’s debts.
• Goods ($500+): Contracts for selling goods worth $500 or more, governed by the Uniform Commercial Code (UCC).
• Guarantor Promises: Agreements to take responsibility for someone else’s debt or obligation.
• Impossibility: If events after the contract make performance objectively impossible.

UCC: Sale of Goods

Merchant's Firm Offer

An offer by a merchant, in a signed writing, giving assurances that it will be kept open is irrevocable for the time stated (or a reasonable time, max 3 months).

Risk of Loss

Passage of risk is independent of title. If no agreement exists:

• Non-Carrier Cases: If seller is a merchant, risk passes upon buyer's physical possession. If not a merchant, risk passes upon tender of delivery.
• Carrier Cases (Shipment - FOB Seller's City): Risk passes when goods are delivered to the carrier.
• Carrier Cases (Destination - FOB Buyer's City): Risk passes when goods reach the destination.

Warranties

• Express Warranty: Arises from any statement of fact or promise made by the seller.
• Implied Warranty of Title: Seller implicitly warrants they have good title and the right to transfer it.
• Implied Warranty of Merchantability: Goods are fit for their ordinary purpose. Made only by merchants.
• Implied Warranty of Fitness for a Particular Purpose: Seller knows the buyer's specific purpose and the buyer relies on the seller's expertise.

UCC Remedies & Agency Doctrines

Seller's Remedies (Buyer's Breach)

If a buyer breaches and makes a down payment, but there is no liquidated damages clause, the seller may keep the lesser of $500 or 20% of the sales price.

Buyer's Remedies (Seller's Breach)

Anticipatory Repudiation: If a party indicates they will not perform before the performance date, the non-breaching party can sue immediately, cancel the contract, demand assurances, or wait for the performance date to sue.

Agency by Estoppel

If a principal causes a third party to believe another person is their agent, and the third party reasonably relies on that belief, the principal is "estopped" (prevented) from denying the agency relationship.

Surety Law

Surety vs. Guarantor

• Surety: Directly liable on the debt. The creditor can proceed directly against the surety upon the debtor's default.
• Guarantor: Liable only if the creditor first tries and fails to collect from the debtor.

Surety's Rights

• Exoneration: Can compel the debtor to pay before the surety has to pay.
• Subrogation: After paying, the surety acquires all the creditor's rights against the debtor.
• Reimbursement: Can recover from the debtor any amount the surety paid.

Surety's Defenses

A surety can use defenses like fraud by the creditor, duress upon the debtor, illegality of the underlying obligation, and discharge of the debtor's obligation. A surety's own incapacity or bankruptcy is also a defense.

Agency Law

Agent's Power to Bind Principal

• Actual Authority: Power and right. Can be Express (written/oral) or Implied (reasonably necessary).
• Apparent Authority: Power but no right. Created by the principal's words or actions causing a third party to reasonably believe the agent has authority.
• Ratification: No power or right. The principal affirms an unauthorized act after the fact.

Duties of Agent to Principal

• Duty of Loyalty: To act solely for the benefit of the principal, avoiding any conflicts of interest or self-dealing. The agent cannot profit secretly or represent both parties in a transaction without full disclosure and consent.
• Duty of Obedience: To obey all lawful and reasonable instructions provided by the principal.
• Duty of Reasonable Care (Performance): To perform duties with the same degree of care, skill, and diligence that a reasonable person in a similar situation would exercise.
• Duty to Account: To keep an accurate account of all money and property received and expended on behalf of the principal. The agent must not commingle the principal's funds with their own.
• Duty to Inform (or Notify): To keep the principal informed of all significant matters related to the agency relationship.

Termination of Agency

Actual authority terminates by acts of the parties (e.g., agent quits, is fired) or by operation of law (e.g., death, bankruptcy). Apparent authority must be terminated by giving notice to third parties.

Key Bankruptcy Concepts (U.S. Code)

Common Types of Bankruptcy

• Chapter 7 - Liquidation: A trustee is appointed to liquidate the debtor's non-exempt assets and distribute the proceeds to creditors. This is available to individuals, partnerships, and corporations.
• Chapter 11 - Reorganization: The debtor, often a business, continues to operate while developing a plan to repay its debts over time.
• Chapter 13 - Individual Debt Adjustment: An individual with regular income creates a 3- to 5-year plan to repay all or part of their debts from future income.

Key Features of a Chapter 7 Bankruptcy

• Automatic Stay: Upon filing, an injunction goes into effect that halts most collection activities against the debtor and their property.
• Property of the Estate: Includes all of the debtor's assets at the time of filing, as well as property received from an inheritance, life insurance payout, or divorce settlement within 180 days *after* filing.
• Preferential Payments: A trustee can recover payments made to a creditor within 90 days before filing (or 1 year for an insider) that enabled the creditor to receive more than they would have in the bankruptcy distribution.
• Nondischargeable Debts: Certain debts cannot be discharged in bankruptcy, including:
  • Taxes incurred within 3 years of filing.
  • Debts incurred through fraud or embezzlement.
  • Domestic support obligations (alimony and child support).
  • Debts from willful and malicious injury to others.
  • Government fines and penalties.
  • Most student loans (unless undue hardship is proven).
  • Debts from death or injury caused by intoxicated driving.

Priority of Claims in a Chapter 7 Liquidation

If there are not enough assets to pay all claims, the trustee pays unsecured claims in the following order:

1. Domestic support obligations.
2. Administrative expenses of the bankruptcy estate.
3. "Gap" claims incurred in the ordinary course of business in an involuntary case.
4. Wage claims earned within 180 days of filing, up to $15,150 per employee.
5. Employee benefit plan contributions, up to $15,150 per employee (less wage claims paid).
6. Claims of grain farmers and fishermen against storage facilities, up to $7,475 per claimant.
7. Consumer deposits for personal property or services, up to $3,350 per claimant.
8. Certain tax claims (e.g., income, property, and employment taxes).
9. Claims for death or personal injury resulting from the debtor's intoxicated driving.

After all priority claims are paid in full, general unsecured creditors are paid on a pro-rata basis.

Business Entities Summary

Employment & Healthcare Law

• FICA (Social Security): Funded 6.2% by employer and 6.2% by employee on wages up to a limit. All full-time and part-time employees participate.
• FUTA (Unemployment): Employer-only tax, paid if employer has quarterly payrolls of at least $1,500 or employs someone for 20 weeks a year.
• Workers' Compensation: State-run, no-fault insurance for on-the-job injuries, funded by the employer. Employers are strictly liable.
• Affordable Care Act (ACA): Applicable Large Employers (50+ full-time employees) must offer affordable health coverage to 95% of FT employees or face penalties.
  • Penalty 1 (No Coverage): $2,880 per FT employee (minus first 30).
  • Penalty 2 (Unaffordable/Inadequate): $4,320 per employee receiving a premium tax credit.
• Foreign Corrupt Practices Act (FCPA): Prohibits bribing foreign officials to obtain or retain business.

Additional Contract Concepts

Contracts with Unlicensed Workers

If a license is required for a contract, its enforceability depends on the license's purpose:

• Revenue-Raising (e.g., vendor license): If the purpose is to raise money, the contract is enforceable.
• Public Protection (e.g., CPA, attorney): If the purpose is to protect the public from incompetence, the contract is void.

Major vs. Minor Breach

• Major Breach: If the breach is substantial, the non-breaching party is discharged from the contract and can sue for damages.
• Minor Breach: The non-breaching party is not discharged but is entitled to sue for damages.

Accord & Satisfaction vs. Novation

Accord & Satisfaction is an agreement to substitute one contract for another, and the satisfaction is the execution of that new agreement. A Novation occurs when a new party is substituted for an old party in an existing contract.

Advanced Business Law Concepts

Bankruptcy Chapters

While Chapters 7 (Liquidation) and 11 (Reorganization) are most common, other types exist:

• Chapter 9: Municipal Debt Adjustment
• Chapter 12: Family Farmers with Regular Income
• Chapter 13: Adjustment of Debts of an Individual with Regular Income

A Section 341 Meeting (meeting of creditors) is held in bankruptcy proceedings.

Corporate Doctrines

• Piercing the Corporate Veil: Courts may disregard the corporate structure and hold shareholders personally liable if the entity is used improperly (e.g., commingling funds, inadequate capitalization, fraud).
• Ultra Vires Act: An act by a corporation that is beyond the scope of its powers as defined in its articles of incorporation.

UCC Statute of Frauds Exceptions

No written contract is needed for goods sold over $500 in these cases:

• Custom-Made Goods: Contracts for goods made specifically for the buyer, not suitable for resale to others, where the seller has significantly started production.
• Merchant Confirmation: Between merchants, a contract is binding if one sends a written confirmation of an oral agreement and the recipient does not object in writing within 10 days.
• Court Admission: Contracts are enforceable up to the quantity admitted if a party confirms in court, under oath, that a sale agreement was made.
• Accepted Payment or Goods: Contracts are enforceable to the extent that payment or goods have been accepted by the buyer.