Investment Analysis Flashcards

A client holds a traditional IRA invested in a master limited partnership. Above what amount of unrelated business taxable income must the IRA file Form 990-T?

Answer: $1,000

An IRA with $1,000 or more of gross UBTI must file Form 990-T and may owe tax inside the account.

For an ESPP sale to be a qualifying disposition, the shares must be held:

Answer: At least 2 years from the grant date and 1 year from the purchase date

Qualifying ESPP dispositions require more than 2 years from grant and more than 1 year from purchase.

When an employee exercises incentive stock options and holds the shares, what tax issue commonly arises in the year of exercise?

Answer: The bargain element is an AMT adjustment

The ISO spread at exercise is not regular taxable income but is an adjustment for alternative minimum tax purposes.

With Net Unrealized Appreciation, how is the NUA portion of employer stock taxed when it is sold after a qualifying lump-sum distribution?

Answer: As long-term capital gain regardless of holding period after distribution

Only the plan's cost basis is ordinary income at distribution, while the NUA is always taxed as long-term capital gain when sold.

A client donates publicly traded stock held for three years to a public charity. What is generally the deduction amount and AGI limit?

Answer: FMV, limited to 30% of AGI

Long-term appreciated capital gain property given to a public charity is deductible at FMV up to 30% of AGI, avoiding tax on the appreciation.

How are earnings in a nonqualified deferred annuity taxed on a partial withdrawal before annuitization?

Answer: Earnings are withdrawn first and taxed as ordinary income

Under Section 72(e), partial withdrawals from post-1982 annuities come out of earnings first and are taxed as ordinary income.

Interest on which investment is exempt from state and local income tax but subject to federal income tax?

Answer: U.S. Treasury bonds

Interest on U.S. Treasury obligations is federally taxable but exempt from state and local income tax.