[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

AUD - 79
BEC - 80
FAR - 76
REG - 92

Jeff Elliott, CPA (KS)
NINJA CPA | NINJA CMA | NINJA CPE | Another71

[jstay]

Idk if I agree about the two research and one being a pretest cause on my first attempt I had 2 and ended up with a 73. I don't see how I could get that close without them counting both of the research simulations

[Gabe]

@troblin same boat here.

@jstay maybe you did well on the other sims?

fingers crossed for us all!

CPA, CFE
CISA- Experience will be completed by August 2016

[cgartime]

Kent Corp. is a calendar-year, accrual-basis, C corporation. In 2014, Kent made a nonliquidating distribution of property with an adjusted basis of $150,000 and a fair market value of $200,000 to Reed, its sole shareholder. The following information pertains to Kent:

Reed's basis in Kent stock at January 1, 2014 $500,000

Accumulated earnings and profits at

January 1, 2014 125,000

Current earnings and profits for 2014

including the effects of this distribution 60,000

What was taxable as dividend income to Reed for 2014?

A.

$60,000

B.

$150,000

C.

$185,000

D.$200,000

why answer is C? If Corporation distribute property to shareholder, the corporation should recognized gain first. then total available profit to distribute should be : 125,000+60,000+(200,000-150,000)=235,000. I thought the correct answer should be D.

[Gabe]

CPA, CFE
CISA- Experience will be completed by August 2016

[Sandia]

who owns the property C corp or the shareholder… the C corp so it is a sale for the C corp… x the shareholder is only a Dividend distribution

FAR - 77 x2 Wiley book & no test bank
AUD - 83 x3 NINJA Test bank 3 time
REG - 80 x1 NINJA Test bank
BEC - 78 X2 NINJA Test bank ..done!!promesa cumplida mama -que llege al cielo 🙂
Ethic 100% Licensed VA CPA

[Anonymous]

15 is liquidating I guess, current earnings include the gain from property

[Anonymous]

I hate how it says nonliquidating distribution though. jerks

[Sandia]

15K capital gain

FAR - 77 x2 Wiley book & no test bank
AUD - 83 x3 NINJA Test bank 3 time
REG - 80 x1 NINJA Test bank
BEC - 78 X2 NINJA Test bank ..done!!promesa cumplida mama -que llege al cielo 🙂
Ethic 100% Licensed VA CPA

[Anonymous]

is it called return of investment? I am not sure it taxed as capital gain, is it?

[Sandia]

distribution x Shareholders:

1) dividends Income ( Current and Acc E&P) – taxable

2) return on Capital (up to shareholder basis) – no taxable

2) Capital gain

it is Return on Capital

FAR - 77 x2 Wiley book & no test bank
AUD - 83 x3 NINJA Test bank 3 time
REG - 80 x1 NINJA Test bank
BEC - 78 X2 NINJA Test bank ..done!!promesa cumplida mama -que llege al cielo 🙂
Ethic 100% Licensed VA CPA

[Anonymous]

so what, I invest my own after tax $100, then I get 20 of it back and get taxed on it as if I had capital gain? This doesn't sound right, does it?

[Anonymous]

Distributions that qualify as a return of capital are not dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock. For information on basis of assets, refer to Topic 703. A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain. https://www.irs.gov/taxtopics/tc404.html

[Gabe]

Right, it is a return of capital, which is NOT the same as a capital gain. A return of capital reduces the SH basis. So the 15k would reduce Reed's basis of $500k

CPA, CFE
CISA- Experience will be completed by August 2016

[jstay]

Is the 15k a capital gain? his basis is 500k so wouldn't it just reduce that. I guess since its a C Corp we use the FMV of the property. So its 200. Accum E &P plus Current E&P = 185 so that is the dividend income anything else after that is a reduction in basis (or a capital gain)

Am I right??

[Gabe]

@jstay that's my understanding as well. The 15k reduces his basis.

CPA, CFE
CISA- Experience will be completed by August 2016

[Author]

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