REG Study Group Q1 2017
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haha that sounds much better! I was thinking to myself–man I thought I was trying hard till I read this! I try to re-read through my notes but they are all over the place. Even brushing through them would take an eternity. I mainly take notes as a different way of retaining the information rather then go back and review (altho I do jump to my notes often just not in their entirety)
What is E&P? (earnings and profit?)
So I guess I should use the 2016 number?
what happened here? Int related party losses a wash?
Kuo sells residential rental property to his son, Karl, for $100,000. Karl gives Kuo $1,000 and an installment note for the balance of $99,000. Kuo's basis is $50,000. Karl pays Kuo $4,000 in Year 1. In Year 2, after paying Kuo $5,000, Karl sells the property for $70,000. Which of the following statements about this situation is correct?
a.
Kuo should report a $49,000 gain in Year 2.
b.
Kuo should report $2,500 gain in Year 1. CORRECT
c.
Kuo should report the entire gain of $50,000 in Year 1 because Karl disposed of the land within two years of purchase.
d.
Kuo should report the entire gain of $50,000 in Year 1 because installment sales of depreciable property are not allowed between related parties.@aatoural I believe the related party rules would apply if they sold in a NON-arms length transaction. Since this is a arms length transaction the related party rule does not apply. Since it is an installment sale and the gross profit % is 50% you take the cash collected for the year $5K and times it by the gross profit % to get your gain of $2,500
@dtatham10 – how is this even possible?! people are going to start losing tests while waiting for their score!! That does not seem fair at all.
@dtatham10 – this might sounds like a terrible question to ask at this time but, what does arms-length transaction mean? Never really had paid attention to that when they mention it because it has not affected my answers. I guess this was the exception.
@aa basically just means it's a sale that any reasonable person would make. So selling property for 100k that you paid 50k you would obviously do with anyone not just someone you're related too. Selling at a significant loss is a good indication its not arms length.
@teal somehow my post to you got deleted so I will repeat.
There is a rumor circulating that they may extend the 18 month test window to 24 months. Hopefully we hear if thats true in the next couple months. If the AICPA decides to do nothing I foresee a ton of backlash. They have to do something.
@Teal – check out this link. https://www.aicpa.org/becomeacpa/cpaexam/nextexam/pages/next-cpa-exam-faqs-2016.aspx
For me, BEC expires 4/17 so if I have to take any exams during the month of April, I won't know my score until 8/16ish. How CRAZY is that!?
@claudia thanks for the link!! that is CRAZY!! I am taking AUD 4/14, so I will be waiting 4 MONTHS to get my score….
@dtatham there will be some backlash from me! haha I can't believe I didn't know about this!
Does that mean that if they decide to extent it to 24 months the scores we got prior to new exam will be extended as well?
@aatoural I have no clue. That's been my one question for awhile. I've even done some extensive googling trying to find out! Came up with nothing! Right now my plan A is to just pass first quarter and not worry about the 10 week score release or if we get the 6 month extension.
Dale Corporation's book income before federal income taxes was $435,000 for the year ended December 31, Year 1. Dale was organized on January 1, Year 1. Organization costs of $50,000 are being written off over a ten-year period for financial statement purposes. For tax purposes, the corporation has elected to take advantage of the maximum benefit for expensing organizational costs. No additional book/tax differences exist. For the year ended December 31, Year 1, Dale Corporation's taxable income was:
a.
$432,000
b.
$395,000
c.
$437,000
d.
$435,000
Explanation
Choice “a” is correct. For tax purposes, if elected, a maximum expense deduction of $5,000 is allowed for organizational costs in the year of organization. The remainder must be amortized over 180 months. The book income of $435,000 must be adjusted for the difference between the book amortization and tax amortization allowed. Book amortization would be $5,000 per year ($50,000 divided by 10 years).Why are we not deducting $8,000 and only the $3,000. Becker doesn't go depth on this in the book.
@cpawarrior this one tripped me up and I'm still not 100% sure on it. What I have concluded is that for Book Income purposes they allow the $5K and not the amortization. Since they provide you book income and you are working to tax income you only need to adjust for the amortization portion. The explanation kind of reads that way but I can't seem to find a real definitive answer anywhere!
Interested to see if anyone has a better explanation though! lol
I agree with dtat. The question looks more at the book/tax income difference which was the 3,000 amortization for year 1.
I will be taking REG on March 10th. I use Becker and Ninja MCQ's. As soon as I take FAR on February 6th I will begin studying for REG. It will be tough cramming all of the material into one month of studying but it will hopefully be my last exam so I will be extra motivated to get it done. Good luck everyone!
@cwlanders good luck! That's a tall task!
Easel Co. has elected to reimburse employees for business expenses under a nonaccountable plan. Easel does not require employees to provide proof of expenses and allows employees to keep any amount not spent. Under the plan, Mel, an Easel employee for a full year, gets $400 per month for business automobile expenses. At the end of the year Mel informs Easel that the only business expense incurred was for business mileage of 12,000 at a rate of 30 cents per mile, the IRS standard mileage rate at the time. Mel encloses a check for $1,200 to refund the overpayment to Easel. What amount should be reported in Mel's gross income for the year?
a. $3,600
b. $4,800 — CORRECT
c. $0
d. $1,200I actually don't have a question on the answer. My question is what would the tax treatment be for the amount returned to the employer? Would you report the entire $4,800 and then have a corresponding deduction to arrive at AGI for $1,200?
I saw that question last weekend, and I was wondering the same thing but I forgot to post it.
I need your help guys.
I am planning to retake REG sometime in mid or last week of Jan.
Can you explain or point me to material or thread where I can find the below information.
1. What amounts has to be included in the W2 . For example salaries, bonuses,commissions, etc and what has to be excluded like health insurance, retirement benefits, 401, etc. Still I don't understand what amounts will be included and excluded from the employee stand point.
2. Also how you calculate the after tax cash flow for the employer for that employee . If the employer pays salaries,bonus,commissions, 401 K, health insurance,Stock options,vacation,ESPP, etc. What will be after tax cash flow for that employee for the employer .
3. At risk amount vs passive income/loss. How you deduct a normal loss and passive loss. Still didn't get the whole concept. Any thread or material to understand this one will be great.
Thanks in advance for the help.
For IRA's:
“Where a spouse is an active participant in an employer retirement plan, the allowable deduction to arrive at AGI is phased out…”
What's an “active participant”?
For trusts since extraordinary items have been eliminated, do the remaindermen still technically have the responsibility for “extraordinary” income and expenses? (Like maybe they are just not called that anymore, but are still the same inc/exp?)
@dtatham I believe it just means that the employee & their spouse are taking advantage of the IRA (and not opting out). I think some companies allow your spouse to elect in as well.
@esenthil I think the best way to look at most of that is just to look at the forms on the IRS website and maybe the instructions if you need to go further in depth.
I keep trying to decide if I should cram BEC and AUD into like beg of Feb and last day in March. I don't want to take any of the new tests!! 🙁 But my busy season is also Dec/Jan, so I just don't think I am going to be able to handle extra studying in Jan. Oh well. I guess I will discover what the new tests are like!
Can anyone shed some light on the difference between the affect on the partners basis in a partnership non-liquidating vs. liquidating distribution? I just got a question on NINJA and got it right – It was a liquidating distribution – he had partnership interest of $70,000 and received cash of $10,000 and land with FMV of $63,000. His basis becomes 0 and the property's basis is $60,000. How would it be different for non-liquidating though? I thought it would be the same (unless maybe you use the basis of the land?)
70,000
-10,000
_________
60,000 left for basis of property$435,000 book income is already reduced by the $5,000 amortization of the origination expense ($50,000/10 years = $5,000).
To calculate the taxable income you first have to add the $5,000 back to $435,000, which brings you to $440,000 income before the deduction.
Then you deduct $5,000 allowable deduction for the year, plus 12 months of amortization (based on the remaining $45,000/180*12=3,000).
So your taxable income will be $440,000-8,000=$432,000
@Teal,
That is correct, in non-liquidating distribution if the partner's basis are below the NBV value of the distributed property, the partner's basis in the asset received will equal his basis just before the distribution. And yes, you would use the NBV value of the property in non-liquidating distribution.
That would be a lot of material to cover on the board!
For the individual taxpayer I would recommend downloading a 1040 form. It might help you understand where all of the deductions fall. And also review Schedule 1040 A where you will find all itemized deductions for individual taxpayers.
For a corporate taxpayer download form 1120
For partnership, form 1065, Schedule K and Schedule K-1
At-riks and losses – here is a good source. A lot of information to sort through but well explained: http://www.thetaxadviser.com/issues/2012/mar/clinic-story-04.html
What study materials do you use?
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