[jeff]

Welcome to the Q2 2017 CPA Exam Study Group for REG. 🙂

[linds0121]

Thanks @jalls !

My advice is to make sure you understand what and why the answer to the question is what it is. Try to look at the question as a small part of a bigger story. That helped me to understand multiple items at once because I was no longer learning just one item, I was learning how everything is affected by it.

There are only two options: Make progress or make excuses!

Audit: 1st 71, 2nd 93
BEC: 80
FAR: 84
REG: 78

[TXJAM]

I feel like i struggle a lot with Bankruptcy and 1933/1934 security acts. I drill down and write it out every day. Anyone have any other tips on a more efficient way to remember them?

[cmcook]

Thaik,this was my first time taking reg after the change, but I am guessing the Sims are about the same, there's just more of them. I didn't encounter much in exact calculations were you needed to be aware of phase-outs, etc, so thank goodness. Gleim's Sims were very similar to the exam. Of course you don't know what your topics will be, but at least I wasn't phased seeing 8 source docs to review in a drs since Gleim was already throwing those at me. But all this being said, at least half of the Sims I basically guessed on. No way anyone can master all of this. Even if you're in tax. Good luck!!!

[mattypxam14]

Hi All!

Question on S-Corps Recourse and Non-Recourse Loans.

It was to my understanding, the difference between Basis and “At Risk Basis” was non-recourse liabilities. There is an example in Becker in R5 page 8 that states.

Taxpayer A's stock basis in S corporation stock is 60,000. Included in the stock is 10,000 of non-recourse loans. The example goes on to say the taxpayer's A “at risk basis is 50,000. That's all fine and good.

But, I ran into trouble when answering this multiple choice question. (CPA 08659)

Dove and Eagle formed a business entity in which they are equal owners. Dove contributed cash of $100,000, and Eagle contributed land with a basis of $40,000 and fair market value of $100,000. For its first year of operations, the entity had taxable income of $60,000 and made no distributions. At year-end it had outstanding recourse liabilities to third parties of $10,000. Eagle had a basis of $70,000 in the entity at the end of the first year of operations. What type of entity was formed?

A. C corporation
B. S corporation
C. General partnership
D. Limited liability company (LLC)

The answer is B. S corporation

I thought, however, that recourse loans were included in an S-corp's shareholder's basis. Any help would be appreciated. Thank you!

[Holly]

@Matthew the question says outstanding recourse liabilities and the example in the book says nonrecourse

BEC - 79
REG - 85
AUD - 5/27/16

[mattypxam14]

Thanks for the reply @holly.

I'm still a little confused, outstanding meaning they still have the liability. Why is the liability not split by 50%, increasing the basis of Eagle. I thought both recourse and non-recourse (outstanding liabilities) increases basis?

[Joe]

I'm confused on the following problem:

Katmandu Corp. is a C Corporation that began operations in Year 1. Katmandu’s Year 1 through Year 3 taxable earnings and profits are as follows:

Year E&P
1 (10,000)
2 5,000
3 10,000

On the last day of Year 3 Katmandu makes a $20,000 cash shareholder distribution, distributed equally among its two shareholders, Edgar and Allan. How much of Edgar’s distribution is a nontaxable return of capital? Assume sufficient basis in Edgar’s stock investment.

According to the text on Page 2-16 of Roger REG book we need to add the E&P and Accumulated E&P if they are both positive, The Accumulated E&P should be 5,000 and the Current E&P should be 10,000 therefore of the 20,000 15,000 is Dividend and $ 5,000 is Return on Capital. Therefore, Edgar non taxable return on capital is 2,500

According to Roger this is incorrect, this is the answer they provided…. “Incorrect. Corporate distributions to shareholders are taxed as dividends to the shareholders to the extent of the greater of current earnings and profits or cumulative earnings and profits. Katmandu’s current earnings and profits for year 3 were $10,000 and cumulative earnings and profits, due to the $10,000 loss in year 1, were $5,000. As a result, $10,000 of the $20,000 distribution would be dividend income to the shareholders and the remaining $10,000, $5,000 of which went to Edgar, would be a return of capital.”

[mimi]

Could someone confirm whether my following understanding is correct or not. If wrong, please guide me.. thank you!

Whether a partner/member’s leaving, death, bankruptcy etc becomes a trigger to dissolve…
1-1. < General Partnership > becomes a trigger under UPA
1-2. < GP > don’t trigger under RUPA
2-1. < Limited Partnership > become a trigger when it is a general partner
2-2. < LP > don’t trigger when it is a limited partner
3. < Limited Liability Company > become a trigger

Share in profit and loss…
A. < GP > equal among all partners (unless stated proportions in an agreement)
B. < LP > proportionate to capital contribution
C. < LLC > proportionate to capital contribution

[big_dolphin]

Do we need to memorize certain sections from IRC? Wiley keeps asking in SIMS to list particular sections and paragraphs.

[mashloum]

No need to memorize, more than being familiar with the codes and how to search it right based on the keyword you need to search for

[mashloum]

The requirement is to determine the type of entity that was formed given Eagle's basis of $40,000 at the beginning of the year and $70,000 of basis at the end of the year. The entity is an S corporation since Eagle's $40,000 beginning basis was increased by Eagle's 50% share of the S corporation's taxable income (50% x $60,000 = $30,000). The entity is not a C corporation because a C corporation's taxable income does not increase a shareholder's basis. Also, the entity is not a general partnership nor is it an LLC because in that case Eagle's basis would have been increased by half of the year-end liabilities to third parties

[slowreader]

Azure, a C corporation, reports the following:

Pretax book income of $543,000.
Depreciation on the tax return is $20,000 greater than depreciation on the financial statements.
Rent income reportable on the tax return is $36,000 greater than rent income per the financial statements.
Fines for pollution appear as a $10,000 expense in the financial statements.
Interest earned on municipal bonds is $25,000.

What is Azure's taxable income?

$543,000

$528,000

$559,000

$544,000

Answer: $544,000

Can someone just explain why is excess depreciation subtracted from calculation? I thought goal of taxable income is to make income higher. Shouldn't it be added back?

[big_dolphin]

Esam Almashloum, so no need to memorize section numbers and paragraph numbers? How about specific forms? For example, gift tax return is form 709. Do I need to know specific details like that?

[The PA CPA]

@slowreader

You have your book income (reported to the F/S's) and taxable income (reported on the tax return). The problem gives you book/GAAP income and then states: “Depreciation on the tax return is $20,000 greater than depreciation on the financial statements.” In order to get to taxable income, that $20,000 depreciation is subtracted because the expense was greater meaning a larger expense (subtraction).

The goal is not necessarily to make taxable income higher, just to make it correct. Hope this helps! My exam is tomorrow, fingers crossed.

[Parisa]

Hi– I have a question on AMT

The question is from the Skills Practice in Becker.

I understand up until the point of calculating the AMT taxable amount less exemption allowed which is $195,900. BUT I don't understand the next step of calculating the Tentative minimum taxable amount. How do you how much to breakout and what percentages to use.

This is the answer… just don't know to determine the breakout and percentages. PLEASE HELP 🙂

187,800 * 26% = 48,828
8,100 * 28% = 2,268

Total = 51,096 Tent Min Taxable Income

FAR - 1/25/2016 - 78
BEC - 2/27/2016 - 68
AUD - TBD
REG - TBD

[Author]

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