[jeff]

Welcome to the Q3 2017 CPA Exam Study Group for REG. 🙂

Introduce yourselves and let your fellow NINJAs know when you plan to take your REG exam.

The Five Steps (NINJA Framework): https://www.another71.com/pass-the-cpa-exam/

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

[Julia]

@holly securities r killing me! I'm trying this to see if it sticks.
1933 security ALM (acquired stock, loss suffered, material misstep)
1934 security ALaRMS (acquired stock, loss suffered, reliance on info, material misstatement,scienter )

[Holly]

@Julia Okay, thanks. I guess I'll get it all down before I test (I hope).

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

[Holly]

I'm not feeling studying right now. I'm so burnt out and want a normal life again. I'm sure we all feel this way!!

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

[Julia]

I'm studying to the beach sounds in a nice quite library. I'm ok.
I also slept 12 hours yesterday. Lol. That helped.

[Julia]

Can anyone clarify? I thought can continue if 50% of interest is still partner. Notes say: taxable year closes w respect to dead partner and their interest. Can continue if 2 or more and represent 50% or more interest.

Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers' representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners' capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. If Frey died before the partnership terminated:

Downs and Vick, as a majority of the partners, would have been able to continue the partnership.
the partnership would have continued until the 5-year term expired.
the partnership would automatically dissolve
Downs and Vick would have Frey's interest in the partnership.

You answered A. The correct answer is C.

If Frey died before the partnership terminated, the partnership would automatically dissolve. Under the typical state partnership laws, death automatically dissolves a partnership. If the partners wanted to continue the partnership after the death of a partner, they can agree to form a new partnership.

Question #: 632 Category: 2F2 Formation

[Holly]

@Julia I just read that death dissolves partnership unless partners want to continue within 90 days of partners death.

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

[Holly]

For those using Becker –

R5Sim2 questions 22 and 23. Why is one the correct answer the loss limitation $3k and the other the correct answer the full $15k loss?

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

[wakefern58]

Could someone explain to me the consequences of when the 80% ownership test is not met for shareholders of a C-Corp?

The less than 80% owners would recognize taxable income as: FMV of Stock Received – NBV of property contributed. In addition, any boot received (Cash, Excess Debt over nbv of assets) would be a gain as always.
But what would the less than 80% owners basis in the Common Stock be? The FMV of the Stock received, right?

As always, thanks for the help!

[wakefern58]

To add to that question right above, would the C-Corps basis in the property received also be the FMV when less than 80% owner contributes property?

[pcunniff]

@Holly its easier when you write them out if you want accurate answers.

I guess i'm confused by your question. The amount allowable on the tax return is only the 3k loss. 15k loss is the actual amount, but you can only take a MAX of 3k.

[pcunniff]

@wakefern58 The consequences is the shareholder still needs to pay taxes on gains. The biggest thing about the 80% test is for consolidation purposes.

[Julia]

@wake: if u meet 80% then u don't pay gains tax. If u don't meet 80% then u do pay gains tax. As the shareholder.
As for the corp basis, its like partnership. Basis + gain recognized = basis in corp. Boot no matter what is part of gain.
The ninja notes detail very well.

@holly: thank u for looking that up. I get confused cuz sometimes I'm supposed to assume death was part of contract and sometimes not.

[Julia]

Someone had asked about this

Nan, a cash-basis taxpayer, borrowed money from a bank and signed a 10-year interest-bearing note on business property on January 1 of the current year. The cash flow from Nan's business enabled Nan to prepay the first 3 years of interest attributable to the note on December 31 of the current year. How should Nan treat the prepayment of interest for tax purposes?

Deduct the entire amount as a current expense
Deduct the current year’s interest and amortize the balance over the next 2 years
Capitalize the interest and amortize the balance over the 10-year load period
Capitalize the interest as part of the basis of the business property

You are correct, the answer is B.

Although Nan is a cash-basis taxpayer, prepaid expenses of over a year are handled differently. Nan paid 3 years of the interest, so she will only expense the first year in the current year and the next 2 years will not be deducted until years 2 and 3. Therefore, the correct answer is to deduct the current year’s interest and amortize the balance over the next 2 years.

Deducting the entire amount as a current expense is incorrect as the amount covers 3 years and only the current year can be deducted. Capitalizing the interest and amortizing the balance over the 10-year load period is incorrect as Nan did not pay 10 years of interest. Capitalizing the interest as part of the basis of the business property is incorrect as Nan cannot capitalize as part of the basis of the property.

[Julia]

Can someone please clarify this? I thought passive was not part of AGI

Go to Next QuestionGuess and Mark WrongOpen CalculatorPrint QuestionEnd Session
In the current year, a taxpayer reports the following items:

Salary $50,000
Income from Partnership A, in which the
taxpayer materially participates 20,000
Passive activity loss from Partnership B (40,000)
During the year, the taxpayer disposed of the interest in Partnership B, which had a suspended loss carryover of $10,000 from prior years. What is the taxpayer's adjusted gross income for the current year?

$20,000
$30,000
$60,000
$70,000

You answered D. The correct answer is A.

Adjusted gross income is calculated by subtracting business expenses and other deductions from gross income. The adjusted gross income is $20,000, calculated as follows:

Salary $50,000
Income from partnership 20,000
Passive loss from Partnership B (40,000)
Suspended loss carryover (10,000)
——–
Adjusted gross income $20,000
Because the taxpayer disposed of ownership in Partnership B during the year, he may take all of the loss up to the amount of his basis in the partnership.

Question #: 1059 Category: 5B Reporting of Items from Pass-Through Entities

[Holly]

@pcunniff those are two different questions I'm asking about within the simulation. One of the answers applies the $3k limitation and the other does not. My question is how are we supposed to know which they want if it's not stated/am I missing where it's stated?

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

[Author]

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