[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

[cpaswag]

@ Holly do u have the steps to how u did the AICPA sims I am stuck on a few

[Scared-cpa]

Jones and Curry formed Major Partnership as equal partners by contributing the assets following:

Adjusted Fair
Asset Basis Market Value
—– ——– ————
Jones Cash $45,000 $45,000
Curry Land 30,000 57,000
The land was held by Curry as a capital asset, subject to a $12,000 mortgage, that was assumed by Major.

What was Curry's initial basis in the partnership interest?

A. $45,000

B. $30,000

C. $24,000

D. $18,000

Typically, I would choose C which is the correct answer (30,000 – (12000*.5)) = $24,000. However, I had a question a while back that deducted the entire mortgage from the items basis. In this question that would be 30,000 less the entire mortgage of 12,000, making the answer D. I'm confused on when you subtract the entire liability attached to the contributed asset or only the non-partners amount?

[CPA so close, so far away]

Jsn3004

The 28,000 would be the gross income recognized by the shareholder as a result of the taxable dividend from the C corp. They are asking you what the gross income would be if this were an S corp. As a result, only the income earned would be taxable (400,000 * 40% = 160,000). You would no longer have a taxable dividend, as distributions from an S corp are not taxable as long as there is sufficient basis to cover them.

Summer

When contributing an asset subject to a liability to a partnership. You subtract the amount of the liability the partners are taking on from the basis. This is due to the fact that a partners basis includes the capital account and percent of liabilities. In essence, the partner is loosing basis in the liabilities due to the fact other partners are taking on a portion of them. Yet, you still retain your own percentage.

[Scared-cpa]

CPA so close, so far away

Thanks for your response. I understand that, which is why I don't get why in one of the other questions I had (trying to find it to show you), the answer was the basis in the item less the entire liability, not only the other partner's liability. So it seems to be contradicting one another, yet I'm trying to figure out if there is a catch in one of the questions that I am missing.

[CPA so close, so far away]

That seems very strange. Let me know if you come across it. I have not heard of any circumstance where that has happened.

[Scared-cpa]

That's the same thing I thought, which is why it confused me…especially three days out from exam day! After I do this set of MCQs, I will look back through my questions and see if I can find it.

Another question I have and I can never seem to keep straight. Regarding Section 11 and Section 10(b) of the Securities Act, which one does the plaintiff have to show reliance? I know from practice that you don't for Section 11, I suppose since it is common law negligence and not fraud, but then again I didn't think the plaintiff had to prove reliance in Section 10(b) because fraudulent liability could be on any third or foreseeable party. What am I missing here?

[Scared-cpa]

Here's that question

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:

Adjusted Fair Market Percentage of
Property Basis Value Ace Stock Acquired
Lind Building $40,000 $82,000 60%
Post Land 5,000 48,000 40%

The building was subject to a $10,000 mortgage that was assumed by Ace.

What was Lind’s basis in Ace stock?

A. $82,000

B. $40,000

C. $30,000

D. $0

The correct answer is C: Lind's basis of 40,000 less the mortgage of 10,000. Why would it not be 40,000 – (10,000 x 40%) = 36,000. Can someone explain how this is different than the question I posted earlier?

[CPA so close, so far away]

I use Becker, and I think there mnemonics are pretty good here.

For section 11, the hurt party only needs to show LAM. (Loss, Acquired the stock, and there was a Material Misstatement)
Notice that they don't even have to rely on the misstated information. If all of those three happened, you have a case for negligence against anyone who signed the registration statement. That's why due diligence is a CPAs best defense.

As for 10b, Becker used the MAIDS mnemonic for fraud. (Material misstatement of fact, Actual and justifiable reliance, Inducement to purchase the security, Damages caused, and Scienter)
The CPAs best defense here is to show that there was no Scienter, or willful or purposely reckless acts.

Hope that helps you keep it straight. 1933 and 1934 questions give me trouble, but these have helped me greatly.

[CPA so close, so far away]

Summer,
That question you just posted deals with a corporation, not a partnership. Therefore the rules of basis in shares is different than calculating the basis in a partnership. This falls under section 351. As a result, the shareholders basis in the stock is the basis the stockholder had in the asset LESS the liability the corporation assumed.

Therefore…
Basis for stockholder = (40,000 – 10,000 = 30,000)
Basis in asset for the corp = Carryover basis of 40,000.

Does that help?

[CPA so close, so far away]

The corporation is solely assuming that liability. The other shareholder is not affected by the liability at all. This is because corporations offer limited liability.

[Scared-cpa]

I'm gonna jot down those mnemonics! I wish CPAexcel has mnemonics but they don't at all. Thanks!

And I knew I must have been missing something in that question! I guess that goes to show I need to read the questions more carefully. Often I just skim over names because I think they're just fillers to the main part of the question, but obviously, the type of entity is super important. Thanks again, you're a Godsend!

[Determined]

Jsn3004 & Summer this video from Jeff helped me with AMT. https://youtu.be/ns6JReRDZbQ

[gguzman]

@CPA So Close Thank you for your response. Pretty sure I was overthinking it.

[pcunniff]

The biggest concept to understand with AMT is that an individual or a corporation has to pay an additional tax for being too rich. This “Adds” to regular taxable income.

What they mean with the exclusions and exemptions is certain itemized deductions are not allowed and need to be added back in the computation of AMT tax. That is the misc itemized deductions subject to 2% floor, taxes reduced by refunds, interest not used to buy, build, or improve a home, medical expenses, and exceptions. This adds to your regular taxable income.

Does this make sense?

[gguzman]

I went ahead and bought Ninja MCQ's. My plan is to do the Becker Final review, and do at least 125 MCQ's and 1 SIM per day until my exam. Objections thoughts?

Thank you for your help everyone. 16 Days!!!

[Author]

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