[jeff]

Welcome to the Q4 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/

[Tipofga80]

For each of the five independent situations concerning nonliquidating distributions made by Emerald Corporation indicate (1) the amount of gain or loss recognized by Emerald Corporation on the distribution; (2) the amount of dividend income to the distributee shareholder, (3) the shareholder’s basis for the property received; and (4) the amount of Emerald Corporation’s earnings and profits after the distribution.

Situation 1
Emerald Corporation’s E&P before the distribution $11,000
FMV of distributed property 7,000
Basis of distributed property 2,000
Liability on property assumed by distributee 0

Situation 2
Emerald Corporation’s E&P before the distribution $8,000
FMV of distributed property 2,000
Basis of distributed property 3,000
Liability on property assumed by distributee 0

Situation 3
Emerald Corporation’s E&P before the distribution $2,000
FMV of distributed property $12,000
Basis of distributed property $3,000
Liability on property assumed by distributee 0

Situation 4
Emerald Corporation’s E&P before the distribution $7,000
FMV of distributed property $5,000
Basis of distributed property $2,000
Liability on property assumed by distributee $1,000

Situation 5
Emerald Corporation’s E&P before the distribution $8,000
FMV of distributed property $6,000
Basis of distributed property $2,000
Liability on property assumed by distributee $3,500

The questions is kinda long but I'll check in later with the answers

REG - 77 (will lose in Jan 2016)

BEC - 67 74, 75

AUD - 56, 70, Will try again 🙁

FAR - ??

Save the beast for last.

[pcunniff]

I dont want to steal anyone's thunder for this so i will just try and answer situation 1 without any book reference

1) gain or loss by the corp is 5000 FMV-basis
2) Div Income is to the extent of current E&P, but not to exceed basis 7000
3) Basis for Property received = 7000
4) return of capital to extent of basis or 2000 and in excess is a gain of 2000 (7 div income/ROC for 2/gain for 2).

Would you tack on the gain to the E&P? So would it be 16k now? Wow I need to review this and this is KEY!!

[Tipofga80]

@pcunniff

1) Correct the recognized gain is $5k
2) Correct the SH taxable dividend is $7k
3) the basis for property received = FMV $7k
4) The corporation E&P is Beg E&P – FMV prop distributed = Ending E&P 11-2 = 9

I have to think of it like like kind exchanges to get it right in my head.

This professors videos have helped a lot. https://www.youtube.com/watch?v=yoFC9pIm6Tw&list=PLxP0KZzCGFYN_Bpr8dJJvRKl1uNubuTI1&index=48

REG - 77 (will lose in Jan 2016)

BEC - 67 74, 75

AUD - 56, 70, Will try again 🙁

FAR - ??

Save the beast for last.

[pcunniff]

You mean 11k-7k (fmv) = 4K right? Not the actual basis?

[CoachEmUp]

Overall thought it was very reasonable. Didn't feel like anything in it was out of the blue. Wiley prepared me yet again very well.

Timing: Finished the mcq's w 2 hr 39 min left. Took break w 1 hr 53 left, last testlet had an hour 4 min or so. Last testlet had my research and other shorter Sims on it. I left w 9 min left but I really took my time.

Couple of pointers: Use the authoritative literature! It will help you a lot. I thought I'd have difficulty navigating it, but on the actual test everything is right there for you (it's limited in the aicpa practice exam).

As far as straight away pointers: Nothing out of the blue: know c Corp, s Corp, p-ship and basis, dividends, distributions, etc.I think I passed but I'll find out in two w months!

[pharaoh]

@coachemup – I am glad to hear someone saying the exam was reasonable and wish you passed. How was the B-law? deep in details or just basics? I hope this is not a disclosure

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[pharaoh]

I feel it was a productive day, all I did was questions for Distribution on c corp, s corp and p-ship.

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[CoachEmUp]

@pharoah I don't think the b law was anything absurd (was the portion I really struggled to study) but overall you definitely have to know your stuff on it.

[Anonymous]

Ron bought rental property in Y1 for 150k.
Y1 AGI was 100k & Ron had a 15k loss on the property.
Y2 AGI was 140k & Ron had a 10k loss on the property.
Y3 Ron sold the property for 175k.
Ron never materially participated in the rental activity.

What amount of ordinary income or loss must Ron report on Y3 return?

So I know the non material participation means deferring the losses. In Y2 I applied the 25k limit (less half of 40k because that's what's over 100K). The solution said to defer the whole 10k loss for a total of 25k deferred in Y3 completely offsetting the gain.

Is this because the 25k limit deal doesn't apply when the participation isn't material? So if Y2 loss was a billion Ron would roll over all that?

#regulationstrugglebuss

[Tipofga80]

@pcunniff Sorry!! Typo…
Beg E&P $11
+Gain $5
-FMV $7
=Ending $9

@helpme732 The $25k mom & pop limit – Actively participates.
Problem states never materially participated.

REG - 77 (will lose in Jan 2016)

BEC - 67 74, 75

AUD - 56, 70, Will try again 🙁

FAR - ??

Save the beast for last.

[Tipofga80]

https://www.irs.gov/publications/p925#en_US_2016_publink1000104573

-Active participation isn’t the same as material participation.

-Active participation is a less stringent standard than material participation. For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense. Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.

-You aren’t treated as actively participating in a rental real estate activity unless your interest in the activity (including your spouse's interest) was at least 10% (by value) of all interests in the activity throughout the year.

(Don't confuse yourself… it should be clear on the exam what to apply)

REG - 77 (will lose in Jan 2016)

BEC - 67 74, 75

AUD - 56, 70, Will try again 🙁

FAR - ??

Save the beast for last.

[pcunniff]

@tipofga80

For each of the five independent situations concerning nonliquidating distributions made by Emerald Corporation indicate (1) the amount of gain or loss recognized by Emerald Corporation on the distribution; (2) the amount of dividend income to the distributee shareholder, (3) the shareholder’s basis for the property received; and (4) the amount of Emerald Corporation’s earnings and profits after the distribution.

Situation 2
Emerald Corporation’s E&P before the distribution $8,000
FMV of distributed property 2,000
Basis of distributed property 3,000
Liability on property assumed by distributed 0

1) no loss is recognized
2) 2000
3) 2000
4) 8000

Situation 3
Emerald Corporation’s E&P before the distribution $2,000
FMV of distributed property $12,000
Basis of distributed property $3,000
Liability on property assumed by distributed 0

1) 9000
2) 2000
3) 12000
4) 11000

Situation 4
Emerald Corporation’s E&P before the distribution $7,000
FMV of distributed property $5,000
Basis of distributed property $2,000
Liability on property assumed by distributee $1,000

1)2000 (5-2-the liability of 1)
2)5000
3)4000
4)10000

Situation 5
Emerald Corporation’s E&P before the distribution $8,000
FMV of distributed property $6,000
Basis of distributed property $2,000
Liability on property assumed by distributee $3,500

1) 4000
2) 6000
3) 2500
4) 12000

I went through these without looking at the book or anything and know i have some reviewing to do. Let me know what the answers are when you get the chance. Thanks!

[pcunniff]

Now that I'm taking a closer look i think i messed up situation 4 (especially the E&P) because it should be E&P of 7000- (greater of fav or basis, so 5000) + the liability of 1000 = 3000 for ending E&P

For situation 5, is the E&P 8000-6000-3500 to make it negative E&P??? The answers for these would be great!! Excellent practice to see every scenario.

[AR]

Hi All,

I plan to appear in REG exam in December 2017. Following this thread for the questions discussed here.

All the best to everyone preparing for REG.

[pcunniff]

Have a few additional questions pertaining to corporate liquidations.

On page 419 of CPA excel, there is a problem that states, “If corporation Mouse distributes property with a FMV of 1000 and a basis of 1200 to shareholder cat and cat assumes a liability attached to the property of 300, E&P is reduced by 900. Say the question states, “what is the corporations gain?

I would think the corp would recognize a gain of 100. Please correct me if i am wrong (1200-300) to get to adj basis of 900 then subtract that from 1000 to get 100.

Another MCQ question showed up and I answered it correctly, but wanted to see it from a different angle:
A corp distributes land with a basis of 20k and a FMV of 60k, but was subject to a non recourse liability of 70k to its shareholder. What amount represents the corp's recognized gain?

The answer is 50k because the FMV is less than the liability of 70k. Two questions from this:
1) if the question stated recourse instead of non recourse liability – what impact would that have on the gain recognized by the corp?

2) The shareholder recognizes gain or loss to extent the FMV exceeds basis. However, would this be the greater of the liability or the FMV of the asset? I would assume the liability is treated separately and the gain should be simply $40,000 recognized by the shareholder. Please correct me if I'm wrong. Now, what if it was recourse v non recourse? Would this change the answer (gain recognized by the shareholder)?

I asked a lot of questions here and it may be overwhelming, but i know on the exam these questions show up and i don't want to be second guessing myself. Thanks in advance!

[Author]

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