[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/

[AScott89]

Can anyone explain how this question was solved? The answer explanation isn't very clear to me. I can't see how they're getting the $1,000.

Mr. Gorda, in liquidation of his interest, receives Property #1. Mr. Gorda has a basis of $10,000 for his one-third interest in a partnership. The partnership assets are cash of $4,000, Property #1 with a basis of $11,000 and fair market value of $11,000, and Property #2 with a basis of $15,000 and fair market value of $18,000. The distributed property takes Mr. Gorda’s basis of $10,000 in his hands. If the partnership elects Sec. 754 optional basis adjustment, what is the basis of Property #2 retained by the partnership?

A. $16,000
Answer (A) is correct.
Although the partnership usually does not adjust its basis for its retained property when it distributes other property to a partner, under Sec. 754, the partnership may elect to increase basis if the basis to the partnership of the distributed property exceeds the basis at which the distributee may take that property. In this case, the $1,000 that is “unused” in the basis of the distributed property may be added to the basis of Property #2 retained by the partnership. Thus, the basis of Property #2 is $16,000.
B. $15,000
C. $19,000
D. $14,000

BEC-65
AUD-72(8 '14); 68(11 '14)
FAR-
REG-

[pharaoh]

@Ascott89 – The partner's basis is 10,000, in property distribution, if the property value is higher than the partner's basis, the max he can count for is the basis.

So Basis is 10k and received 11k, but he can only receive 10k, so that 1k difference is what they added to property #2.
I will have to admit though that I've never heard about that Sec 754. I would have picked answer B

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

[pharaoh]

I hate estate and trusts. I guess I am so confused and I still don't get it from Roger. What is the difference between Estate Form 1041 and Form 706?

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

[pcunniff]

Sadly, I only know this because my dad recently passed away. The estate form 1041 is the actual income tax return of the estate. That being said, my dad had unearned wages and income that were paid AFTER his death and needed to be included on this form.

Form 706 is the one time estate return which encompasses everything earned before death (FMV of home/any gifts/any property/ ANYTHING). I hope this makes sense.

This may sound silly, but for the S179 election (500k max/510k for 2017). Are we supposed to be memorizing 2017 or 2016 thresholds for the exam? I don't want to memorize both as we need to know enough as is.

[pcunniff]

@pharaoh – can you answer my other question above? I'm still struggling on corp basis/distributions because there is so much to know.

@tipofga80 – can you post the answers to your 5 scenarios?

[LCros]

Hello all:

I am having trouble understanding the special rule for DRD..when to use the taxable income vs. the dividend received to calculate the 70 or 80 percent. Could someone please explain it? Thanks.

[pharaoh]

@pcunniff Thank you for your answer and sorry for your loss.

Your questions are really tough, I have never seen the course/nonrecouse as an item that will make a difference in the answer but with CPA exam you never know. Here is what I found in IRC

357(d) Determination of amount of liability assumed
(1) In general
For purposes of this section, section 358(d), section 358(h), section 361(b)(3), section 362(d), section 368(a)(1)(C), and section 368(a)(2)(B), except as provided in regulations—

(A) a recourse liability (or portion thereof) shall be treated as having been assumed if, as determined on the basis of all facts and circumstances, the transferee has agreed to, and is expected to, satisfy such liability (or portion), whether or not the transferor has been relieved of such liability; and

(B) except to the extent provided in paragraph (2), a nonrecourse liability shall be treated as having been assumed by the transferee of any asset subject to such liability.

(2) Exception for nonrecourse liability
The amount of the nonrecourse liability treated as described in paragraph (1)(B) shall be reduced by the lesser of—

(A) the amount of such liability which an owner of other assets not transferred to the transferee and also subject to such liability has agreed with the transferee to, and is expected to, satisfy; or

(B) the fair market value of such other assets (determined without regard to section 7701(g)).

And for #2, here is what is in Roger, if the liability exceeds the FMV of the asset, the corp must report a gain on the excess in addition to the gain on sale discussed earlier (which is the FMV – Basis)

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

[pharaoh]

@Lcros can you share an example or an mcq? it is easier to explain through the questions (at least for me)

Generally, most question would say the income is 100k and received dividends of 10k, so you will have to add the dividends to the income in the first line of gross income so it will be 110k which will be something like this

Gross income 110,000 (100k+10k)
-Operating expense/deductions (40,000)
= Income before special deductions (ATI) 70,000
-DRD 10,000*70% (7,000)
-Charity (if any)
=Taxable income 63,000

I don't know if this helps

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

[LCros]

I finally searched through Roger till I found the answer. In general, it looks as though you take 70% or 80% of the lesser of Tax. Inc.(before the DRD) or the DRD .

But if the DRD causes or increases the loss, then you get to take the full 70% or 80% DRD and the taxable income rule does not apply.

Yes, I got what you were saying. Thank you for the help :).

[LCros]

I do have one more question… What happens if your Adjustable Taxable Income is an operating loss but you have charitable contributions. Do you add that to the loss (using 10% of ATI) or do just carry it forward? I am not sure what happens.

[pcunniff]

Thanks Pharaoh

So if a corporation makes a distribution of property, Say the adj basis is 120k that has a liability attached to it for 200k… the corp would have to recognize a gain of 80k, correct? Does this apply for non liquidating distributions as well?

[AScott89]

Thanks Pharaoh but wouldn't that $4000 of cash reduce his basis to $6000 before the property is distributed?

BEC-65
AUD-72(8 '14); 68(11 '14)
FAR-
REG-

[Operation_CPA]

I sit for my exam on Friday and currently in crunch mode (got a 63 last time). Can't seem to break the 25/30 on progress tests – what would you guys recommend? Progress tests until exam day while re-writing my notes?

Thanks!!

[Earla Riopel (NYCARE)]

@Operation_CPA,
“I sit for my exam on Friday and currently in crunch mode (got a 63 last time). Can't seem to break the 25/30 on progress tests – what would you guys recommend? Progress tests until exam day while re-writing my notes?”

If my REG exam is on Friday, I would:
– Do what you're doing – Progress tests until exam day.
– Continue writing notes, esp. the ones that I am not comfortable with. I have been doing this lately, since I pretty much highlighted all my notes, and hard copies of my old/new AICPA newly released MCQs. I finally, adapted the Ninja's writing style of studying. At least, minimum 25-50 pages each day, or until my hand starts hurting.
– Re-read my book outline, see if I am comfortable with most of the topics, chapter by chapter.
– Re-read my notes again.
– Practice all topics that require calculations.
– Visit AICPA site for Sample Tests, get comfortable with Research tool (Authoritative Literature)
– Do mock exams, at least twice.
– Re-do the troubled missed MCQs/SIMs on my app.
– Have an actual exam strategy as to time management, preferably: 45/45/25/60/65 testlets time allocation.
I think that's about it. For sure I didn't do this last exams, except reading my book & notes. So, I know, I have a better chance this time around.
Good luck with your exam this Friday. Got 6 weeks to wait for mine.

[pcunniff]

@lcros – yes carry it forward. Remember DRD is computed without regard to capital contributions or special deductions. The key to realize is you take the 70/80% rule multiplied by the lesser of Dividends received or Taxable income.

HOWEVER, and this rule is the key, is to remember if you generate an operating loss (you cant multiply the 70/80% rule by a negative taxable income). Its essentially giving you a break and allowing you to use this rule as the DRD. As Becker explained it, you are a loser for generating a loss so the IRS is giving you a break in this regard. Carry that contribution for charity forward 5 years.

[Author]

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