[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/

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

[pcunniff]

@tipofga.. you are killing me with this wait! I really need to knock down one simple rule that I cant seem to find anywhere.

If a corporation distributes property or like your situation 4/5 when a liability is involved, I would assume you use the greater of the two as the distribution date and would recognize a gain (like a shareholder would) when the liability exceeds adjusted basis. If not, you recognize a gain from the diff on FMV-basis. When the liability is involved – I would like to know if it reduces adj basis like you would for shareholders and the gain impact associated with it (my guess is if liability doesn't exceed basis the amount is reduced and you take that diff from the FMV to determine the gain.

Please let me know the answers for your scenario querstions (especially 4 & 5) and let me know where you got these questions! They're good and challenging!

[hanygameel]

wine and appetizers are allowable as entertainment expense deduction?
and club membership made for the business meeting is considered deductible entertainment expense?

[pharaoh]

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934:

A.apply only if the securities involved were registered under either the Securities Act of 1933 or the Securities Exchange Act of 1934.

B.require that the plaintiff show negligence on the part of the defendant in misstating facts.

C.require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange.

D.apply only if the defendant acted with intent to defraud.

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

[pcunniff]

@hanygameel it depends if its business related. Remember, any entertainment associated with a business related activity (as long as you were present for the discussion) qualifies. In the case of a company sponsored event or business meeting that serves apps and drinks – hell ya its considered M&E.

Membership dues to country clubs, however, are not. If you take your client out golfing, though, would count as entertainment. Why? Because at some point throughout the round you would hope that a business discussion took place (we assume it did). Hope this helps.

[pcunniff]

@pharaoh B cant be right because the plaintiff would need to prove the defendant showed negligence. A i dont believe works either because these are separate (1933 being before registration and 1934 being after).

C or D. I would go with C, but I hate the “must” part of the answer. D i think is wrong because the “MAIDS” mnemonic shows that intent is only one piece of the puzzle. Very tricky question though. I would definitely go with C or D and probably C on the test. Whats the answer?

To be honest pharaoh, you post a lot of business law questions and I think you need to be posting more tax questions!!!! If you have tax down – take the test tomorrow.

We can pass hardly knowing b-law and really hammering down p-ships/corp basis etc. I would focus on that. You won't get a business law sim either.

To further elaborate – i think @tipofga ‘s question above are the questions you need to hammer down. Only saying this because REG is my last test and I failed it twice because I focused a lot on business law and glossed over basis (especially corps).

[pharaoh]

The answer is C.

I do sets of 20 or 30 random questions but I struggle more with the b-law. I definitely feel better on tax than b-law.

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

[pharaoh]

@pcunniff I didn't know you took REG before, so would you suggest practicing some sims or it is a waste of time

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

[pcunniff]

It was also after I just came back from Iceland and father recently passing (not the best recipe for success).

Sims are always a good idea. However, I would only focus on the sims like DRS for example to give you more of an idea of what they can ask you. Also have it be a sim relating to nonmonetary exchanges for example. Think about it, if you cant answer a non-monetary exchange question on a sim – how will you know the MCQ question related to it on the test is correct?

Hammering out the corporate tax MCQ problems relating to gain or loss/ along with partnerships is an ABSOLUTE MUST. If you don't know this inside and out – don't bother sitting for it.

Again, I think I failed because I didn't know corporate gains/losses on liquidations and still dont really know it. I also wasn't 100% on partnership basis, which is heavily tested. TIPOFGA I need those answers lol..

Also, pharaoh send me your email – when is your test? Doing 20-30 random questions and learning from your mistakes is key.

[pharaoh]

My test is this coming saturday.

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

[pharaoh]

Par Corp. acquired the assets of its wholly owned subsidiary, Sub Corp., under a plan that qualified as a tax-free complete liquidation of Sub. Which of the following of Sub’s unused carryovers may be transferred to Par?

Excess Charitable Contributions | Net Operating Loss
A.Yes | No
B.No | Yes
C.Yes | Yes
D.No | No

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

[pcunniff]

I know for sure you can take the NOL so that eliminates A & D. Id go with C on the exam.

[pharaoh]

Yes. Both can be transferred

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

[Tipofga80]

@pcunniff Sorry my bday was yesterday and I needed a mental break…. Let me go through your answers. I got these questions from Gleim back when I conquered REG over 18 months ago.

SN: Jeff can we get an updated forum??? I would like to reply to someone on their actual reply. Makes the thread cleaner. 🙂

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 (correct)
2) 2000 Correct
3) 2000 Correct
4) 8000 (8 – 3) = $5

Remember the formula for this:
Beg E&P + Gain recognized on distributed property “sold” (remember we are going to use this gain just in case there is not enough money in E&P for dividend distribution) – FMV of property distributed (or basis if greater) – Liability assumed by SH = Ending E&P

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 Correct
2) 2000 -$11k (9+2 add the gain)
3) 12000 correct
4) 11000 (Beg E&P 2+ Gain 9 – 12 FMV – 0 Liability = 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
1)2000 (5-2-the liability of 1) 3000
2)5000 – Dividend=FMV – Liability 5,000 -1,000 = $4000
3)4000 – Basis = FMV, $5000
4)10000 – 7+3-5-1 = 4

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 – Correct
2) 6000 – $6000 – $3,500 = $2,500
3) 2500 – $6,000 basis always FMV
4) 12000 – $8,000+ 4,000-2,000-3,500

On your second question…… I hope these helps:
If a corporation distributes appreciated property, the corporation recognizes a gain to the extent of the greater of the FMV – Basis or Liabilities distributed – Basis. This gain is added to E&P, and taxable dividends are recognized by each shareholder to the extent of E&P.

The individual will recognize taxable income as a dividend from appreciated property to the extent of FMV – liabilities received from the corporation. The individual's basis in the property will be the FMV of the asset regardless of any liabilities received.

Let me know if this helps.

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 rock thank you. NO EXCUSES EVEN ON YOUR BDAY… just kidding 🙂

Does anyone know if you type in the # of days in the physical presence test (330 days on form 2555) that fall under that threshold (say I type in 220)…. Will the form tell me its invalid or will turbotax/efile not allow you to fill it out? I know you need this in order to qualify (along with being a bona-fide resident) but i don't see anything on the form telling me i cant fill it out.

Ps i used fake numbers to fill this out and it worked, but I also used a number over 330. Let me know! Pharaoh THIS MEANS YOU

[Tipofga80]

@PCUNNIFF Can answer this one:

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?
Hoping they are throwing you off with the recourse vs nonrecourse. Gonna see if there is a difference when it comes to Corporations. Partnerships for sure handle it differently. I had that on my recent exam in for an At Risk question.
You will need to use the greater of
FMV – Basis = 60-20 = $40 or
Liability – Basis = $70 – 20 = $50K

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)?

Eh… let me get back to you on this. Gonna read the IRC.

REG - 77 (will lose in Jan 2016)

BEC - 67 74, 75

AUD - 56, 70, Will try again 🙁

FAR - ??

Save the beast for last.

[Author]

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