[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/

[pcunniff]

To further clarify, this is from becker

Partner A has 60,000 in non recourse liabilities and 30,000 in recourse liabilities. It has three partners (A, B, C), each with 1/3 interest in the p-ship. A is the GENERAL PARTNER and B along with C are limited partners.

Required: Calculate each partners basis in the p-ship liabilities, included their “AT RISK” amount

Answer:
A = 50,000 basis in p ship liabilities (1/3 of non recourse plus 30,000 of recourse liabilities). 30,000 is AT RISK. Why? Because its a recourse liability that the GP is ultimately bearing the risk on.

B= 20,000 total basis. At Risk amount = 0
C= 20,000 total basis in liabilities. At Risk = 0. Why? BECAUSE LIMITED PARTNERS ARE NOT liable for non recourse liabilities.

You can also see the GP is not liable for the non recourse liability either. HE IS ONLY LIABLE FOR THE RECOURSE. Hope this makes sense.

[pcunniff]

Does anyone know the substantial authority standard? Becker says its over 33%, but less than 50% and CPA excel says over 40%. I know this is objective, but I would like consistency. Preferably someone who has had to deal with this before could shed some light if possible? Thanks!

[jenpen]

@pcunniff I came up with this link. On the third page it says that the substantial authority is 40%. Hope this helps!

https://www.irs.gov/pub/irs-utl/statements_on_standards_for_tax_services.pdf

AUD - 56 - 68 - 61 - 9/8/16
REG - 75
FAR - 7/15/16
BEC - TBD

Wiley CPAexcel and NINJA 10 Point Combo

[jenpen]

@pcunniff To confuse this even more, I just checked the 2017 U.S. Master Tax Guide, and here's what it says:

“Substantial authority generally means that the likelihood that a taxpayer's position is correct is somewhere between 50 percent and the more lenient reasonable basis standard used in applying the negligence penalty. The disclosure exception does not apply to tax shelter items…”

AUD - 56 - 68 - 61 - 9/8/16
REG - 75
FAR - 7/15/16
BEC - TBD

Wiley CPAexcel and NINJA 10 Point Combo

[pcunniff]

@Jennifer – i saw that too, but its from 2010…. ugh I wish this material would just be consistent. Moral of the story is reasonable basis you need to disclose and its over 20, if you have substantial authority 33 or 40-50% you don't need to disclose, but definitely should. More than likely or not (greater than 50% or tax shelters) is more than likely than not you'll success in court.

[pcunniff]

Tax shelter is the more than likely or not, but yeah thats ridiculous (somewhere in-between?!?!!) Can I get a legit number? Super obnoxious that becker and CPA excel have differences for this.

[mardybum13]

Okay, so 3200 vs 6000 is an obvious difference for someone making me a bid. But I'm assuming thats in a situation where – when I accept the offer, the buyer tells me its a mistake. What if the buyer says nothing, finalizes the agreement and 2 weeks later later wants to cancel it? Is that still admissible? Where do you draw the line?

[pokerchick]

@pcunniff Thank you so much for your explanation. That helps a lot!

[pcunniff]

@pokerchick no problem – glad I can help.

@mardybum – Okay I understand where the confusion is. Quite honestly, that's a very good question and I highly doubt you will get something that extreme on the exam. BUT you never know.

Phil is selecting bids from contractors for construction of a garage. One bid is substantially lower than the others (bid 1 – $6000; bid 2 – $ 5600; bid 3 – $3200) so that it is obvious that there is a mistake in the bid. The bid will be a defense (to the unilateral mistake)

“Generally a unilateral mistake is not a defense to the contract. There is one major exception – a unilateral mistake as to a material fact if one party should have known.” I see you pulled this straight from becker as it is an example.

Phil should have known that the lowest bid is a unilateral mistake from the person bidding to construct the garage. To be honest, in my opinion, this is a bad example. Below is a better one..

Facebook needs an accounting firm to do the annual audit… bids are 5 mil 6 mil and another comes in at 500,000 from three different accounting firms. Facebook accepts the bid for 500,000 but they should have known there was an error in the bid. Why? Well compared to other fortune 500 audits or from past experience, etc. The bids above in your example are relatively small, so again, I see your confusion. I think the key here is to see the other bids which are VERY CLOSE to each other and (like my facebook example) if one bid is significantly lower, you can almost think of it as “too good to be true”, which it is. That being said, it is voidable because of the fact that facebook should have known of the error. Obviously the audit will cost way more than that. Anyone in public accounting seeing that would be like ummmmmm yeah we'll take that. Sorry, you aren't getting it for 500,000. That bid had an obvious mathematical error, so it's voidable.

Make sense?

[jenpen]

@pcunniff I would go with the US Master Tax Guide's explanation. It's recent and would hopefully be accurate.

AUD - 56 - 68 - 61 - 9/8/16
REG - 75
FAR - 7/15/16
BEC - TBD

Wiley CPAexcel and NINJA 10 Point Combo

[mashloum]

I need help for the list of penalties for both taxpayer and tax preparer including the penalty amount as well if he is subject to jail or not
Always confused by this list of penalties!
Appreciate the help on this topic

[jenpen]

@mashloum – Someone posted this in a study group I'm in. It doesn't list what's subject to jail, but I figure it might help, at least.

Tax Preparer Penalties:

Understatement of liability due to an unreasonable position – the greater of 50% of what preparer changed or $1,000
Understatement due to willful or reckless conduct by the preparer – the greater of 50% of what preparer changed or $5,000
Failure to furnish a copy of the return – $50
Failure to sign the return as preparer – $50
Failure to provide taxpayer id number – $50
Failure to retain a copy of the return – $50
Failure to correct information – $50
Cashing a refund check – $510
Failure for due diligence on earned income credit – $510
Disclosure of client information – $250

Taxpayer penalties:

Negligence or disregard of tax rules – 20% of understatement amount (unless taxpayer made reasonable attempt to comply with tax law – then no penalty)
Substantial understatement of tax which is the greater of 10% of tax liability or $5,000 (individuals)- 20%
Failure to file a return by the due date – 5% of the tax due per month (up to 25% of unpaid taxes)
(***Unless the failure to file is found to be fraudulent, then the penalty is 15% and up to 75%)
Failure to pay the amount due – 5% of net tax due per month (up to 25%)

AUD - 56 - 68 - 61 - 9/8/16
REG - 75
FAR - 7/15/16
BEC - TBD

Wiley CPAexcel and NINJA 10 Point Combo

[pcunniff]

Does anyone know the actual due dates on returns? I am looking at the AICPA chart and it is really confusing.

Individuals have a 4/15 due date with 6 month extension to 10/15.
partnerships and s crops generally have a 3/15 due date with 6 month extension to 9/15.

I am reading that 1041 estates and trusts that have a calendar year end have 5.5 months after the due date (say 4/15 would then be extended to 9/30). The chart says without regard to extensions are are given another 4 months. So would they have to file by 2/15 of that following year then? So bizarre. I was starting to feel like i was crossing years for this. If someone has this down pat – let me know. Thanks! \\https://www.aicpa.org/interestareas/tax/resources/compliance/downloadabledocuments/due-dates-summary-chart.pdf

[mashloum]

@pcunniff
Estate could be fiscal or calendar year, but the trust always a calendar year and both of them 5.5 months extended due date
While the Estate tax after the death by 9 months and extended date 6 months
Hope this could help

[mashloum]

@Jennifer

Thanks!

[Author]

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