REG Study Group Q1 2015 - Page 155

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  • March 3, 2015 at 7:40 pm #653365
    BEACPA
    Participant

    @pass

    Basically, anything that isn't an ordinary course of business (i.e., sales, COGS, operating exp, etc) will be stated separately. Since, a company generally wouldn't be in the business to earn profits from sales of securities, then it's stated separately. I hope this helps.

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    March 3, 2015 at 8:00 pm #653366
    PasstheCPA7
    Participant

    @ Gabe & BEACPA – thanks guys! That helps.

    Also:

    On Page R3-55, Becker shows this S-Corp Basis formula: Basis + Direct shareholder loans – Distributions.

    We can see that the Direct shareholder loan is an ADDITION to the S-Corp shareholder’s Basis. For Partnerships, it's the opposite. Here, a non-recourse loan would be an ADDITION to the Partner’s basis.

    My question is this though: Becker doesn’t mention this, but, is a Direct shareholder loan the same thing as a “Non-recourse loan” then? In other words, is a direct loan & non-recourse loans just synonyms of each other and thus – would increase to the S-Corp shareholder’s basis?

    Becker just uses the word “direct loan” and doesn’t use the word non-recourse at all here, so, I wasn’t sure here?

    BUT – when doing the homework questions, I often see the word non-recourse. I wasn't sure if this is the same thing as a direct loan and WOULD add to the S-Corp basis (just like a direct loan).

    Is there even a difference between a direct loan and a non-recourse loan?

    Thanks guys!

    March 3, 2015 at 9:09 pm #653367
    Gabe
    Participant

    Anyone explain this better than Wiley/Ninja:

    Dahl Corp. was organized and commenced operations in 1930. At December 31, 2013, Dahl had accumulated earnings and profits of $9,000 before dividend declaration and distribution.

    On December 31, 2013 Dahl distributed cash of $9,000 and a vacant parcel of land to Green, Dahl's only stockholder. At the date of distribution, the land had a basis of $5,000 and a fair market value of $40,000.

    What was Green's taxable dividend income in 2013 from these distributions?

    $9,000

    $14,000

    $44,000

    $49,000

    Answer= $44k

    CPA, CFE
    CISA- Experience will be completed by August 2016

    March 3, 2015 at 9:39 pm #653368
    PasstheCPA7
    Participant

    @ Gabe – tricky question.

    But – here's what you do:

    There was a distribution of property. We know we need to use FMV then. FMV is $40,000 and adjusted basis of the contributed property is $5,000. Thus, there's a $35,000 gain. The tricky part is this: This $35,000 INCREASES Current E & P. So, remember that.

    The distribution made was $49,000 in total (Cash of $9,000 + FMV of $40,000).

    Then, we have $35,000 of the gain in Current E & P. We also have Accumulated E & P of $9,000.

    This means that up to Current E &P and up to Accumulated E & P is taxable. This means that $44,000 is taxable of the distribution and the remaining $5,000 is a reduction in the shareholder's basis (non-taxable).

    Hope that helps! Tried to give you a detailed explanation, so, you can see what's going on.

    Let me know if you're still confused!

    March 3, 2015 at 9:50 pm #653369
    Gabe
    Participant

    @pass thanks for the detailed explanation! Question- if this was a partnership distribution would the calculation be different?

    CPA, CFE
    CISA- Experience will be completed by August 2016

    March 3, 2015 at 9:57 pm #653370
    PasstheCPA7
    Participant

    @ Gabe. Great question. If this were a non-liquidating partnership question (assuming the same facts and everything else). Becker uses the phrase “Stop at Zero.”

    We need to reduce our basis by “cash” first. And then by the FMV of the “property.” It goes in that order.

    So, we know the total distribution is $49,000 (Cash of $9,000 + FMV of $40,000).

    Adjusted Basis is: 5,000

    – Cash distribution (9,000)

    = 4,000 –> GAIN

    We have a $4,000 Gain (since cash was $9,000 and Adj. basis is $5,000). We also have a $0 basis in the land.

    Great question Gabe. I think that's correct. What do you think?

    March 3, 2015 at 10:06 pm #653371
    PasstheCPA7
    Participant

    @ Gabe, I am really curious now that you bought up that question! I think that's very important to know because remember – in a C Corp – you WOULD be taxed (subject to double taxation). Notice here with Partnerships – we are NOT taxed. Why? Because there is no double taxation in Partnerships.

    If anyone else can confirm this answer – I would really appreciate it!

    March 3, 2015 at 10:07 pm #653372
    s2sylvir
    Member

    Okay guys, separately stated vs not separately stated.

    I've come to the conclusion that anything on Page 1 of Form 1120S is “non-separately stated”.

    Anything on page 3, Schedule K below line 1 (starting from line 2, because line 1 is a sum of page 1) is “separately stated”

    Schedule K also flows into the very top of page 4.

    https://www.irs.gov/pub/irs-pdf/f1120s.pdf

    BEC - PASS (79)
    AUD - PASS (63, 71, 74, 74, 83)
    REG - PASS (88)
    FAR - PASS (58, 89)

    Becker for all + FAR 10 Point Combo

    March 3, 2015 at 10:11 pm #653373
    PasstheCPA7
    Participant

    @ s2sylvir, I posted this question earlier. Any thoughts?

    On Page R3-55, Becker shows this S-Corp Basis formula: Basis + Direct shareholder loans – Distributions.

    We can see that the Direct shareholder loan is an ADDITION to the S-Corp shareholder’s Basis. For Partnerships, it's the opposite. Here, a non-recourse loan would be an ADDITION to the Partner’s basis.

    My question is this though: Becker doesn’t mention this, but, is a Direct shareholder loan the same thing as a “Non-recourse loan” then? In other words, is a direct loan & non-recourse loans just synonyms of each other and thus – would increase to the S-Corp shareholder’s basis?

    Becker just uses the word “direct loan” and doesn’t use the word non-recourse at all here, so, I wasn’t sure here?

    BUT – when doing the homework questions, I often see the word non-recourse. I wasn't sure if this is the same thing as a direct loan and WOULD add to the S-Corp basis (just like a direct loan).

    Is there even a difference between a direct loan and a non-recourse loan?

    March 3, 2015 at 10:15 pm #653374
    Gabe
    Participant

    @pass that's exactly what I was thinking for partnership distribution…but wouldn't you be taxed on the $4k gain on your K-1?

    @s2sylvir I agree.

    CPA, CFE
    CISA- Experience will be completed by August 2016

    March 3, 2015 at 10:17 pm #653375
    PasstheCPA7
    Participant

    @ Gabe – Yep. You would be taxed on the $4,000 on K-1. But – my question is, where would we even show this $4,000 on K-1? Where would it even fall under? What heading?

    March 3, 2015 at 10:23 pm #653376
    Gabe
    Participant

    Looked through the k-1 and can't find anywhere to put it..it woudn't be a distribution, it wouldn't be a capital gain…

    CPA, CFE
    CISA- Experience will be completed by August 2016

    March 3, 2015 at 10:29 pm #653377
    PasstheCPA7
    Participant

    Anyone else know this?

    March 3, 2015 at 11:01 pm #653378
    s2sylvir
    Member

    @PasstheCPA7

    Okay, correct me if my understanding is wrong or something —

    Recourse loans are those which affect basis. Direct loans from shareholders affect basis. So wouldn't direct loans to recourse, not non-recourse?

    My understanding is that if the company cannot pay back the shareholder, if you think about it, the shareholder was personally liable and loses out on the amount of it's loan to the company. Similarly, if there's a recourse loan taken out by a bank, and the company defaults, the bank can come after the shareholders. In any case, recourse loans = the shareholder loses out.

    BEC - PASS (79)
    AUD - PASS (63, 71, 74, 74, 83)
    REG - PASS (88)
    FAR - PASS (58, 89)

    Becker for all + FAR 10 Point Combo

    March 3, 2015 at 11:03 pm #653379
    s2sylvir
    Member

    @PasstheCPA7 @Gabe

    It looks like you guys have another question related to some gain of sort? there are so many questions on this I can't follow — if you guys mind rephrasing the question I can try to answer

    BEC - PASS (79)
    AUD - PASS (63, 71, 74, 74, 83)
    REG - PASS (88)
    FAR - PASS (58, 89)

    Becker for all + FAR 10 Point Combo

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