[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for REG.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

[Tncincy]

Oh wow….good luck to you. I was searching for those strategies that helped others pass reg. I feel real insecure right now. So I guess I am going over the sims even though many have said it doesn't matter.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Key522]

I sit for REG on Saturday. Trending around 80% for all sections except BLaw. Hopefully I can pull this off.

BEC Feb 2015 68 - rematch Apr 2015 - 84
FAR July 2015 77
AUD Oct 2015 74 Feb 2016 71 April 2016 85
REG Jan 2016 67 July 2016

[Claudia408]

Why is B the answer? Isnt the purpose of AMT to add back items so your deductions are less and income higher?

Jones, an individual taxpayer, must include $1,000 in gross income resulting from a state tax refund he received in the current year. Jones is in an alternative minimum tax situation for the year. Which of the following is the correct statement in regards to the tax refund received by Jones?

A. The $1,000 tax refund is a positive adjustment in the calculation of alternative minimum taxable income (i.e., will increase alternative minimum taxable income).
B. The $1,000 tax refund is a negative adjustment in the calculation of alternative minimum taxable income (i.e., will decrease alternative minimum taxable income).
C.The $1,000 tax refund is not an adjustment in the calculation of alternative minimum taxable income.
D. There is not sufficient information to tell if it is or is not an adjustment to taxable income.

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[rosecpa]

Sorry about that.

[marqzho]

Claudia408

I won't think too much on the logic behind it. LOL sometimes it just doesn't make sense. Just remember it and move on would be a better way out.

Here is what I “believe” is the logic :

So, if you pay state tax, you deduct it from AGI by itemized deduction to come up with your taxable income. When calculate AMT, you doesn't allow to have this deduction and you have to add back the deduction.

Because state tax paid is not deductible and need to be added back, state tax refund should not be taxable and need to be subtracted from taxable income. It just like a mirror, state tax refund is kinda like a negative state tax paid.

If you look at Form 6251 for AMT, line 7 is ” Tax refund from Form 1040, line 10 or line 21″

If this was my exam question, I would be struggling between B and D and probably choosing D instead. 🙂

REG 90
FAR 95
AUD 98
BEC 84

[Anonymous]

@Claudia, the recent question (AMT-State Tax Refunds) you just posted was definitely difficult. The problem was silent as to the type of deduction the TP used (below the line), either SD or ID in the prior year.

Hmmm. I wonder what the tax geniuses like Marqzho and others would have to say. I want to know the explanation/elaboration of others too.

[marqzho]

Amor D

I am not LOL I just got lucky and passed the exam. I don't even do my own tax.

But from the question, we can tell he was using ID in prior year for sure since ” he include $1,000 in gross income”.

REG 90
FAR 95
AUD 98
BEC 84

[Jackobe24]

hey guys,

can you guys tell me what are the major differences between a corporation liquidating and non-liquidating distributions?

I keep getting those two mixed up, can't really remember their differences…..

FAR - 9/8/16 (Hopefully it's my last CPA exam, God bless me!)
REG - 80
BEC - 81
AUD - 69, 81

[marqzho]

Jackobe24

your question is too board. Difference between liquidating and non-liquidating distributions can easily be a 15-30mins lecture. The easy and general version would be for liquidating distribution, Corporation recognizes gain and loss as ordinary income. Shareholders recognize gain and loss as capital gain.
Non-liquidating distribution is just normal dividend. Shareholder recognize gain as ordinary up to EP

REG 90
FAR 95
AUD 98
BEC 84

[Pandarama]

@jackobe24 – I agree w/ marqzho; it would be way easier to give you the reasoning or differences if we have an example question that you often struggle with.

BEC - 80
AUD - 64, 75 - credit lost, 90!!
REG - 73, 74, 83
FAR - 61, 72, 85

Feels good finishing on my best note. Time to watch the mailbox.

[Pandarama]

@steph2014cpa – Did you find your test this time to be of the same difficulty as the rest that you've taken?

My first test felt like the mcq were difficult and the sims being easier and then the second time around it felt the opposite (my score report agreed w/ my feelings haha). Thinking about it makes me thinking about the testing being 60% knowledge and 40% luck. But then I try and push myself to study and understand this stuff so much that the less luck I'll need.

BEC - 80
AUD - 64, 75 - credit lost, 90!!
REG - 73, 74, 83
FAR - 61, 72, 85

Feels good finishing on my best note. Time to watch the mailbox.

[Anonymous]

What does TAX BASIS FOR THE CORPORATION really mean?
Accordingly, the formula is:
+ NBV (Contributed Prop.) >>>>>>>>>>>>>XX
+ Cash Distributed to the Shareholder >>>> XX

Why? How did IRS come up with the formula above? What's the logic behind that formula?

Jones, Mitchell, Carey, and Gorman are knowledgeable about landscape design. They have decided to pool their knowledge and resources to form Arrington Enterprises, Inc., a C corporation. They will provide professional services to area businesses and homeowners. All participants expect to work full time for Arrington Enterprises, and each expects to contribute sufficient assets to become a 25% shareholder with a total stock equity of $50,000 each.

In addition to the skills that each brings to the new entity, the owners will contribute assets that will enhance the company's ability to provide quality technical design and planning services. These assets include a building, land, lawn care equipment, office furniture and equipment, and cash for initial operating expenses.

The table below shows the assets contributed by each shareholder. In all cases, the liabilities are recourse and are assumed by Arrington Enterprises, Inc. There are no tax avoidance purposes inherent in the assumption of shareholder liabilities.
SH>>>FMV of Contri. Prop>>Liability >>>>>Basis>>>>>Cash Contributed>>>>>Cash Distributed to SH
Jones 120,000 >>>>>>>>>>60,000 >>>>> 100,000 >>>>>>> 0 >>>>>>>>>>>>>10,000
Mitchell 80,000 >>>>>>>>>>50,000 >>>>> 40,000 >>>>> 20,000 >>>>>>>>>>> 0
Carey 40,000 >>>>>>>>>>20,000 >>>>>>20,000 >>>>> 30,000 >>>>>>>>>>> 0
Gorman 70,000 >>>>>>>>>>>>>> 0 >>>>> 50,000 >>>>>> 0 >>>>>>>>>>>>> 20,000

Cell C6 — $110,000
The facts provide that Jones transferred property with a net book value (tax basis) of $100,000 and that the corporation had to pay Jones $10,000 to complete the transfer. The tax basis to the corporation would, therefore, be equal to the $100,000 net book value of the property (No Tax on Transfer means use Net Book Value) plus the $10,000 cash the corporation paid Jones to complete the transfer, or a tax basis for the corporation of $110,000.

Cell C7 — $40,000
The facts provide that Mitchell transferred property with a net book value (tax basis) of $40,000 and that Mitchell also paid the corporation $20,000 in cash. The tax basis to the corporation would be equal to the $40,000 net book value of the property (No Tax on Transfer means use Net Book Value). As the corporation received cash from Mitchell, there is no effect on the tax basis if the property, and the cash is included in the cash line item on the financial statements (GAAP and Tax). Therefore, the corporation's tax basis of the property from Mitchell is $40,000.

Note: Generally, the corporation takes the carryover basis from the transferor shareholder. The rule that allows a corporation to take a higher amount of liability assumed as the basis is a special rule that only applies if the shareholder recognizes gain due to liabilities being in excess of basis of all property contributed. Mitchell contributed $20,000 in addition to the property. The liabilities did not exceed the basis of all basis contributed, including the cash. Therefore, Mitchell does not recognize any gain and the corporation takes the carryover basis of $40,000 for the property.

Cell C8 — $20,000
The facts provide that Carey transferred property with a net book value (tax basis) of $20,000 and that Carey also paid the corporation $30,000 in cash. The tax basis to the corporation would be equal to the $20,000 net book value of the property (No Tax on Transfer means use Net Book Value). As the corporation received cash from Carey, there is no effect on the tax basis if the property, and the cash is included in the cash line item on the financial statements (GAAP and Tax). Therefore, the corporation's tax basis of the property from Carey is $20,000.

Cell C9 — $70,000
The facts provide that Gorman transferred property with a net book value (tax basis) of $50,000 and that the corporation had to pay Gorman $20,000 to complete the transfer. The tax basis to the corporation would, therefore, be equal to the $50,000 net book value of the property (No Tax on Transfer means use Net Book Value) plus the $20,000 cash the corporation paid Jones to complete the transfer, or a tax basis for the corporation of $70,000.

[Claudia408]

@marqzho – thanks for the advice and you know now i'm at that point! i'm clicking through questions and answers and not even trying to read WHY anymore. i think half of this exam is trying to remember the nonsense answers and move on! lol

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[ohiostategirlcpa]

@ Amor D

I am still mixing up SH Tax Basis with Corp Tax Basis. I am just not good in juggling tax bases for various entities.
So frustrating.
Can anyone suggest a textbook that I can borrow from a public library?

These T-accounts are different for all types of entities. I had to memorize quite a few scenarios (about 15), replaying the transactions on paper over an over until I had them in memory.

As regards books, I used Gleim's review, but a business taxation textbook is sufficient.

F91 A95 R90 B94
CMA since 2015
(Gleim books/PDFs, MCQs, SIMS)

[tuanxn]

Hey Amor D,

To put it in the simplest terms possible:

The IRS wanted to encourage people to start businesses so they allow you to form a business tax-free (provided you met certain requirements). If the transaction isn't taxable, then the basis of the property exchanged will probably be carried over. It's important to remember that shares of stock represent ownership in the corporation and in that respect, ownership of the underlying assets and liabilities. Therefore, when we contribute property to a corporation and receive stock in return, the basis in the stock is the same as the property we contributed.

Let's say we formed a corporation by ourselves:
We contribute property with a basis of $4,000 and a FMV of $10,000
In return we receive 100 shares of stock that represent 100% ownership of the corporation.

The basis in the stock would be $4,000
The basis of the property in the corporation's hands is $4,000

To another investor, our stock is probably worth $10,000 (since if he bought our stock, he would own the corporation and thus the property it owned).

If we sell the stock we would recognize $6,000 of gain which is the same thing we would have recognized if we just sold the property in the first place. The tax basis rules uphold this kind of logic.

Of course things get really confusing later on with liabilities, distributions, etc, but I hope that helped a little?

For me, tax basis is just a way to keep track of what has and what hasn't been taxed yet.

[Author]

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