[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for REG. 🙂

[aatoural]

Gotta love this question!

Agress Corporation, a calendar-year taxpayer reporting on the accrual basis, showed the following balances on its books for 2016:
Sales
$130,000
Cost of sales
70,000
Operating expenses
40,000
Contributions
2,500
Net life insurance premiums on officer with Agress as the beneficiary
4,000
Accrued federal income tax
3,230
Book income
$ 10,270
What is the amount of Agress Corporation’s taxable income as it would be shown on Schedule M-1 of its 2016 corporate income tax return?
A. $13,500
B. $20,000
C. $14,270
D. $18,000

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[HoosierCPA]

@aa so taking an educated guess and picking A.

Contribution carryforward is an add back but they don't specify its a carry forward. Seeing as how it is included in the book income for that year makes me think it's not a carryforward so it is deductible. The part that has me tripped up is tax insurance premiums where the corp is directly or indirectly the beneficiary are not deductible for tax purposes, so makes me belive that should be an add back as well…but there is no 17,500 as an answer :/.

My other close 2nd answer would be B where you add both the contribution and the premiums back.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

lol @aatoural I walked away from studying and kept thinking about this question. I have a new guess! My answer is D for these reasons:

In order to figure out the allowable contribution deduction you need to figure out the 10% threshold..to do that you figure out taxable income before the contribution. It comes out to 20k (130-70-40). 10% of 20k is 2k…so anything over 2k is not allowable so 500 is an addback on top of the premiums (because they are a direct beneficiary) and the federal tax expense

Book Income + Disallowed Contribution + Federal Tax Expense + Premium = 18K

I feel much more confident about that answer!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[aatoural]

The third time is always the charm!

Don't you agree is quite a question!? ROFL.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[Anonymous]

hi

with regard to void and voidable contracts, Im having some difficult time in determining the appropriate answer. can anyone help please?

[HoosierCPA]

@aa hahaha yeah I like my chances of getting it right when I choose 3 of the 4 choices!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[aatoural]

I don't get it. Correct answer is C

Rela Associates, a partnership, transferred all of its assets, with a basis of $300,000, subject to liabilities of $50,000, to a newly formed corporation in return for all of the corporation’s stock. Rela then distributed this stock to the partners in liquidation. In connection with this incorporation of the partnership, Rela recognizes
A. Gain or loss on the transfer of its assets to the corporation.
B. Gain, but not loss, on the transfer of its assets to the corporation.
C. No gain or loss on the transfer of its assets nor on the assumption of its liabilities by the corporation.
D. Gain on the assumption of its liabilities by the corporation.

Nonrecognition is mandated by Sec. 351 since Rela has control immediately after the exchange. The liabilities transferred are not treated as boot in that they do not exceed aggregate basis in assets transferred. Thus, no gain or loss is recognized by Rela. Note that Rela’s basis in the stock is $250,000. After partnership liquidation, each shareholder’s basis in the stock equals the adjusted basis of that partner’s partnership interest.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[HoosierCPA]

@aa there should be a rule that you can't post gleim questions ;).

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[aatoural]

ROFL Jus as FYI don't waste our time on Corporation Redemption questions. Just skip those 18 questions altogether.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[HoosierCPA]

What am I missing, I thought life insurance proceeds were tax free.

“Dangerous, Inc., is in the business of deep sea treasure hunting. Due to the inherently risky nature of this business, Dangerous offers death benefits to its employees. On June 1, one of Dangerous's employees died on the job, and Dangerous paid the employee's family $100,000 in death benefits.”

Are “death benefits” different then life insurance?

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[RE2PECT]

@dtatham10- Death benefits are different than life insurance policies and are taxable to the beneficiaries. I work in the pension department for a construction union and that's the one thing with REG I'm sure about lol. Just finished doing my 1099's for everyone who received a death benefit last year.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[aatoural]

@re2pect – where were you bfore in Nov when I asked for a qucick summary of benefits!!!

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[aatoural]

I got a tiny confusion this morning.

C corp basis on property contributed is the greater of AB of property contributed or liability + gain recognized by contributing partner

Partnership basis in property received is AB of contributed partner + gain recognized by that partner

Am I correct?

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[Anonymous]

@aatoural I'm new here so I don't know how to reply directly to your question, But I think we are on the same page.

C Corps basis is carryover basis. If a liability is attached to the property, it will still be carryover basis and the liability is ignored unless the liability is greater than the AB. If the liability is greater than the AB, the basis would be AB + the gain recognized by the shareholder.

When a C Corp distributes property it is treated as if the corp was selling the property. The gain would be the difference between the FMV and the AB. However if the property was distributed when the FV was lower than the liability assumed in the distribution, the liability assumed would be considered the ‘selling price' and any gain would be the difference between the liability and the AB.

That's how I am understanding it at least. I welcome any comments.

[Anonymous]

Question on Wash Sales:

It's my understanding that a Wash Sale is when you buy stock, sell that stock for a loss, then buy it back again within the 30 day < — — > period. Makes sense. However, on Question 1040 is where I am confused. It has a shareholder buying stock on 12/15. Then buying more of the same stock on 12/30 at a lower price. Then he sold the first set of shares at a loss. Why would that be considered a wash sale? I was under the impression it was buy sell buy = wash when it was a loss. Why would buy, buy at a lower price, sell be a wash?

Smith, an individual calendar-year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on
December 15, Year 1, and an additional 100 shares for $13,000 on December 30, Year 1. On January 3, Year
2, Smith sold the shares purchased on December 15, Year 1, for $13,000. What amount of loss from the sale
of Core's stock is deductible on Smith's Year 1 and Year 2 income tax returns?
A. $0 in Year 1 and $0 in Year 2
B. $0 in Year 1 and $2,000 in Year 2
C. $1,000 in Year 1 and $1,000 in Year 2
D. $2,000 in Year 1 and $0 in Year 2

[Author]

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