[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

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

[Anonymous]

Like-Kind Exchanges -This is how I've been setting it up:

First of all, the question will always include the fair value of the taxpayers “stuff.” Throw this out. It's irrelevant and distracting.

I like to set it up as the following formula:

Basis Given Up

– Value Received

= (Gain) / Loss

Boot Received

It's a good visual so I just compare the (Gain) / Loss to Boot received to figure out what is recognized.

This is the example that Becker uses (and modifies for about 40 questions):

A taxpayer trades in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $16,500. The other party agrees to give the taxpayer a trailer worth $3,500 in addition to the new auto. What is the gain or loss recognized by the taxpayer on this transaction?

A. $0

B. $3,500 Gain

C. $3,500 Loss

D. $3,000 Gain.

So using my method I get the following:

Basis = (35,000 – 18,000) = 17,000

Value Received = (16,500 + 3,500) = 20,000

(G / L) = (3,000)

Compare

Boot = 3,500

Recognized Gain is lessor of the Gain on exchange or Boot Received. So we compare Gain of 3,000 with Boot of 3,500.

Answer D

[Anonymous]

Liabilities transferred and assumed are still tricking me a bit. But I remember the general rule is that a liability discharged is considered Boot.

[Gabe]

Angel

Can you post an example of one with liabilities that is “tricking you”

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

[Anonymous]

My recent performance report for REG finally came in the mail today.

MCQ: Comparable

SIM: Weaker

(in my previous 72 & 73 for AUD & FAR, my SIMs scored better and MCQs were always weaker.)

BLaw: Stronger

Ethics: Comparable

Property Tax: Comparable

Federal Tax Process/Individual/Entity Tax: ALL Weaker

I ran short of time of my allocated preparation time for REG to give way for BEC within the same testing window. I feel pretty descent that I was able to pull it off to score better with my MCQ this time, considering I've worked on 1,000 NINJA-MCQs only. What if I had reached the review stage of NINJA? I am sure I would have improved some more and gotten some of my weak spots straight like XXX, C-s–lty Loss, F-rm–g Income/Loss. I got only 61 minutes left when I exited out T3 anyway, and my research task was hiding underneath AL. I know the answer for the question, but I just could not locate it anywhere in the AL.

I will make sure I have at least 90 minutes for SIMs next time.

[Anonymous]

I hear tax is the majority of the exam. So if you can improve your “tax portion” of the reg material you should be able to pass this exam this time around. Which is R1-R4 in Becker. 🙂

[Anonymous]

That's right. I need to put more time with the tax part this time again. That way, I can work through MCQs more accurately and faster all the way to the end and allocate more time with SIMs. My score for Federal Tax Process was better in my first attempt. Where is that from R1-R4, by the way?

[Anonymous]

Gabe:

Here's one of the “tricky” examples:

A taxpayer trades in an automobile used solely for business purposes for another automobile to be used in his business. The automobile originally cost $35,000 and he has taken $18,000 in depreciation. The old automobile is currently worth $20,000 and the new automobile the taxpayer wants in exchange is only worth $17,500. The taxpayer agrees to assume a liability secured by the new auto of $1,000. The other party also agrees to assume a liability secured by the taxpayer's old auto of $3,500. What is the gain or loss recognized by the taxpayer on this transaction?

A. $3,500 gain

B. $2,500 gain

C. $3,000 gain

D. $0

[Anonymous]

B. $2,500

[Anonymous]

Pwrcat,

how do you like Roger's REG book? I keep getting mcq's that are not covered in the text or lecture. Homework help says that it's because “this topic is lightly tested”. I don't even know, frustrating

[Anonymous]

Correct: B – $2,500

Basis: 17,000

Value Received: 20,000

(G) / L: (3,000)

Boot: 2,500 (the net of 3,500 and 1,000)

So the lesser is 2,500.

The trick is recognizing that the liabilities need to be netted to find what liabilities are truly getting transferred.

[sam8839]

@ amor: I feel like you could have passed REG if your MCQ was a little stronger in a few categories. In other words, you could have scored weaker in Sims and still passed. What do you think?

I think you mentioned this before, but, how many sims were you 95-100% sure on and how many sims did you just completely guess or didn't finish?

Also – great question. What exactly is Federal Tax Process anyway?

[Anonymous]

@sam, I had six tasks from my SIM, which I think I probably did well on three. On the other three, I answered all 0's on one task. On the last one other than the research task, I doubted what basis to use for G/L, it has like 10 unrelated situations, was it like FMV or NBV after recovery or proceeds of what? Goodness, I was in a very serious panic mode while the clock was getting near to its end. My research task was not too friendly to me either.

Oh well, back to reality, LOL!

[sam8839]

@ amor: You did really well for putting 0's in 3 sims and scoring weaker in 3 of the subjects. So, you put 0's in all 3 sims AND the research you didn't find either? And you still were very close to passing. Wow!

I have no idea how these exams are graded. It's really weird.

[Anonymous]

No, Sam. I put 0's in one entire SIM. On the second one that I was doubting/panicking or being skeptical what basis to use to get to the correct G/L, I was answering inconsistently because I kept changing my disposition on each unrelated situation. I had to put the amount of either G/L. Out of the ten drop-down boxes, I probably got a few items correct. And the last SIM was the research task. It was an easy, straightforward tax ruling that I just couldn't locate anywhere in the AL.

Edited: PS

Federal process topic is under R5. It's still worth spending enough time with R5-R8 because it is about 40% of REG. That's what helped me improve my score. Now I have some business to do to nail taxation and kill this beast.

[OnlyBelieve]

Kimberly Corp. is a calendar-year accrual-basis C corporation that commenced operations on January 1, 2007. The following adjusted accounts appear on Kimberly's records for the year ended December 31, 2014. Kimberly is not subject to the uniform capitalization rules.

Dividends:

20%-owned domestic corporation 10,000

What amount of the dividends received is taxable?

Ans- 10,000

Pursuant to IRC Section 243(c), Kimberly would include 100% of the dividends received in taxable income and they would be allowed a dividend-received deduction of 80% in the deduction section. (The reference for this line is section 4631.05(b) in the Regulation Reference volume.)

The explanation is not very clear to me. Can someone break this down as to why $10,000 is the answer?

Also what if it was a 10%-owned domestic corporation? What would be the taxable amount of the dividends received?

AUD - DONE
BEC - DONE
REG - 04/04
FAR - 05/30

[Author]

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