[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

[Gabe]

@cpa think of the old saying, possession is 9/10ths of the law… Possession is always better than just an agreement.

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

[Gabe]

@cpa post some questions and I can walk you through it.

Pmsi trumps all basically.

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

[Anonymous]

@gabe thanks! I will tomorrow for sure. I have about 30 more questions then I'm going to move to bankruptcy. Post questions if you wish. I'm laying in bed watching shark tank I've been studying all day 🙂

[Gabe]

@Angel don't worry too much, any time you switch testbanks you're bound to dip a little or a lot, depending on what you're used to.

So, in response to 1231 gains, we've concluded they are netted against each other and losses are reported as ordinary, while gains are capital (long term).

Below someone posted an IRA phaseout question…here it is:

Rita Spano is an active participant in a company retirement plan. Her husband, John, age 45, works for a company that does not have a retirement plan. The Spanos' joint adjusted gross income for 2014 is $185,000. John contributes $4,000 to an IRA for himself. How much of this $4,000 contribution for John can the Spanos deduct on their 2014 joint return?

A: $4000

B: $3200

C: $2000

D: $0

I understand the phaseout is $183k, so the answer is 2/10*$4k= $3200, but where is the 10 in the 2/10 coming from?

Thanks all! We CAN do this!

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

[Gabe]

Fun one 🙂

In 2014, RR Trust had a long-term capital gain of $3,000 (allocated to corpus), taxable interest of $2,000 and nontaxable interest of $2,000. The trustee's fee was $400. The trust distributed $1,600 to beneficiaries. RR Trust is a simple trust. The trust's taxable income is:

A.

$0.

B.

$3,000.

C.

$4,000.

D.

$3,700.

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

[Gabe]

Sands purchased 100 shares of Eastern Corp. stock for $18,000 on April 1 of the prior year. On February 1 of the current year, Sands sold 50 shares of Eastern for $7,000. Fifteen days later, Sands purchased 25 shares of Eastern for $3,750. What is the amount of Sand's recognized gain or loss?

A.

$0

B.

$500

C..

$1,000

D.

$2,000

I understand the first part of the calculation:

$18000/$100= $180/per share

$7000/$50= $140/share

$40 diff * 50 share diff= $2k

HOWEVER, she conducted a wash sale and sold half of the 50 shares fifteen days later. So only $1k is recognized. Regarding the half, are we just looking at the 25 shares, saying it is half of 50 shares then splitting the gain in half? I think I was trying to make it too complicated by calculating the amount per share for the last transaction.

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

[Gabe]

On day 1, Jackson, a merchant, mailed Sands a signed letter that contained an offer to sell Sands 500 electric fans at $10 per fan. The letter was received by Sands on day 3. The letter contained a promise not to revoke the offer but no expiration date. On day 4, Jackson mailed Sands a revocation of the offer to sell the fans. Sands received the revocation on day 6. On day 7, Sands mailed Jackson an acceptance of the offer. Jackson received the acceptance on day 9. Under the Sales Article of the UCC, was a contract formed?

A. No contract was formed because the offer failed to state an expiration date.

B. No contract was formed because Sands received the revocation of the offer before Sands accepted the offer.

C. A contract was formed on the day Jackson received Sands' acceptance.

D. A contract was formed on the day Sands mailed the acceptance to Jackson.

Answer is D. But how is this a contract if Sands received the revocation before the acceptance?

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

[Gabe]

Keeping them coming this morning 🙂

John and Mary were divorced in 2013. The divorce decree provides that John pay alimony of $10,000 per year, to be reduced by 20% on their child's 18th birthday. During 2014, John paid $7,000 directly to Mary and $3,000 to Spring College for Mary's tuition.

What amount of these payments should be reported as income in Mary's 2014 income tax return?

A. $5,600

B. $8,000 <– correct answer

C. $8,600

D. $10,000

Ok. So, I understand the $10k is reduced by 20% on the daughter's18th birthday, so, since she is in college let's assume she is over 18. So the $10k is reduced to $8k. However, in the problem it states: John paid Mary $7k and paid $3k DIRECTLY to the school. So how in the world is $8k included in Mary's income tax return if she only received $7k?

edit: according to wiley: Payments to third parties (such as tuition, rent and mortgage) by the spouse paying alimony for the spouse receiving alimony receive the same treatment as cash payments.

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

[Holly]

So I just purchased the NINJA MCQ. Any advice for where to start? What are Objective Questions (it's grayed out but I'm just wondering), is this the adaptive learning that I haven't answered enough questions to use yet?

BEC - 79
REG - 85
AUD - 5/27/16

[Gabe]

@hr depending on how much time you have, I usually just start at the beginning (category 1) and finish an entire section then move on to the next.

Not sure where you're seeing objective questions though…wait, I do see objective questions under progress report. Once you do questions it'll start populating that table. Let me know if I can help, I've used Ninja for BEC, AUD and FAR (and now REG 🙂 )

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

[OnlyBelieve]

Gabe- on the UCC question.

The key point in this question is that Jackson is a Merchant. A merchant's firm offer cannot be revoked in a reasonable amount of time. Revoking an offer three days after making it, will not hold if the other party accepted in a reasonable time frame.

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

[Anonymous]

@gabe for the sands and Jackson question look up the merchant firm offer rule. It has to do with a merchant leaving the contract open for a certain amount of time and revocation is not allowed for a reasonable time. So even if sands rejects he still has a reasonable time frame to change his mind and accept (which is what happened here) this is an exception. I originally picked B so don't worry about it. But read the merchant firm offer and it should make more sense.

[OnlyBelieve]

On the trust question, answer is D

taxable interest 2000/sum of taxable and non-taxable(4000)=0.5

We then reduce the Income(gain+interest) by the ratio of the trustee's fee and the distribution and then reduce it further by $300, because it is a simple trust

so:

Taxable income, 3000+2000-200-800-300=3700.

the ratio between the taxable and non-taxable was found because we want to find out what the actual allocation of the taxable interest is in regards to the distributions and fees

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

[Gabe]

Thanks @only. I'll read up on the merchant firm offer, I think I glazed over the fact that Jackson was a merchant. Thanks for your help!

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

[Kate]

Hey All,

Just wondering if someone could clarify two things for me.

The first is the simple definition of “boot.” It states that it is “cash withdrawn.” What exactly does cash “withdrawn” mean? I get confused in examples where the transferor gives cash, versus the corporation gives cash to the transferor. In one it's boot, in another its not (from what I'm seeing). I just foolishly assumed anytime cash was involved it was boot…

Secondly, if anyone has done the Becker simulations for R3, my question is on Simulation #1, tab 3, regarding Mitchell. Why is the tax basis not $50,000, rather than what the answer is, $40,000. Isnt it the greater of debt assumed (50,000) or Mitchell's adjusted basis (40,000)? I.e, $50,000? The explanation did not clarify it for me.

AUD (2/3/2015) Pass
REG (4/24/2015) Pass
FAR (8/3/2015) Pass
BEC (10/25/2015) Pass

[Author]

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