[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

[Future Ninja]

@HRSexton same here.

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Anonymous]

What was unjust about there deal? Nothing. When I think of unjust enrichment I think of something really really unfair! Like I'll help you with your homework and you give me a million dollars. I thought it was unilateral because that's when one party gives money in exchange for a promise. public policy doesn't apply here and a Quasi contract is imposed by the law to prevent unjust enrichment and in the absence of a true contract. But a unilateral contract WAS formed so it's not quasi contract. Does that make sense? Look up the definition of a unilateral contract then it should make sense.

[Future Ninja]

cpa8488 thanks for your explanation. that's the thing. i'm lost with all these business law terms.

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Gabe]

@HR you are correct in regards to the AVD and FMV amounts…and yes, posts are sloooow to show up 🙂

@cpa correct! unilateral not unjust!

I'll be on more tomorrow.

Cheers!

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

[Gabe]

Morning folks!

Winkler, a CPA, provided accounting services to a client, Thompson. On December 15 of the same year, Thompson gave Winkler 100 shares of Foster Corp. as compensation for services. The adjusted basis of the stock was $4,000, and its fair market value at the time of transfer was $5,000. Two months later, Winkler sold the stock on February 15 for $7,500. What is the amount that Winkler should recognize as gain on the sale of stock?

A.

$0

B.

$1,000

C.

$2,500

D.

$5,000

I misunderstood this question and thought Winkler gifted the stock to Thompson (haven't had my coffee yet 😉 ) So, anyway, since services were rendered Winkler must use FMV was basis because services rendered are treated as a taxable event (like compensation). So the gain is FMV of $5k – $7.5k= $2.5k. My question- does it matter when he sold it? I was tripped up by the “2 months later” caveat and thought of a wash sale…

So, in other words, if he had sold it within 30 days of receiving it, would his gain not be recognized?

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

[Holly]

@Gabe this would not cause a wash sale because he would have had to sale it for a loss AND repurchase in within 30 days.

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

[Gabe]

H@- Ah I forgot about repurchasing it. If he had done that- definitely wash sale, yeah? lol Sorry it is early and I am running on little sleep

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

[Gabe]

Also- for those struggling with distributions Wiley has some GREAT simulations that help you work through corp E&P and how it is affected by distributions 🙂

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

[Holly]

@Gabe Not a wash sale still because Winkler has a gain. To have a wash sale it must originally be sold as a loss.

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

[Gabe]

Thanks HR. I guess I forgot that- so gain= not recognized in wash sale. Disallowed loss adds to basis of new stock, correct?

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

[Holly]

@Gabe Right. If loss, the wash sale is disallowed and affects the basis of the new stock (the loss is added to the cost of the new purchase to get the new basis), and if there is a gain then wash sales rules don't apply and the taxpayer pays capital gains.

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

[Gabe]

Corp distributions

Cash distribution:

Facts:

Basis: $50k

E&P (current and accum): $27k

Distribution: $30k

I understand dividend income= $27k

The gain of $3k reduces basis, so new basis would be- $47k

The rules say, “if there is anything remaining it would result in a capital gain.” So, would this be correct:

Facts:

Basis: $20k

E&P: $27k

Distribution: $60k

Dividend- $27k

Gain of $33k reduces basis to $0

Capital gain- $13k ($20-33)

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

[Holly]

@Gabe that's how I understand it. The only thing that would be different would be if the facts said the distributions were during the year and they'd have to be allocated by ratio. It seems like those are the only questions I've seen.

In Year 1, Linda Corp. had current earnings and profits of $15,000. It paid four cash dividends during the year of $7,500 each for a total of $30,000. Half of each dividend ($3,750) will be treated as having been made from current earnings and profits taxable to the shareholder to that extent.

That's the example from Becker, R3-43.

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

[Gabe]

HR thanks! In the above Becker example, are you using half because she is a 50% S/H?

Wiley has a sim like that where you have to allocate the gain between 2 S/H based on their %.

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

[Holly]

I took it to mean half is because the acc e&p is half of the total distribution. The rule states that the e&p should be applied in chronological order. I'll go look at see if I can find one of those questions really quickly.

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

[Author]

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