[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]

u cant deduct interest expense that pays for tax free interest. just think about it. its not really fair

[Troblin]

Can someone explain this question? Seems really easy, but I missed it.

Graphite Corp. has been a calendar-year S corporation since its inception on January 2, 2004. On January 1, 2014, Smith and Tyler each owned 50% of the Graphite stock, in which their respective bases were $12,000 and $9,000. For the year ended December 31, 2014, Graphite has $80,000 in ordinary business income and $6,000 in tax-exempt income. Graphite made a $53,000 cash distribution to each shareholder on December 31, 2014. What total amount of income from Graphite is includible in Smith's 2014 adjusted gross income?

A.

$96,000

B.

$93,000

Incorrect C.

$43,000

D.

$40,000

FAR: 85(11/22/2014) - Becker(full)/Ninja MCQ (5 day cram)
AUD: 79 (2/1/2015) -Becker/Ninja MCQ/Ninja Notes
REG: 84(4/19/2015) -Becker/Ninja MCQ/Ninja Notes
BEC: 83 (7/13/2015) -Becker/Ninja MCQ/Ninja Notes

Date I Got My Life Back!: 8/4/2015 🙂

[Holly]

@Troblin Is it D?

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

[Gabe]

Thanks @only

Troblin- the income and tax exempt interest flow through to S/h but retain their character. So, only the $40k would be included in gross income while the $3k would be tax exempt. However, the entire $43k lowers his basis.

In short, gross income? $40k

Reduction in basis? $43k (include tax exempt interest!)

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

[Troblin]

@Gabe and HR

Thanks. I think I'm getting confused on all the different question variations. Basis adjustment/taxable income/gross income,

FAR: 85(11/22/2014) - Becker(full)/Ninja MCQ (5 day cram)
AUD: 79 (2/1/2015) -Becker/Ninja MCQ/Ninja Notes
REG: 84(4/19/2015) -Becker/Ninja MCQ/Ninja Notes
BEC: 83 (7/13/2015) -Becker/Ninja MCQ/Ninja Notes

Date I Got My Life Back!: 8/4/2015 🙂

[Troblin]

Here's another one. HDC question. I'm pretty clueless on it.

Hunt has in his possession a negotiable instrument that was originally payable to the order of Carr. It was transferred to Hunt by a mere delivery by Drake, who took it from Carr in good faith in satisfaction of an antecedent debt. The back of the instrument read as follows: “Pay to the order of Drake in satisfaction of my prior purchase of a new video calculator, signed Carr.” Which of the following is correct?

A.

Hunt has the right to assert Drake’s rights, including his standing as a holder in due course, and also has the right to obtain Drake’s signature.

B.

Drake’s taking the instrument for an antecedent debt prevents him from qualifying as a holder in due course.

C.

Carr’s endorsement was a special endorsement; thus, Drake’s signature was not required in order to negotiate it.

D.

Hunt is a holder in due course.

FAR: 85(11/22/2014) - Becker(full)/Ninja MCQ (5 day cram)
AUD: 79 (2/1/2015) -Becker/Ninja MCQ/Ninja Notes
REG: 84(4/19/2015) -Becker/Ninja MCQ/Ninja Notes
BEC: 83 (7/13/2015) -Becker/Ninja MCQ/Ninja Notes

Date I Got My Life Back!: 8/4/2015 🙂

[Gabe]

@troblin believe me, I understand. I sat down a couple days ago and just wrote everything out- c corp, s corp, pship- basis distribution formation etc

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

[Gabe]

Process of elimination

B is just wrong.

C is false because a signature is required

D is wrong because he is not an HDC because Drake did not negotiate the paper.

So..A?

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

[Troblin]

@ Gabe. Correct, it's A. I think I just have a huge reading comprehension problem on a lot of the BLAW questions.

FAR: 85(11/22/2014) - Becker(full)/Ninja MCQ (5 day cram)
AUD: 79 (2/1/2015) -Becker/Ninja MCQ/Ninja Notes
REG: 84(4/19/2015) -Becker/Ninja MCQ/Ninja Notes
BEC: 83 (7/13/2015) -Becker/Ninja MCQ/Ninja Notes

Date I Got My Life Back!: 8/4/2015 🙂

[Anonymous]

The blaw questions are tricky you are not alone. Gabe is probably going to score a 99 on reg and mess the curve up lol jk 🙂 it's great having you in this study group!

[Gabe]

You are definitely not alone. The Blaw questions are tricky but it helps to break them out:

Hunt has in his possession a negotiable instrument that was originally payable to the order of Carr. It was transferred to Hunt by a mere delivery by Drake, who took it from Carr in good faith in satisfaction of an antecedent debt. The back of the instrument read as follows: “Pay to the order of Drake in satisfaction of my prior purchase of a new video calculator, signed Carr.” Which of the following is correct?

For instance:

delivery by Drake, who took it from Carr in good faith in satisfaction of an antecedent debt<— good faith, for value (antecedent debt), without notice of any problems (defenses)..so, we know Drake is an HDC.

Since, it was originally payable to Carr and it is order paper “pay to order of Drake”, Drake has to sign it for Hunt to be an HDC, but, there is the Shelter Doctrine (r7-18) that allows people to claims rights of HDCs even though they aren't HDCs…confusing yes. Hope this helped a little 🙂

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

[Gabe]

@cpa haha thanks. I just want to get a 75 and be done!

I'll be on this weekend (last weekend before “the big show”) Hopefully will see some of you all!

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

[Gabe]

Lane, a single taxpayer, received $160,000 in salary, $15,000 in income from an S Corporation in which Lane does not materially participate, and a $35,000 passive loss from a real estate rental activity in which Lane materially participated. Lane's modified adjusted gross income was $165,000. What amount of the real estate rental activity loss was deductible?

A. $0

B. $15,000

C. $25,000

D. $35,000

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

[Troblin]

@ Gabe, thanks, your explanations are really thorough and are definitely helping my REG study progress

For the question above

w/out looking anything up.. is it B?.

I just know the mom and pop exception is $25k, and figured there is a phaseout at some level… guessing 150k?

FAR: 85(11/22/2014) - Becker(full)/Ninja MCQ (5 day cram)
AUD: 79 (2/1/2015) -Becker/Ninja MCQ/Ninja Notes
REG: 84(4/19/2015) -Becker/Ninja MCQ/Ninja Notes
BEC: 83 (7/13/2015) -Becker/Ninja MCQ/Ninja Notes

Date I Got My Life Back!: 8/4/2015 🙂

[Gabe]

Troblin- you are correct. Phaseout is $150k and a deduction of $25k. Since Lane exceeds the $150k, she (he?) is not eligible for the full $25k. So, he can only take passive losses ($35k) up to passive income ($15k). Thus, $15k is the correct answer.

Troblin- when do you sit?

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

[Author]

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