[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]

Key phrase: Mellon indorsed the note in blank and negotiated it to Bloom for value.

Basically, Dodsen got the note, DID NOT indorse it, then gave it to Mellon who did indorse it and gave it to Bloom for value. Thus, Bloom is on the hook for the liability.

Also, here is a thread where they discuss this: https://www.another71.com/cpa-exam-forum/topic/negotiable-instruments-reg

AUD: 84
BEC: 76
FAR: 81
REG: 4/3/15

OK Candidate

[Troblin]

I think I have it straight.

1) So Robb is a minor, he's obviously not liable to a HDC(Bloom).

2) Dodson is not liable because he did not endorse the instrument.

3) That leaves Melton who indorsed the instrument prior to Bloom's receipt.

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 🙂

[hunter32]

You know what really grinds my gears? When you get a built in gains tax question for an S-corp and they don't really tell you what they were before….

BEC - 80 (Becker)
AUD - 92 (Becker+NINJA MCQ)
FAR - 87 (Becker+NINJA MCQ)
REG - 90 (Becker+NINJA MCQ and Audio)

[workhard]

Hi, please kindly help me below question (this question came from Becker R4)

On February 1, Year 4, Hall learned that he was bequeathed 500 shares of common stock under his father's will. Hall's father had paid $2,500 for the stock in Year 1. Fair market value of the stock on February 1, Year 4, the date of his father's death, was $4,000 and had increased to $5,500 six months later. The executor of the estate elected the alternate valuation date for estate tax purposes. Hall sold the stock for $4,500 on June 1, Year 4, the date that the executor distributed the stock to him. How much income should Hall include in his Year 4 individual income tax return for the inheritance of the 500 shares of stock, which he received from his father's estate? [Assume that the estate tax rules in effect for 2011 and forward apply].

The answer is 0 (below is explanation)

There is no income tax on the value of inherited property. The gain on the sale is the difference between the sales price of $4,500 and Hall's basis. Hall's basis is the alternate valuation elected by the executor. This is the value six months after date of death or date distributed if before six months. The property was distributed four months after death and the value that day ($4,500) is used for the basis. $4,500 – $4,500 = 0.

I don't know how did $4500 basis come from?

I know this is a silly question, please kindly help

many many thanks

REG - 69 8/31/2015
FAR - 11/23/2015
FAR - TBD
AUD - TBD

Work hard, enjoy life later

[Anonymous]

@workhard I'm pretty sure the alternate valuation date is the shorter of either 6 months after the date of death or the distribution date. Because the distribution date is the shorter period (4 months vs 6 months), Hall's basis is the FMV on June 1, Year 4, the distribution date. Because $4,500 was the price the stock sold for, I guess we're to assume that that's the FMV. Sale price – basis = gain, 4,500 – 4,500 = 0, therefore no gain.

[Gabe]

@hunter example? If I don't see “was previously a C corp, or E&P” then I just assume they were not a C corp prior

@workhard since he sold it before the 6 month date, his basis in the stock is the same amount he sold it for. It is similar to being gifted property and you sell it “in between” the basis and the FMV, you have no gain or loss.

AUD: 84
BEC: 76
FAR: 81
REG: 4/3/15

OK Candidate

[Anonymous]

@Gabe how did you know to use in between basis and FMV rule vs the lesser of distribution date and 6 months after date of death rule?

[Holly]

@CPA —- The executor of the estate elected the alternate valuation date for estate tax purposes.

Because the avd was elected AND it was distributed before the 6 months were up.

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

[Gabe]

“in between” rule is used for GIFTED prop, not inherited.

Inherited, you use FMV or AVD (if chosen). However, if sold before the AVD date, no gain or loss.

Here is the explanation from another thread: https://www.another71.com/cpa-exam-forum/topic/reg-study-group-q4-2014/page/4

fmv on date of death, feb 1 was 4000 but they elected the alternative valuation date which enables you to use the fmv of the stock on the date not to exceed 6 months after date of death (6 months after date of death is aug 1). however the problem states the beneficiary sold the stock bequeathed to him on june 1. Therefore, the benef would use fmv on june 1 as the alternative valuation date not aug 1, because he disposed of the stock. the fmv on june 1 is 4500 which becomes his basis and he sold it for 4500 on that date , so gain of 0.

Had he held the stock and not sold it, he could have elected to use the alternative valuation date of aug1 and then his basis would have been 5500 when he sold it at some future later date.

AUD: 84
BEC: 76
FAR: 81
REG: 4/3/15

OK Candidate

[Gabe]

Hard Luck owns 100% of the stock in Swamp Land, Inc., a calendar-year S corporation. On December 31, 2013, the corporation sells its only asset, land, for $50,000 and distributes $40,000 of the cash. In 2014, the corporation liquidates. Hard Luck's stock basis is $50,000 before these transactions, and Swamp Land has a basis of $10,000 in the land. What is the amount and type of gain or loss that Hard Luck must recognize for 2013 and 2014?

A.

2013: $10,000 capital gain; 2014: $(40,000) capital loss

B.

2013: $0; 2014: $40,000 capital gain

C.

2013: $40,000 capital gain; 2014: $(40,000) capital loss

D.

2013: $(40,000) capital loss; 2014: $0

Why are we using the 2014 basis in 2013 to calculate the capital gain? (answer is C)

AUD: 84
BEC: 76
FAR: 81
REG: 4/3/15

OK Candidate

[joshperry607]

Question.. do you all think I could successfully use my Wiley 2014 textbook to adequately study for the 2015 test I am taking at the end of May? Or.. do you think I should just suck it up and purchase the updated book. It's tax so I know many amounts may have changed.

I purchased all of the books at once last year and couldn't get to all of the tests

BEC: 81
AUD: 83
REG: ?? - 4/24/15
FAR: ??

[Anonymous]

@ Gabe and HR Thanks guys, I'll definitely have to work on estate/gift some more

[workhard]

@CPAMule

Thank you for your help. Now I understand it clearly with your help and I also read the book again.

REG - 69 8/31/2015
FAR - 11/23/2015
FAR - TBD
AUD - TBD

Work hard, enjoy life later

[Holly]

@Gabe the question states that the basis before the 12/31/13 transactions the basis was…. I guess we're to assume there was no activity to change the basis.

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

[Holly]

@Josh I think you'll be fine because we're testing on 2014 amounts. I think I read where they won't test the 2015 info until the 3q. Anyone else remember that?

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

[Author]

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