[jeff]

Welcome to the Q2 2016 CPA Exam Study Group for REG.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

[Anonymous]

@claudia – yeah…it's the P I L E (pre ACE adjustments) and S L I M (ACE adjustments) in 2.13

@todd – I keep seeing 2015 rules are taxed in the first half of 2016 and 2016 rules will start in the second half. So I've been studying under the assumption that if i'm sitting before july then I need to know 2015 rules. However, I'm going through Ninja MCQ and maybe it's just a little delayed in updating, but I feel like I'm seeing more 2014 rules. blargh.

[Anonymous]

@tnincy i was pondering pushing mine to july, too…the only thing that has stopped me is my roger material expires june 10th (which I could just use Ninja but I refer back to Roger a decent amount to clarify things) and i have the 2015 rules in my head and have no idea if or what changes for 2016. I guess the only thing i can think of that would matter would be 179/bonus amounts…for everything else they seem to give you the current number (standard deduction/personal exemption) – but i'm sure there is something i'm not thinking about it. do phase-outs change from year to year?

[Anonymous]

On July 8, Ace, a refrigerator wholesaler, purchased 50 refrigerators. This comprised Ace’s entire inven­tory and was financed under an agreement with Rome Bank that gave Rome a security interest in all refrigerators on Ace’s premises, all future-acquired refrigerators, and the proceeds of sales. On July 12, Rome filed a financing statement that adequately identified the collateral. On August 15, Ace sold one refrigerator to Cray for personal use and four refrigerators to Zone Co. for its business. Which of the following statements is correct?

A. The refrigerators sold to Zone will be subject to Rome’s security interest.
B. The refrigerator sold to Cray will not be subject to Rome’s security interest.
C. The security interest does not include the proceeds from the sale of the refrigerators to Zone.
D. The security interest may not cover after-acquired property even if the parties agree.

It's telling the Answer is B with the following explanation:

A buyer in the ordinary course of business from a merchant seller takes the property free of any security interest. Consequently, the refrigerators sold to both Zone and Cray will not be subject to the security interest.

Does that explanation even support the answer being B?

[Claudia408]

I thought any amount that exceeds $14k per person per gift is taxable? This problem explains that anything beyond that amount is not taxable up to 5,250,000 for a lifetime exclusion. But I've seen other gift problems where amounts between $14k and 5,250,000 are taxable depending on who they were paid to. Also, I thought there were no limits if they are paid directly to a university or hospital and these gifts are paid to the individual. What am I missing? (Explanation says this is for 2013?)

During 20X4, Mitchael, a single tax payer, gave the following gifts:

Giftee
Amount
Alexandra
$7,200
Kaila
$15,000
Marinka
$34,000

Alexandra used the money to pay medical expenses, whereas Kaila and Marinka used the money for personal purposes. Mitchael did not make any gifts in prior years.
In filing the 20X4 gift tax return, Mitchael will report a taxable gift of:

Answer: 0

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Anonymous]

Per Wiley CPA:

Smith, an individual calendar year taxpayer, purchased 100 shares of Core Co. common stock for $15,000 on November 15, 2014, and an additional 1000 shares for $13,000 on December 30, 2014. On January 3, 2015, Smith sold the shares purchased on November 15, 2014 for $13,000. What amount of loss from the sale of Core's stock is deductible on Smith's 2014 and 2015 income tax returns?

a. 2014 $0; 2015 $0

b. 2014 $0; 2015 $2,000

c. 2014 $1,000; 2015 $1,000

d. 2014 $2,000; 2015 $0

Correct answer is a. States that this is a wash sale. I'm not sure why this is a wash sale?

[Anonymous]

@Claudia408 Gift exclusion for 2014 and 2015 is $14,000 or $28,000 is spouse makes election for ‘gift splitting.' Amounts excluded include gifts paid directly to educational institution, charity and/or medical facility. Also, lifetime exclusion is 5,430,000 for 2015. Not sure zero would be the answer in your question

[Anonymous]

this shit – what?

The antifraud provisions of Rule 10b-5 of the Securities Exchange Act of 1934:

A. apply only if the securities involved were registered under either the Securities Act of 1933 or the Securities Exchange Act of 1934.

B. require that the plaintiff show negligence on the part of the defendant in misstating facts.

C. require that the wrongful act must be accomplished through the mail, any other use of interstate commerce, or through a national securities exchange.

D. apply only if the defendant acted with intent to defraud.

ANSWER: C
Explanation: Rule 10b-5 applies to any sale of securities, including unregistered securities. Scienter, not just negligence, is required under this provision. The rule applies to a wrongful act using the mails, interstate commerce, or one of the stock exchanges. It requires intent by the defendant, not mere negligence.

How is D not correct?

[Claudia408]

here's the explanation to the gift tax question. I chose 21,000.

A taxpayer may give gifts of up to $14,000 to a single individual in a given year without it being subject to gift tax. As a result, the entire $7,200 given to Alexandra, and $14,000 each of the amounts given to Kaila and Marinka will be excludable for a total of $35,200. The remaining $1,000 given to Kaila and $20,000 given to Marinka, would be subject to the lifetime exclusion, $5,250,000 in 2013. As a result, none of the gifts will be taxable to Mitchael.

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Just3Letters]

The adjusted basis of stock to stockholder's who contribute property is: Adjusted Basis + Recognized Gain – Boot Received.

I know that if the combined ownership of property (not services) contributed is over 80% there is not gain. However, if there is less than 80% ownership, a gain may occur which would affect the equation I listed above.

My question: What are the situations that create a recognized gain? The only situation I can think of is when the liability associated with the contributed property is greater than the basis of the property itself. Is that all?

Thanks!

FAR- 81
REG- 81
BEC- Aug 22, 2016
AUD- TBD

[Anonymous]

@claudia – I guess that seems right, but how are you supposed to know this question is (or isn't) applying the unified credit (i think that's what it's called – the $5,250,000)? I've seen some questions that specifically say “don't take the credit into consideration”, in which case your answer would be right. And how do we know he didn't give a lot more in earlier years already using up that entire credit amount? I feel like some of these questions leave a good amount to be assumed and whichever way you go it can completely change the answer.

[Anonymous]

@just3letters If you contribute property and the total of all property + cash contributed does not make up at least 80% of the ownership, then you have to use FMV. So the gain would be FMV – adjusted basis. Then the shareholder's basis and the corporation's basis would be the FMV of the property (they wouldn't want to use adjusted basis because this would mean the gain would be recognized twice if or whenever the property is sold again in the future).

I'm thinking of it as if I contribute property and the total property + cash contributed is at least 80% ownership then I still maintain significant control of the property so I can still use my basis (I realize this is flawed because what if I’m not the only one contributed property + cash, but I think to get me to the correct answer this thought process works) because if the property is sold in the future I will still get a majority of the gain/loss – I am not avoiding any gain/loss by giving the property to the corporation.

On the other hand, if I contribute property and the total property + cash contributed results in less than 80% ownership then I have essentially given up my control/rights to that property and I need to recognize a gain. Since neither the corporation, nor I, want to recognize a gain in the future that I have already recognized in my income, both parties will use FMV as the basis.

I think the formula you have there only comes into play if I’m contributing property and the resulting ownership is at least 80% (so I still have control) and I receive something back from the corporation besides just the stock. It’s similar to a like-kind exchange – I am giving up property for other similar property, but If I get anything in addition to that property it needs to be recognized.

I hope I didn't make this more confusing. If I did, then ignore all of this. 🙂

and if I'm missing something, someone PLEEEEASE help me.

[Anonymous]

I'm using the Ninja MCQ. Does anyone know how to customize the simulations? e.g. I want to work on partnership simulations only not some randomly selected one

[Claudia408]

allaboard – yes isn't that gift question confusing!? well hopefully there isn't that kinda Q on 6/6!

allaboar, Just3- i don't know if this helps with recognized and realized gain but it's still a little foggy for me:
For A below the excess is always recognized gain. For B below the recognized gain is limited to the realized gain. 

IV. 
Debt Assumptions 
Gain may be recognized in two circumstances if the corporation assumes the shareholders' debt. 
A. If the total liabilities assumed by the corporation exceed the total adjusted basis of property transferred by the shareholder, then gain must be recognized as follows: 
Gain recognized = Liabilities assumed − Basis of property transferred 
Example: 
Shareholder contributes property to a corporation with a fair market value of $100 and adjusted basis of $60. A liability of $70 is attached to the property and is assumed by the corporation. The shareholder recognizes a gain of $10 ($70 liability − $60 basis). The shareholder's basis in her stock is zero. 
B. If the debt was not incurred by the shareholder for valid business reasons, then the corporate assumption will cause ALL of the debt relief to be treated as boot. This will cause gain to be recognized, but only to the extent of the realized gain. 
Example: 
Shareholder contributes property to a corporation with a fair market value of $100 and adjusted basis of $60. A liability of $50 is attached to the property and is assumed by the corporation. The liability was not incurred for a valid business reason. Therefore, the $50 debt is treated as boot. The realized gain is $40 ($100 amount realized − $60 basis). The recognized gain is $40, the lower of the boot ($50) or realized gain ($40). The shareholder's basis in her stock is $50 ($60 basis in property − $50 debt relief + $40 gain recognized).

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Anonymous]

@BondVillain I looked and I'm not seeing a way to customize the simulations like that. You can select by #, but that would mean you know which one you're looking for.

[Anonymous]

@Claudia – yeah that all seems to make sense, but most of this stuff makes sense when I'm reading it. it's when I try to do it on my own that everything falls apart.

I'm guessing (hoping?) the exam assumes contributions of property make up 80% of ownership, unless it says differently. Sometimes I feel like Roger gives you more info then you need, which is great for really understanding the topic – but other times I feel like I'm probably stressing over things he is teaching that don't really matter for the exam.

[Author]

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