[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

[Spartans92]

An individual taxpayer earned $10,000 in investment income, $8,000 in noninterest investment expenses, and $5,000 in investment interest expense. How much is the taxpayer allowed to deduct on the current-year's tax return for investment interest expenses?

a.
$0
b.
$5,000
c.
$3,000
d.
$2,000

I thought the investment interest expenses is deducted to the extent of investment income. Can someone explain why the 5k is not used? Im confused with backer's explanation. Thanks.

BEC- PASS

[Claudia408]

Spartans – check this out from a different post:
The question asks how much you can deduct for the INTEREST expense. You already know that $10k income – $8 NONinterest expense left you with $2 income. If you subtract the $5k, you'd be left with negative $3k. But we can't have a negative so only $2k can be used.

Think of this problem as those annoying algebra word problems in grade school. “A+B=C, solve for B”.

The question wasn't asking for the total loss, it wants just the interest expense amount that we will be allowed to report.

One important thing to look out with is realized vs recognized. In this case, the recognized (reported) interest expense would be $2000 but we realize interest expense $5000 in reality.

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

[Claudia408]

How does a S-Corp losses reduce a shareholder's basis?

The sole shareholder of an S corporation had a basis for her stock of $30,000 and a basis for a loan to the S corporation of $15,000. In Year 6, the S corporation operated at a loss of $39,000. What is the shareholder's basis in the stock and loan on December 31, Year 6?

Answer: Stock: $0; Loan: $6,000

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

[Just3Letters]

Claudia,

I had the same question on the last set of MCQ I just bombed. Here's the explanation:

The loss reduces the shareholder's stock basis first. The remaining loss ($39,000 − $30,000) of $9,000 is deducted from the loan basis.

Stock Loan Total
Beg. Basis $30,000 $15,000 $45,000
Less: Loss ( 30,000) ( 9,000) ( 39,000)
Ending Basis: $ 0 $ 6,000 $ 6,000

There is a consistent theme with Reg that scares me. No matter how much I study, questions keep popping up that I have never heard of/seen before. I just don't get it. So much of this Becker never provided to study and it's SO left field. I would rather take FAR again any day. Far was difficult but you knew what to expect for the most part.

Anyways, lame.

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

[Bear-Bear]

Hi guys…had a question. Regarding Distributable Net Income, what is the nature of distributions made? Is it dividend income or ordinary income (to the extent of DNI)?

[Claudia408]

Just3 – does that make ANY sense!? LOL. i mean, how does a LOSS reduce basis? It's a loss! I would think it increases basis. SMH big time!

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

[Just3Letters]

None of this makes any sense. REG is that annoying kid in the friend group people just keep around because of guilt.

Smith filed his individual income tax return on April 15, 20X1. What is the time limit for the IRS to collect after a tax is assessed?

A.
3 years

B.
6 years

C.
10 years

D.
No time limit

Why is the correct answer C?? Statute of limitations says it should be A: 3 Years. *9/10 annoyed right now*

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

[Claudia408]

just3 – i think for this one it's the standard 3 year limit bc the problem gives no indication about the amount of tax to be collected or if there was fraud.

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

[Just3Letters]

That's what I thought too Claudia. The answer is C though.

The Statute of Limiations doesn't even have a 10 year option. I have this memorized.

3 Years normal

6 Years for leaving out over 25% of income

7 Years for the Bad debts stuff

Unlimited for Fraud

Why 10??

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

[Claudia408]

LOL this is why i hate reg too, so much random tax shi*t that a real tax person would just look up, but they throw these stupid useless questions in so you better do better on the SIMs, which now has DRS's so you can waste time tabbing back and forth, then you you FAIL and pay another $200 each quarter til you pass.

https://www.bankrate.com/finance/taxes/owe-irs-taxes-from-years-ago.aspx

i hate this exam so much and i'm sure it hates me just as much if not more. WAAAHHHH! 🙂

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

[Just3Letters]

Wow. That pisses me off so much. I was starting to think Jeff's answer was wrong :/

Nope, just more useless information to try and soak up… I HATE this section lol

Somebody provide me positivity

Thanks Claudia!

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

[Just3Letters]

Sorry about all the questions! I thought inheritance was not taxable?

Which of the following is correct concerning payments received on an inherited installment obligation?

A.
It is taxable to the beneficiary at the same gross profit percentage used by the decedent.

Incorrect B.
It is taxable only to the estate.

C.
It is taxable to the beneficiary and the estate upon receipt of the inherited obligation.

D.
It is taxable to the estate in total upon receipt of the last installment payment.

The correct answer is A. Anybody know why?

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

[jad11]

@Just3letters,

Going back to this morning, I am going to stick to the info that tells us the stock basis for a c corporation is the larger of 1.shareholder basis + gain they recognize by shareholder or 2. liability assumed by corporation.

As for your question on statute of limitations. The answer is 10 years because the IRS has 10 years to collect tax that is already assessed. The 3 year statute is the time they have to assess extra tax or for shareholder to modify tax return for items that have not yet been assessed.

[csvirk]

10 Years!! I will never be ready for this exam. Every day there is something new which I (and most of us) never came cross before. IMO REG is more hard than AUD and FAR!

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[Just3Letters]

Jad11, thank you so much for getting back about that question! That was killing me all day. I googled the question and found that lots of people asked it with no concrete answer.

I'm going to agree with you and stick with greater of contribution or liability assumed!

@Csvirk, lol yes it's just insane. I keep finding new stuff that I've never heard of. I agree that REG is tougher than FAR.

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

[Author]

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