[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

[Just3Letters]

How is this still a valid contract? I thought when the purchaser sends back a counter-offer like happens in this case, the original offer was revoked. I get that the seller promised to keep the offer open, but the counter-offer should have killed the offer anyways right?

The correct answer is actually A which states the offer was accepted on July 1 which I REALLY don't understand.

On July 1, Silk, Inc., sent Blue a telegram offering to sell Blue a building for $80,000. In the telegram, Silk stated that it would give Blue 30 days to accept the offer. On July 15, Blue sent Silk a telegram that included the following statement: “The price for your building seems too high. Would you consider taking $75,000?” This telegram was received by Silk on July 16. On July 19, Tint made an offer to Silk to purchase the building for $82,000. Upon learning of Tint’s offer, Blue, on July 27, sent Silk a signed letter agreeing to purchase the building for $80,000. This letter was received by Silk on July 29. However, Silk now refuses to sell Blue the building. If Blue commences an action against Silk for breach of contract, Blue will:

A.
win, because Blue effectively accepted Silk’s offer of July 1.

B.
win, because Silk was obligated to keep the offer open for the 30-day period.

Incorrect C.
lose, because Blue sent the July 15 telegram.

D.
lose, because Blue used an unauthorized means of communication.

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

[Just3Letters]

Also, in this problem, how do you know if they are talking about NOL or capital losses? Correct answer B.

What is the tax treatment of net losses in excess of the at-risk amount for an activity?

A.
Any loss in excess of the at-risk amount is suspended and is deductible in the year in which the activity is disposed of in full.

B.
Any losses in excess of the at-risk amount are suspended and carried forward without expiration and are deductible against income in future years from that activity.

C.
Any losses in excess of the at-risk amount are deducted currently against income from other activities; the remaining loss, if any, is carried forward without expiration.

Incorrect D.
Any losses in excess of the at-risk amount are carried back 2 years against activities with income and then carried forward for 20 years.

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

[Anonymous]

Just3Letters, re: your first question. it is not a counteroffer because they are merely asking a question: “Would you consider taking $75,000?” i think the language in a counteroffer has to be more definite

[Spartans92]

Dr cash, thanks for that visual was much helpful!

BEC- PASS

[Anonymous]

hey np spartans!

Just3, for your second question i think the key is the “at-risk” amount. i remember a becker lecture talking about a partner's losses are limited to his ‘at-risk' amount so i googled it and came up with this:

At-Risk Limits

The at-risk rules limit your losses from most activities to your amount at risk in the activity. You treat any loss that is disallowed because of the at-risk limits as a deduction from the same activity in the next tax year. If your losses from an at-risk activity are allowed, they are subject to recapture in later years if your amount at risk is reduced below zero.
https://www.irs.gov/publications/p925/ar02.html#en_US_2015_publink1000104672

apparently there is a form 6198 dedicated to at-risk limitations

[Spartans92]

Porter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in corporate stock. The property transferred was valued as follows:

Porter's transfer Corley's transfer
Basis
$50,000 250,000

Fair market value
200,000 500,000
What amount represents the corporation's basis in the property received?

a.
$300,000
b.
$550,000
c.
$450,000
d.
$700,000

Is the reason why the company didnt use the carryover basis for Corley's transfer is because it did not meet the 80% control? In other words, would 300k be the answer had both party met the control test, thus, Section 351 applied for the deferral of recognition, therefore, the company takes the basis of the transferor. Hope that makes sense.

So if Section351 doesn't apply then the FMV would be used as the basis?

BEC- PASS

[Bear-Bear]

Good evening, all. Time for my nightly Ninja session. Three more nights of studying til the exam!!

^^^I didn't get that one either. So because the original dude had 100% of the shares, his contribution is at basis? But the new dude with 10% is at FMV? I thought if you factored in the new guy and the original guy, they count as control, and therefore the new guy's contribution would be at basis. guess not.

[tuanxn]

The transaction has to involve 80% control in a single transaction for §351 to apply. Since Corley's transaction occurred two years after the first, it's hard to argue that Porter's previous transaction was part of the same transaction.

Since the second transaction only dealt with 10% ownership, then §351 doesn't apply and we value the property at FMV

[Bear-Bear]

Ooooh, that makes sense. Nice, thanks!

[Spartans92]

Thanks Tuanxn, so if Section351 DOES apply then it would be carryover basis..right??

On another note, are all the SIMS even necessary on becker? I always hear others say the actual exam SIMS are brutal etc. The MCQ alone are already very time consuming for me.

BEC- PASS

[Bear-Bear]

My average score refuses to move from 73. I think I'd feel better if it were 75, but it looks like it's not going to happen no matter how high I keep scoring.

[tuanxn]

hey Spartans92, yup that's correct. If §351 applies then you use carryover basis. The tricky thing that trips people up with §351 is that services don't count towards the percentage of ownership. So if Porter contributed services in conjunction with Corley during the same transaction, §351 still wouldn't apply because services isn't considered property—a requirement for 351 to apply.

It's true that the real sims are way more brutal. A lot of the MCQ's test the same concepts and calculations that are found on the sims, so you should be okay just focusing on the MCQs. Just think of the SIMS as a combination of 3-4 multiple choice calculations revolving around a single concept.

[Spartans92]

Thanks tuanxn, I think Im just gonna work a few SIMS per chapter and not totally ignore it which I did for FAR (prob the reason I failed). I tend to do weaker on the SIMS than the MCQ. I rather study for AUD or BEC..something less math intensive 🙁

BEC- PASS

[Bear-Bear]

I dunno guys…I still maintain that it's impossible to study for SIMS.

[Bear-Bear]

I'm ready for the exam Saturday. Bring it on!!!

[Author]

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