[jeff]

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[Anonymous]

Can someone explain to me why should a C Corp use the shareholder's basis of the property transferred during the corp. formation? Page R3-3 clearly states the general rule of the basis of the property received is the GREATER of AB/NBV or debt assumed by corporation.

Per Becker: CPA-02034

Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:

>>>Property>>>>AB>>>>FMV>>>% of Ace Stock Acquired

Lind Building $40,000 $82,000 60%

Post Land $5,000 $48,000 40%

The building was subject to a $10,000 mortgage that was assumed by Ace. What was Ace's basis in the building?

a. $40,000

b. $82,000

c. $72,000

d. $30,000

Explanation

Choice “a” is correct. Ace's basis in the building is the same as Lind's basis immediately prior to its contribution to the corporation.

Choice “d” is incorrect. Ace's basis in the building is computed separately from any debt that it assumes related to the building.

Choice “c” is incorrect. Ace uses Lind's basis, not the building's fair market value, as its basis. Furthermore, the debt assumed by Ace does not affect the basis of the building to Ace.

Choice “b” is incorrect. Ace uses Lind's basis, not the building's fair market value, as its basis

[reg_mackworthy]

What happens when a corp has a NOL and a tax credit(refundable/non-refundable) in the same year?

Year 1 – 20k income

Year 2 – 20k income

Year 3 – 60k NOL and a 3k tax credit

Year 4 – 5k income

Year 5 – 5k income

Please enlighten me

[Anonymous]

@Amor D Since the two shareholders contributed property in exchange of stock in Ace corporation and since the total percentage of ownership is more than 80% after the transfer, they cannot Recognize any gain if the property given is appreciated (FMV is greater than Net book value). Usually the property basis for the corporation is basis of the property + gain recognized by the shareholder. Since no gain was recognized by the shareholder, the value of the property is 40,000. Although the property has a liability assumed by the corporation ($10,000), it is not considered in the calculation of the corporation basis of the property. It is only considered in the calculation of the shareholder's basis (decreases basis).

[Anonymous]

@BestCPA, thanks for your explanation. I think I was looking at the shareholder's basis, NOT at the corporation's basis. The total ownership percentage being referred to is the combined ownership of the 2 shareholders (60% + 40% = 100%), which is considered more than 80% after the transfer.

I am still confused, but hopefully later or someday, I will get all these little details straight.

[NYCaccountant]

Good luck @Amor!!! Pulling for ya!

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[leglock]

@amor d

One thing I'd be careful with if you are using becker, they state the general rule for corp's basis is to use greater of ab+gain recognized or debt assumed.

But if using Becker, you are going to encounter a simulation that actually modifies this rule slightly, whereby to determine if there is a gain to be recognized, you compare the ab of ALL property given to the debt assumed.

For example if shareholder capitalizes the corp via giving the corp a machine with ab of 40 and liability assumed is 50, then you have a situation where ab is 40 and gain recognized is 10, so corp's basis is 50; however if it's a situation whereby shareholder capitalizes by giving a machine with ab of 40 and cash of 20 and the corp assumes a liability of 50, the corps basis in that machine will be 40 not 50. The reason is because the shareholder gave items with a total basis of 60 (40 machine plus 20 cash) and the liability assumed was only 50, so no gain recognized because the the ab of ALL items given exceeds the liability assumed. So then the corps basis in machine is ab of machine (40) plus gain recognized (0) which is 40

So, Becker's presentation of the material of taking the greater of ab plus gain recognized or liability assumed seems a little misleading to me without further explanation

[leglock]

@cpastudent:

With respect to MACRS, if you had held the property the full 5 year life, then you could just apply the MACRS percentages from the table for the the fifth year. However, you did not hold it 5 years, you sold it in year three. The MACRS table gives you the percentage each year based on you owning the computer for the entire year. However, you sold it during year 3 so you don't get to take a full year's depreciation in year 3 so you have to modify the table amount. Because you are using the half-year convention, irrespective of what month you sold it, it is assumed you owned it for half the year. So mutiply the MACRS table amount by half.

I asked Becker if this rule would also apply to mid quarter and was told yes. It doesn't seem as intutitive to me with mid quarter but the Becker person stated if you sold it before the full 5 year period, you would still mulitply the MACRS mid quarter amount by 50%. If you are using Becker, I believe there are some questions or a sim on this that may clear it up.

[Mamabear]

@Nick–I'm almost done with my break. We just got back from our cruise and once I get my schedule aligned with my parents (for babysitting) I will be ready to get back to REG. YUCK! Probably this week. Thanks for checking in. Good luck on FAR!!

CPA Exam - Finally DONE (November 2014)
BEC (08/10/13) 80
AUD (08/24/13) 65 (11/13/13) 85
FAR (04/12/14) 81
REG (07/19/14) 69 (11/29/14) 87!!

[NJPRU]

Good luck Mamabear! Was wondering where you went!! 🙂 hope all is well!!

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[Mamabear]

Thanks NJPRU! Good luck on BEC! You've got this. When are you sitting for REG?

CPA Exam - Finally DONE (November 2014)
BEC (08/10/13) 80
AUD (08/24/13) 65 (11/13/13) 85
FAR (04/12/14) 81
REG (07/19/14) 69 (11/29/14) 87!!

[yassy]

Question…

Under the provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, which of the following activities must be proven by a stock purchaser in a suit against a CPA?

I Intentional conduct by the CPA designed to deceive investors

II. Negligence by the CPA

The correct answer is I only.

Explanation:

Under the Securities Exchange Act of 1934, the CPA can be held liable to investors in certain circumstances. The United States Supreme Court, in Hochfelder (1976), ruled that such liability will attach only if scienter can be proven. Scienter is a deliberate act intended to deceive, manipulate, or defraud. Thus, simple negligence is not sufficient to impose liability on the CPA under this interpretation of the statute.

---

I would have answered that neither of these are requirements, thinking that “gross negligence” could be proof, which wouldn't involve intentional conduct, just reckless disregard for the truth. So I just want to confirm that it must be proven to be a “deliberate” act with intent?

FAR 75 (8/21/13)
AUD 72 (10/29/13) 74 (2/12/14) 84! (04/01/14)
BEC 75 (11/27/13)
REG 72 (05/29/14) 74 (07/10/14) 86 and DONE! (10/02/14)

[leglock]

Becker also states it must be a deliberate act with intent.

[yassy]

thanks @leglock

FAR 75 (8/21/13)
AUD 72 (10/29/13) 74 (2/12/14) 84! (04/01/14)
BEC 75 (11/27/13)
REG 72 (05/29/14) 74 (07/10/14) 86 and DONE! (10/02/14)

[pghpens]

I don't understand why there's a gain on this transaction. Isn't this the in-between basis on gifted property?

Sold 200 shares of Y Corp. stock at $22 per share. Green received the 200 shares as a gift from his brother, three years ago, at the time that the shares had a fair market value of $26 per share. Green's brother purchased the stock for $16 per share.

Green's basis in the stock is the same as his brother's purchase price and basis of $16. Green's gain is $6 per share ($22 − $16), or $1,200 total ($6 × $200 shares).

[leglock]

On gifted property, you keep the basis of the person who gifted you the property. However, if the fmv of property on date of gift is less than the donor's basis then the special rules apply. In this problem, the donor's basis is 16 and the fmv on the date of the gift was 26, so the special rule does not kick in and the recipient's basis will be the same as the donor's basis, 16.

Had fmv on date of gift been less than 16, the special rules would have kicked in.

[Author]

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