[jeff]

Welcome to the Q4 2016 CPA Exam Study Group for REG.

If this is your first post in the study group – please post your target exam date (just the time frame to preserve your anonymity), and your past history with this exam (optional, of course).

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

[HoosierCPA]

ABC Corporation distributes land with a fair market value (FMV) of $100,000 (adjusted basis of $75,000) to Anna when the corporation's E&P is $350,000. Anna is the sole shareholder. What basis does Anna take in the land and what amount of gain does ABC Corporation recognize, respectively, as a result of this nonliquidating property distribution?

A.$75,000; $0

B.$100,000; $0

C.$25,000; $25,000

D.$100,000; $25,000 — CORRECT

What rule am I missing? I thought non-liquidating distributions are distributed at the basis and liquidating distribution is distributed at the FMV? Does it have to be with her being the sole shareholder?

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Sticky Nicky]

dtatham,,,is it because she has control? im not sure so dont quote me on that

[Anonymous]

@dtatham If corporation distributes appreciated property then it is treated as if the asset has been sold. So in this case land would be taken at its FMV (100,000) by the shareholder and corporation would recognize gain (100,000 FMV – 75,000 Basis = 25,000 Gain)

[Anonymous]

@aatoural That's smart, I didn't do progress tests while going over chapter by chapter, which is why I forgot most of the tax stuff haha.

[Anonymous]

Is basis in partnership interest affected by bonuses paid to active partners?

[Anonymous]

Hi Everyone.

I am looking at taking my first exam (REG obviously) next Tuesday, 11/22.
I have been struggling on the simulations knowing when to use negative numbers and when not. I am studying with the Becker materials, and one of the practice simulations I just worked specifically stated in the instructions “Enter all amounts without a plus or minus sign.” Yet when I entered deductions as a positive number, it was incorrect.

Does anyone have advice on how to determine if they are looking for positive or negative numbers in the simulations?

Thanks!
Getting nervous with my first exam so close.

[Christina]

Trying to stay focused; I have one day before my test and am stumped on this question and was wondering if anyone might have some insight 😀

An individual is a 50% partner who materially participates in Stone Partnership. The individual’s adjusted basis at the beginning of the year was $0. Stone had a $70,000 loss from its business. Stone borrowed $30,000 from a bank of which $20,000 remained unpaid at year end. What amount of loss is the individual allowed in the current year from Stone?

$35,000
$15,000
$10,000
$0

My logic: I would think this answer would be $35k, as he has 50% ownership and there was a loss. Is the answer $10k because debt increases basis, and as there is $20k remaining split 50/50, there is $10k belong to the individual that you can apply loss to?

[Anonymous]

Hi Christina,

The reason the partner can deduct $10k loss is because at the end of the year liabilities increased/balance was $20k for the partnership. Given the partner has 50% interest, that would increase his basis in the partnership by $10k. Since he started the year with a basis of $0, his basis would then be $10k before allocation of the loss. Therefore, he is allowed to deduct a loss up to his basis in the partnership of $10k.

Hope that helped.
Good luck tomorrow!
Dory

[HoosierCPA]

@annie thanks! Can you tell me how this question is different. I missed it thinking I should go with the appreciated property as the distribtuion amount and report a gain 🙁

Able, an individual, is a partner in CD Partnership with an adjusted basis of $30,000 for Able's partnership interest. Able received a nonliquidating distribution of $25,000 cash and property with an adjusted basis of $7,000, and a fair market value of $10,000. What amount of gain should Able recognize?

A.$0 — CORRECT

B.$2,000

C.$5,000

D.$12,000

Ninja Explanation:

“Generally, a partner does not recognize a gain or loss when property is distributed in something other than the liquidation of a partner’s interest. In this case, the partner would receive the property with an adjusted basis equal to their remaining basis in the partnership. If they were to subsequently sell or dispose of the property, then they would realize a gain (loss) on it at that time.”

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Anonymous]

@dtatham10 oh yeah sure. In this question it is a partnership so for nonliquidating distribution we would not recognize any gain unless the cash we recieve is in excess of our basis. So lets say my basis was 30,000 and I recieved 31,000 cash in nonliquidating distribution, in that case I recived cash in excess of my basis. That 1,000 in excess of my basis will be treated as a gain.

However if I recieve just the property and it was in excess of my basis, in that case I would not recognize any gain. I would simply zero out my basis. For example, My basis 30,000; property recieved 31,000 basis and 35,000 FMV. Here there would be no gain recognized, My end basis will 0 and my basis in property distributed will 30,000. That extra 1,000 will be ignored because it is not recieved in form of cash.

Hope that made sense 🙂

[Anonymous]

The exemption amount for Corp AMT is 40,000 for 2016 as well right? I'm not sure

[HoosierCPA]

@annie OK awesome! So the key difference is PARTNERSHIP vs CORPORATION.

THANK YOU!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[aatoural]

@annie – yes is $40K for 2016

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[aatoural]

Jay received a court award for damages to his personal reputation by the National Gossip. He also received punitive damages. Which of the following statements is true?

a – All of damages are taxable
b – Compensatory damages are not taxable, but the punitive damages are taxable
c – Only compensatory damages are taxable
d – no damages are taxable

Just when you thought you had a BLaw question. WTH?. I still don't know the answer because is one of Becker's Final Exams. Any insights?

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[HoosierCPA]

@aatoural are both taxable in that question? I can't site rules but I feel like I've seen that question before lol.

A taxpayer reports a deduction for contributions to an Individual Retirement Account (IRA) for the current tax year. Which phrase best describes the status of this tax item for alternative minimum tax (AMT) computations?

A.Not a preference or an adjustment for the AMT — CORRECT

B.An AMT preference or adjustment which is a deferral item for the AMT

C.An AMT preference or adjustment which is an exclusion item for the AMT

D.An AMT preference or adjustment which is an exemption item for the AMT

What is meant by “preference or adjustment”. I got this correct only because I knew it wasn't an add back item so I figured since it was an allowable deduction that it was not part of AMT…however I don't fully understand what they are asking!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Author]

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