[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

[Anonymous]

@dtatham10 @aatoural I had the same issue with this question but I think the different treatment of guaranteed payment from partnership and ordinary income from S corp is because Guaranteed payment is not dependent on profit and losses of partnership and partner gets a set amount regardless of partnerships profit and losses, so like @aatoural said it'll just be treated as wages and subject to self employment. Whereas S Corp ordinary income would depend on how much Profit and losses were actually earned by the S Corp and won't be a set amount like guaranteed payments or salaries.

This is how I understood this question. Not sure if that is the correct explanation though lol.

[Dman1]

@Annie, for a S-corporation, you can deduct Compensation of Officers to arrive at Ordinary Income. You could be a majority shareholder and still be entitled to deduct your compensation, as long as it is “reasonable”.

For your reference: https://www.irs.gov/uac/wage-compensation-for-s-corporation-officers

“Generally, an officer of a corporation is an employee of the corporation. The fact that an officer is also a shareholder does not change the requirement that payments to the corporate officer be treated as wages.”

So Guaranteed payments for partners are guaranteed no matter what, but Compensation of Officers are payments for services to officers, who might also be shareholders.

[aatoural]

I know this seems a dumb question but I often find myself confused between the child tax credit and the child & dependent credit. Any tricks to not confuse them anymore?

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

[HoosierCPA]

Thanks guys on clearing that up!

I've had a pretty uneventful day as far as studying! My wife and I just welcomed our new baby girl to the world on Tuesday and yesterday was her first day home. She slept most of the day yesterday so I was able to get a lot of studying in. Today not so much, she's been extremely moody! I've been checking in from time to time on the comments though and you guys have been helpful so thanks!

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

[aatoural]

Congrats on the new baby girl to you and your wife!!!!.. Now you can read some tax to her as bed time story (just kiding) 🙂

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

[HoosierCPA]

@aatoural thanks! That may not be a bad idea!!

Right now it's basically all B-law at this point. I'm trying to make it through the first round of questions and I have around 300 b-law questions remaining and 100 tax entity and individual questions. I cannot stand B-law!!! It's torture trying to get through these questions!

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

[HoosierCPA]

Tax-exempt organizations are not taxed on investment income derived from investments that are accepted as proper sources of income for a charity or trust. Which of the following types of income would be taxable income for a nonprofit?

A.Dividends and interest

B.Rent from a debt-financed building — CORRECT

C.Royalties and capital gains

D.Other rents not using debt financing

Ninja Explanation:

“Income from a debt-financed property is included in the same category as the regular operation of a business that is unrelated to the organization's exempt purpose. Income from both of these activities is taxed as unrelated business income (UBI).

Nontaxable income includes dividends and interest, royalties and capital gains, and other rental income (not financed by debt).”

So nonprofits would be taxed on unrelated business income. My question is how can I tell based on these choices whats unrelated to its operations?

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

[aatoural]

I usually know when the UBI is not taxable but man these options that Ninja just gave are just nothing I had seen from Becker.

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

[HoosierCPA]

@aatoural yeah one thing I have noticed about Ninja is they ask the most bizarre questions. Having taken the exam 3 times already I take them with a grain of salt–I somewhat know what to expect on the exam. The billions of trust questions they ask are head scratching.

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

[Anonymous]

@dtatham10 Congrats on the baby girl 🙂

@Dman1 thanks for clearing that up.

[Anonymous]

One day left and still battling with B-law lol. Scoring lowering in blaw progress tests compared to ethics and tax. I second what @dtatham said, B-LAW is beyong annoying… arghhh

[pracap]

Hey guys, have you discussed on shareholder's gain and his basis of c corp? If i apply beckers formula to the below mentioned Gleim sim, i will get different answer!

Below mentioned simulation is only one part, i wonder someone can explain to understand, gain recognized and shareholder basis.

Corporate Formation
1. Violet incorporated her sole proprietorship in 2016. She transferred equipment with a $125,000 basis and $160,000 FMV, and the corporation assumed an $80,000 loan held against the equipment. The loan was taken out 1 day before the transfer, 3 years after the equipment was purchased, because Violet knew it would provide a tax benefit.
Answer:
Gain or Loss to shareholder = $115,000
Shareholder basis = $160,00

However, if i apply Becker formula, this is what i get =
1.Gain realized = (FMV – Adj basis) = $35,000
2. Gain Recognized = (gain realized or boot recd whichever is less) $ 35000 or 0, so gain recognized is 0.
Note: Loan taken over by corp is considered as boot only if loan exceeds Adjusted basis)
3. Shareholder's Basis:
cash contributed 0
+ Adjusted basis $125,000
– loan taken over $ 80,000
+ Gain recognized 0
—————————–
Basis $ 45,000
—————————–

Definitely am missing some thing here, please help.

[HoosierCPA]

@annie is your exam today? Good luck if so!!!

@pracap I posted something similar to this a day or so ago (my days are all mixing together!).

Here is the answer @annie provided me

“@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)”

“@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 🙂”

Our convo is on page 54 of this thread if you want the whole context. I believe it answers your question.

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

[aatoural]

@Annie and @dthatman – I third that opinion on Law. I keep missing silly questions because of those rules within the rules within the rule.And it is way too much information. Hopefully exam is tricky as always but straight forward in terms of the content been tested.

I am freaking out about tomorrow!!

BY THE WAY – I still have my silly question from yesterday. What is the difference between the child tax credit and the dependent credit (besides that child credit is refundable and the other is not). I had only one question in all Becker material which was pretty tricky.

What are you guys doing to learn that schedule M-1? I have been writing it down many times to remember but I am still scared of it.

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

[HoosierCPA]

@aatoural I somewhat side stepped your credit question because I don't know the answer! Sorry! I will try and dig into it here in a bit.

The schedule M-1 is important! I am still working through my MCQ's but once I'm in my review stage I plan on making that a priority.

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

[Author]

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