[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

[aatoural]

I know is important that is why I am a bit nervous about it. I know the elements but sometimes I get trick on whether to add or subtract. Knowing me I bet one of my SIMS is going to be that.

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

[HoosierCPA]

There's a good chance! (Just remember I've taken this exam 3 times 😉 haha)

Honestly, from your point of view it's probably better that you would get that on a sim compared to getting blindsided by some concept you barely looked into. My experience with REG sims is either getting blind sided or things are worded to funky that even having a good understanding of the concept doesn't help!

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

[aatoural]

I remember @Annie had mentioned that one of the SIMS in the second Becker exam was tricky. So I started using the AL for them and it did actually help. I hope they are helpful in the exam tomorrow (for AUD they weren't at all).

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

[Determined24]

Good luck tomorrow @aatoural and Congrats @dtatham10

I am having an isse with Corporation Formation

You see it says that under SEC 351 says the shareholder is not to recognize any gain on or loss on property transferred to a corporation in exchange for its stock.

But some questions I see the shareholder recognizing gain…

How so ?

[Determined24]

@dtatham10

Which material do you use ?

[aatoural]

Thank you @Determined24!

Do you have a sample question?

However, for C Corps if that is what you are referring to shareholder does not recognizes gain/loss if when transferring property has an 80% control and did not receive boot or COD

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

[Determined24]

ooooH I realized what happened based on your reply. The shareholder did not receive any cash in this one? Is that so?

Mr. A owned 75% of the voting stock and 85% of the nonvoting stock of Corporation Y. Mr. A transferred property with a fair market value of $90,000 and an adjusted basis of $70,000 to Y for an additional 5% of the voting stock and 5% of the nonvoting stock. What is the amount of gain to be recognized by Mr. A?

So in that quest $0 Gain is the answer.

However this following one:

During 2016, Anna transferred land with an adjusted basis to her of $20,000 and a fair market value of $56,000 to Elm Corporation in exchange for 100% of Elm Corporation’s only class of stock. The land was subject to a liability of $26,000, which Elm assumed for legitimate business purposes. The fair market value of Elm’s stock at the time of the transfer was $30,000. What is the amount of Anna’s recognized gain?

$6000 gain recognized even though 100% control.

There are some tricky exceptions I believe to this Recognized Gain thing.

What are your thoughts…

[aatoural]

For the first one yes, zero is the gain he transferred property to increase and his interest went to 80% and no boot was received.

Second yes, she transferred property for a 100% interest which is good (control over 80%) but then the basis on the land was only 20K and it was subject to a 26K mortgage. So basis is zero and the 6K excess liability is the gain she recognizes.

However, that question one can get tricky because of the division in voting and nonvoting stock. Really good practice questions I think.

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

[HoosierCPA]

Bond fraudulently induced Teal to make a note payable to Wilk, to whom Bond was indebted. Bond deli­vered the note to Wilk. Wilk negotiated the instrument to Monk, who purchased it with knowledge of the fraud and after it was overdue. If Wilk qualifies as a holder in due course, which of the following state­ments is correct?

A.Monk has the standing of a holder in due course through Wilk. — CORRECT

B.Teal can successfully assert the defense of fraud in the inducement against Monk.

C.Monk personally qualifies as a holder in due course.

D.Teal can successfully assert the defense of fraud in the inducement against Wilk.

Confused…I understand they say Wilk is an HDC and someone who accepts an instrument from an HDC can assume the HDCs rights…this still rings true even if they are accepting it with knowledge of the fraud? The whole “accepted the instrument in good faith” requirement for an HDC is thrown out the window?

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

[Determined24]

Thanks @aatoural

Yes that non-voting part really help the point stick that it must be 80% VOTING stock.

The second one is my first exception not that if the liability is greater than the AB of property exchanged then there is gain, even though there was no boot received.

Another is where the shareholder transfers services to the corporation in exchange for ownership…this would be ordinary income to the shareholder.

@dtatham I am a little behind I haven't reach sales transactions yet, hoping to get there by this time next week.

[aatoural]

@Determined24 – Not only that the services are ordinary income but they are also based on the FMV of the assets of the entity rather than basis. That is an important point and if you have Becker you are going to get a lot of those questions.

@dtatham – the shelter rule applies even if the transferee does not qualified as an HDC, which in this case Monk did not meet because he had knowledge of the fraud. According to Becker page R7-18 (top): “Even though the transferee himself might not qualify as an HDC, he can claim the rights of an HDC who held the commercial paper bfore him. Transferee's ofHDCs will not be subject to must defenses against payment of the instrument.”
I think the only trick here is if Monk had participated in the fraud, then he would not have been sheltered by the rule.

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

[Anonymous]

@dtatham10 My exam is tmrw afternoon. Just going to read over my notes and stuff today. Finish studying early and relax haha. When is your exam?

@aatoural For M1 I basically looked over the page in Becker book that have items that go on M1 schedule, skimmed through M1 forms just to get familiar what items are on it. Haven't really practiced a sim or anything on it because there wasn't one Becker 🙁

For child and dependent care I think of it as dependent child has to be young so (under 13 years). But child credit is till 17 years I think. Lol even I'm not sure, should look into it haha.

[aatoural]

since we were talking about this a couple days ago I thought this had a good explanation.

Freeman, a single individual, reported the following income in the current year:
Guaranteed payment from services rendered to a partnership $ 50,000
Ordinary income from an S corporation 20,000
What amount of Freeman's income is subject to self-employment tax?
a.$50,000 CORECT
b.$70,000
c.$20,000
d.$0

Explanation
Choice “a” is correct. Guaranteed payments are reasonable compensation paid to a partner for services rendered (or use of capital) without regard to his ratio of income. Earned compensation is subject to self-employment tax. Payments not guaranteed are merely another way to distribute partnership profits. The ordinary income reported from an S corporation is taxable income to the individual or their own individual tax return but is not subject to self-employment tax. The ordinary income reported from a partnership may be subject to self-employment tax (if to a general partner).

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

[aatoural]

@Annie – my torture ends a bit earlier tomorrow my exam is at 8:00 am

Im gonna look for that tricky question so you are set for the child stuff just in case.

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

[aatoural]

Frank and Mary Wood have 2 children, Becky, age 10, and Matt, age 14. The Woods incur expenses of $4,000 for after school-care for each child. Their only income is from wages. Frank's wages are $60,000, and Mary's wages are $2,500. What amount of Child and Dependent Care Credit may the Woods claim on their joint tax return?
a.$800
b.$500 CORRECT
c.$1,600
d.$1,200

First of all we need to determine the eligible expenses. Only expenses for Becky will qualify because Matt is not under 13 years of age. So of the $8,000 spent, only $4,000 will qualify. The maximum eligible for 1 dependent, though, is $3,000. Then it is further limited because it is limited to the lowest earned income of either spouse. That would be Mary's $2,500. Due to their combined income level, they are in the 20% credit range. The credit is 20% of $2,500, or $500.

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

[Author]

Replies