[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

[MAHMOUD]

@db71, so the only use for the basis is just to calculate the taxable amount as a result of the formation,
and there is nothing related to the share “% of shares in the corporation”, and basically whenever the corporation distribute earnings none of this will be take in consideration

thanks

[MAHMOUD]

@db71 something else, so the shareholder will report their share as a financial accounting
Dr stock
Cr PPE
as I said before the word basis used just a tax phrase to know the taxable amount?
let me know if I got it right
thank you

[HoosierCPA]

Thanks @re2pect. I wouldn't fret over the Gleim MCQ's. When I was doing some searches through the forum about whether to purchase Gleim it seemed to be the consensus that the MCQs are long winded and extremely difficult–they said Ninja MCQs are more realistic on what you will see on exam day…but I'm sure you know that by now since you've already sat.

I'm really hoping you are overreacting on how poorly you did and end up passing! haha. I appreciate the support!

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

[HoosierCPA]

Formation of a corp:

Question:

Bethany formed Bethco, a C corporation, by transferring equipment with a basis of $275,000 and subject to $125,000 of liabilities for 100% of Bethco's stock.

Answer:

Gain/Loss = $0
Basis = $275K

Explanation:

IRC Sec. 351 requires that no gain or loss be recognized if property is transferred to a corporation by an individual solely in exchange for stock, and such person is in control of the corporation immediately after the exchange. Liabilities transferred are not treated as boot if they do not exceed aggregate basis in assets transferred. The corporation’s basis in the property is equal to the adjusted basis in the hands of the shareholder, plus any gain recognized ($275,000 AB + $0 gain recognized).

Control group–no problem, I understand that one. However, I either am spacing it this morning or have never heard this “Liabilities transferred are not treated as boot if they do not exceed aggregate basis in assets transferred.”. Thought I would relay the message for others who didn't know that.

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

[HoosierCPA]

Pt 2:

@Demarcon if you want to help follow along I am working on Gleim study unit 9 Sim 1 ‘Formation'.

Question:

“Orel transferred a building worth $540,000 and a basis to him of $400,000 to Dodge Corp. In exchange, he received 80% of the company's stock and $100,000 cash.”

Answer:

Gain/Loss = $100K
Basis= $500K

Explanation:

“$100,000 and $500,000. When property other than stock in the corporation (boot) is received, the shareholder must recognize realized gain ($140,000 realized) to the extent of the boot received ($100,000) in the exchange. The corporation’s basis in the property is equal to the adjusted basis in the hands of the shareholder, plus any gain recognized ($400,000 AB + $100,000 gain recognized).”

The Gain/Loss no problem. Now I can't seem to figure out why boot received isn't subtracted from the basis? I went with $400K (400k AB + 100K Recognized Gain – 100K Boot Received).

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

[demarcon]

Is it asking what the Corporation's basis in the stock is? Or is it asking what Bethany's basis is?

It's asking for the corporation's basis. You are getting them mixed up.

In questions 6-10, calculate gain or loss that will be recognized by the shareholders as a whole and the corporation's basis in the property after the transfer using the information below.

[HoosierCPA]

@demarcon this is why I just went to you instead of staring blankly into the screen for an hour! haha. READ the queestion!!!! Usually about 60-70% of my misses can be attributed to not reading something properly.

Makes sense now–no further explanation needed!

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

[HoosierCPA]

@demarcon sorry I'm having a mini panic attack! Can you explain the Gain/Loss on part 8 of that same sim (Sue and Cheryl)?

Because one of the shareholders provides services they recognize the entire gain on the property distributed?

I was rolling along till I hit this sim lol–talk about a reality check!

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

[demarcon]

@dtatham10

The full amount to both parties is taxable. It does not qualify as a 351 transfer. Since they are 50/50 in the corporation 50% property, and 50% services they are both treated as transferring over at FMV. So Sue's property is treated as if she sold it to the corporation at $180,000. If Sue got 80% and Cheryl got 20% to be the CEO then it wouldn't have been a taxable event to Sue.

The TOTAL aggregate amount of ownership received for cash and property needs to be 80% for it to be a non-taxable event. Services are always taxable.

[HoosierCPA]

@demarcon Thanks again! I owe you a beer!

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

[demarcon]

@dtatham10 You don't! Answering these questions helps me just as much as it helps you and the other people I am answering. It really cements the topics into my brain.

I'm getting ready to start my (hopefully) final day of studying for REG. I figure I'll do about 4-5 hours today and take the rest of the day off to clear my head before my exam tomorrow morning. Gotta be up bright and early to go to prometric!

[HoosierCPA]

I agree something about hearing the answers from people on this board helps it stick in my brain so much more then reading the explanations or reading from becker.

I hope you crush your exam!

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

[demarcon]

All I need is a 98 or a 99 and I am still in the running for the Elijah Watts Sells award 😉 . Sadly, I still am holding out for that pipe dream. And then I have 8.5 weeks to study for FAR. Hopefully I gave myself enough time for it.

[Namstut]

@demarcon and @dtatham10, keep going with your questions guys! Corporate property transfers is one of my weak areas. I am studying through you right now! I am at work and unable to take any time off before the exam so I am constantly checking my emails for the activity here. 😉

Do you have a summary for transfers?

For example:

1. If the combined ownership % of the shareholders contributing cash or property is less than 80% then the transfer in is treated as sale and the basis of the property is calculated at FMV

2. Realized Gain on transfer is only to the extent of cash (boot) recorded.

3. Corporation's basis in the property are Basis plus any cash (boot) paid.

4. If the liabilities of the property transferred in are higher than the basis, corporation's basis in the transfered in property is the amount of the liabilities assumed.

AUD 7/6/16 Passed
BEC 9/3/16
FAR TBD
REG TBD

[demarcon]

I think this is actually different:

2. RECOGNIZED gain on transfer is to the extent the lesser of boot received or realized gain

3. Corporation’s basis in the property are Basis plus any cash (boot) paid.

It should read “Corporation's basis in the property are Basis plus any gain recognized by the shareholder”

Changing 3 would cover both 3 and 4 on your list.

[Author]

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