[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

[jpowell31]

@cpamaster. but it's at the time of contribution. so since Corley contributed later on and only received 10% he would recognize a gain (i think)

it is @jon and i would guess that without taking into consideration the “lesser of…provisional income excess” but the calc is so ridiculous…and somehow i've remembered most of it (the provisional income excess calc – not the 85% SS received). it's definitely a question i'd flag and come back to depending on how much time i'm wasting

[Anonymous]

Let's assume that since Corley joined 2 years later we would only see the 10 percent and ignore Porters share . Either case gain should not be recognized since boot was not received. Boot is recieved when Corley receives cash, property or debt relief in excess of his contribution which is not the case. If we could see Corley with only 10% then the bases is only $500,000 the FMV of the transfer. The question needs to be more specific in the letting us know if they want the basis of only Corley or Corley and porter.

That's how I see it…

[jonm857]

@cpamaster

But you have to consider the control group factor also, not just the boot. The timing of when this contribution takes place I think is irrelevant, whether at formation or 2 years down the road.

Corley is not included in the control group because Porter still has 90% by himself. There is no cumulative sharing of 80% with Corley. Therefore, Corley has to recognize a gain on that contribution.

B - 81
A - 87
R - 73
F - July 5th

[jonm857]

The formula for computing a corporation's basis is…

Greater of:

1) The adjusted basis PLUS any gain recognized by the shareholder
————-OR——————
2) Debt assumed by the corporation

The contributing shareholder does not recognize a gain IF:

1) He is included in the 80% control group, and
2) Boot is not received

B - 81
A - 87
R - 73
F - July 5th

[jpowell31]

@ cpamaster.. you're not completely wrong…but when there is cash/boot ALSO received, then the gain is the lesser of the boot received or the appreciation of the asset contributed (FMV-adjusted basis), regardless of the 80% rule.

@jon. i think that it does have to do with the time of transfer…this is what jeff as stuck in my brain from the audio anyway:

shareholder basis in a corporation always = adjusted basis + gain recognized – boot received. but if shareholders(plural!) own 80% or more after at the time of transfer, no gain is recognized. i.e. basis = adjusted basis – boot received (which includes mortgages given up). if liabilities exceed the contributed property a gain is also recognized. if it's the group together at contribution then this would only mean no gain would be recognized ever again because the whole group will of course own 100% at any time…

i need to review though for sure now because i'm tripping myself up.

check in tomorrow guys!

[jonm857]

@jpowell

Im a little confused about what youre saying.

If the timing were relevant, it would be a different answer. Are you suggesting that the 80% rule only applies at formation? If that were the case, the answer would be different because Porter wouldnt have to recogbize a gain.

Please let me know your thoughts

B - 81
A - 87
R - 73
F - July 5th

[Reg_Slayer]

property donated to a public charity is limited to the lesser of:
A) 30 percent of AGI
B) 50 percent of AGI less the amount of cash donated.

[A1lessio]

Hey Everyone,

Sitting for the exam on the 24th of next month. Trying to just finish busy season and get a solid review session in. How do you guys feel about the b-law? I pretty much skipped chapter 8 in Becker, but plan on going back. I did horrible on the b-law questions the first time around. I have pretty good back ground in tax and enjoy the tax chapters.

Reg Slayer is that correct? I though the rule was 30% for appreciated property held for over a year (use FMV of property) or 50% for all other types?

AUD (08/02/2016)

[Spartans92]

If im not mistaken the overall donation is limited to 50%. But if its appreciated property then it is limited to 30% of AGI. I recall in becker if both cash and property were donated you see which donations were made first.. for instance, property was made before cash. Correct me if im wrong.

BEC- PASS

[jpowell31]

@jon i don't know anymore… i've usually only seen questions that are at the creation aside from the above. my thought was no gain is recognized because he owns 80% at that time. then because the other guy is donating 10% at ANOTHER TIME, he does recognize a gain. if he got 10% at inception the whole group would own over 80% so NONE recognize a gain. i may be explaining it poorly and further misunderstanding… i'd like to think we shouldn't see it another way but the way this exam works i swear there are evil elves that hone in on those minor weak areas you have going into an exam lol.

i felt great about the blaw til my first exam and i got some serious WTF is this type of questions… i wouldn't ignore it like a few on this forum mention – it's all the luck of the draw with the exam you get so you just have to be prepared for it all.

[or1on23]

.

[jonm857]

Just a quick tip I find useful if you've memorized a lot of the MCQs:

1) Make sure you read all 4 answers for each question
2) To save time, read the solution for the correct answer and the one that you were conflicted with.

B - 81
A - 87
R - 73
F - July 5th

[jpowell31]

Destry, a single taxpayer, reported the following on his U.S. Individual Income Tax Return (Form 1040):

Income:

Wages $5,000
Interest on savings account 1,000
Net rental income 4,000

Deductions:

Personal exemption $ 4,000
Standard deduction 6,300
Net business loss 16,000
Net short-term capital loss 2,000

What is Destry's net operating loss that is available for carryback or carryforward?
A. $7,000
B. $9,000
C. $15,700
D $16,000

i have a question on this but want to give you a chance to get the answer first.

[jonm857]

My guess is D because after the exemption and and standard deduction, his taxable income is 0. I'm really not sure about that one at all.

B - 81
A - 87
R - 73
F - July 5th

[jpowell31]

yeah it's worded very tricky in the first place. it's A) and explanation is as follows (with my questions in between)

The interest income (nonbusiness income) is offset by nonbusiness expenses, up to the amount of nonbusiness income. The standard deduction is a nonbusiness expense for this purpose. JP: Okay… so standard deduction and personal exemption are only allowed to bring income to zero – so only standard deduction of $4k allowed.
IRC Section 172(d)(4)
The net capital loss (nonbusiness) is only deductible to the extent it is offset by nonbusiness capital gains. JP:usually individuals get $3k loss annually as well…is this not allowed when there isn't a loss situation?
IRC Section 172(d)(2)
Personal exemptions and unused personal deductions are added back to taxable income in arriving at net operating losses so they do not increase the carryback or carryforward. JP: good to know…? but the exemption wasn't taken, right? or are we to assume that's included in the operating loss? if we are to assume that, then we should assume that the wages and rental income are also included though, i would imagine?
The net business loss must be offset by wages and rental income for this year.
IRC Section 172
Wages of $5,000 plus net rental income of $4,000 minus the loss of $16,000 equals a net operating loss carryback or carryforward of $7,000

[Author]

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