[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

[jonm857]

@regslayer

Youre right it should be C. I forgot to reduce the basis.

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

[sonja90]

@reg got it 🙂

[Reg_Slayer]

[SONA]

Beech Corp., an accrual-basis, calendar-year S corporation, has been an S corporation since its inception. At the beginning of the current year, Gold owned 50% of the 100 issued shares of Beech stock, and had a $3,000 tax basis in the Beech stock. During the current year, Beech had $200,000 in net business income and $4,000 in Oak County municipal bond interest income. Beech made no distributions to its shareholders. What was Gold's tax basis in Beech stock at year-end?
A.
$102,000

Incorrect B.
$103,000

C.
$104,000

D.
$105,000

My answer is 103000. Because question is asking TAX Basis.

Since Municipal bond interest is Tax free why should it be added in computing Tax basis. Please help me.

Explanation Ninja MCQ
A shareholder's basis can increase or decrease whether or not there is a distribution. The basis will increase for income and other separately stated items. In this case, Gold's basis increased by $100,000 (50% share of income) plus $2,000 (50% share of municipal bond interest) for an increase of $102,000. The basis was originally $3,000; adding the $102,000 increase makes Gold's total basis in Beech Corp. $105,000.

[Reg_Slayer]

@SONA

even tho the MUNI-income itself is tax-exempt, maybe it still increases TAX-BASIS?

[Anonymous]

@sona – It is confusing because a tax basis is not directly related to taxable income. A person's basis in a partnership or S-Corp is also sometimes called tax basis or outside basis. Same thing.

[Reg_Slayer]

C-CORPS
12/31 yr end? return is due 4/15 [4 months, 15 days]
6/30 yr end? return is due 9/15 [3 months, 15 days]

be careful this exam is full of tricks!!

[Reg_Slayer]

what is “collection of an assessment”, and why is SOL for them 10 years?

[jpowell31]

@reglayer…look up that reporting rule..there was an issue with the Ninja SIM so if that's your source, just double-check!

there's 10 years to collect an assessment of tax..tax on your return in general. if it's determined you owe $XX in taxes, they have 10 years to collect it.

[jonm857]

recognized gain = lesser of boot received or realized gain

Does this rule only apply to Like Kind Exchanges? Or does it also apply to a casual sale of property (i.e., I sell a boat to Tim).

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

[jonm857]

I'm chasing a rabbit down a hole and need some help fast……..

——————

amount realized – adjusted basis = gain or loss

gains are not recognized if you can “HIDE-IT”

losses are not deducted if it's a “WRaP”

——————-

Here is Becker's formula for “amount realized”:

cash received (boot)**
+ assumption of debt by buyer (excess = boot)**
+ property received at FMV
+ services received at FMV
– selling expenses

= amount realized

** In the textbook, there's a note that says cash received and the excess debt assumed is “taxable if gain”. This is where I'm confused.

Illustration:

Say I sold a boat to Tim for $50,000 with an adjusted basis of $30,000. There's an outstanding note on the boat of $40,000 that Tim assumes. Tim also gives me a motorcycle worth $3,000.

So in this situation, my total amount realized is:

$50,000 cash received
$40,000 debt assumed by Tim
$3,000 FMV of property received

=$93,000

My realized gain is:
$93,000
– $30,000

= $63,000

So since this is a realized gain and I cannot “hide-it”, I should recognize the entire $63,000 gain on my tax return. Right??

If that is true… then why does Becker say “taxable if gain” next to only the “cash received” and “excess debt assumed by buyer” in the amount realized formula?? Why doesn't it include all of the components of amount realized (i.e., FMV property received, services received)? Why aren't those “taxable if gain”?

cash received (boot)
+ assumption of debt by buyer (excess = boot)
+ property received at FMV
+ services received at FMV
– selling expenses

= amounts realized

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

[sonja90]

that rule applies for like kind and corp contribution. or at least that's how i learn 🙂
If you sell your boat that should be capital gains if you sold it for more than what you purchased (minus improvements)
Not aware that you would have realized vs recognized? All is recognized 🙂
Do you have an example of sale of boat?

[jonm857]

@Sonja

I just posted a more involved example of it… please let me know what your thoughts.

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

[jonm857]

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

[jonm857]

Okay I've figured it out. The key is this: In any property transaction that results in a gain, cash received and excess liability assumed by the buyer are always taxable, even if the gain falls under the “HIDE-IT” exclusion rule.

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

[Author]

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