[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

[sonja90]

Sec 1031 tax-free exchange
only personal for personal
or real for real

FMV of asset received
+cash
+relief of liability
=amount realized
-adjusted basis (assets given purchase price – depreciation)
=gain realized

Gain realized lesser of
1.gain realized
2.fmv of boot (cash+liability relief)

[sonja90]

i would think if you have paid cash also it would be included in purchase price of your asset. I would not net it with cash received cut it would throw you off for gain realized

[sonja90]

for questions like that i always write down all given up and all received side by side and then see where what goes in formula

[Reg_Slayer]

earlier I asked:

c-corp:
“A timely extension was filed for the Year 2 Tax Return on March 13, Year 3 and no additional money was sent with the return.

when would payment be due?”

@jon said:

“March 15, year 3??”

@sonja90 said:
“I think the second one is on April 15th if they owed any estimated taxes if they didn’t then when extension is due”

Becker [SIM r3, set 1, #4] says :
“The payment on May 24 is 2 full months and part of a third month late.”

so…
part of may
all of APRIL
all of MARCH

so the return was due sometime sometime in FEBRUARY!?!?!?!?!?

EDIT:

i think I am confusing when the RETURN is due, and when the PAYMENT is due?

EDIT 2:
it tells us that we filed extension on 3/13/x3, and paid on 5/24/x3. So that is how we use 3 months for computing interest[1%]/failure to pay[.5%] penalties

[jonm857]

@reg_slayer

Im planning on revisiting tax payments and due dates tonight. So i will definitely follow up with you on this

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

[Reg_Slayer]

CORPORATE FORMATION:
CLAY

give:
$20,000 cash
$60,000 FMV property, $40,000 basis

CLAY'S TAX BASIS in C-CORP:
20 + 40 = 60

FINCH

give:
$10,000 in cash
property $50,000 FMV($30,000 basis) w $20,000 liab
FINCH'S TAX BASIS in C-CORP:
10+30-20= 20

CORP'S BASIS IN FINCH'S PROPERTY:
= 30 basis, 10 cash

TOKEN

gives (for 15%ownership):
$10,000 cash
$40,000 FMV property ($5,000 basis), w $20,000 liab

gain RECOGNIZED:
40fmv -5 basis -20liab -10 cash given = $5,000

[jonm857]

In a c-corp formation… if you contribute property with a liability that exceeds the total adjusted basis of property contributed, that triggers a gain recognition. Does the total adjusted basis of property contributed include cash contributed? Or is it just property and cash is not included?

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

[Reg_Slayer]

“gain recognition.” or gain reduction?

i know that cash contributed appears separately from property contributed on the corporate return…

[jonm857]

Gain recognition by the shareholder. I hate how becker words this $hit

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

[Reg_Slayer]

if installment sales method is used, Entire gain goes to E&P at time of sale. So when gain is actually recognized in a subsequent year, we must reduce E&P.

[Anonymous]

Dang, it is hard to keep up with you guys.

@jonm857 – you posted earlier:

In a like kind exchange, if you pay cash and also receive cash, do you net them when calculating the recognized gain?
Do you net cash paid with liability relieved of?
Do you net cash received with liability assumed?
I know you net the relief from liabilities when calculating the recognized gain.
I know you do not net cash paid with non-like-kind property received (i.e., trailers).
I wish had a list of all the different options.

From what I can figure out after doing the bajillion Becker MCCQ's – you should net all boot. This includes cash, liabilities, and extra property. I believe this formula will get you the right answer to all of the MCQ's with one exception….

Becker has a question that I think has boot something like $3500 for a trailer that is received and $1000 for cash that is given, which is net boot of $2500. I think they say you you recognize $3500 – so they ignore the cash. I believe this is a mistake on their part, as it is not consistent with everything else. I believe gain realized should be $2500, which is also the amount you would use when calculating the new basis. I could be wrong, but I found like 5 other MCQ's that were not consistent with this one problem, so I think this one problem is wrong.

I typed out the steps that work for all the other MCQ's. You can find that post at the top of page 37 of this thread. These should work for all the MCQ's except that one with the $3500 trailer. But if my calculations are wrong, please post so I can make adjustments!

[jonm857]

@bet10

I wasn't able to find much guidance outside of Becker on this, other than the link & excerpt below. I only saw two questions that “netted” boot to calculate the recognized gain.

1) Problem #47 – as you mentioned they did not “net” the trailer received with the cash paid.
2) Problem #56 – they netted the relief from liabilities on this one.

So I just went ahead and took note of those two occasions specifically and have moved on. There's too much ground to cover.

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

https://www.efirstbank1031.com/advancedTopics/rulesOfBoot.htm

“Cash boot paid offsets cash boot received (but only at the same closing table).

Cash boot paid at the replacement property closing table does not offset cash boot received at the relinquished property closing table (Reg. §1.1031(k)-1(j)(3) Example 2). This rule probably also applies to inadvertent boot received at the relinquished property closing table because of prorations, etc. (see above).

Debt incurred on the replacement property offsets debt-reduction boot received on the relinquished property.

Cash boot paid offsets debt – reduction boot received.

Debt boot paid never offsets cash boot received (net cash boot received is always taxable).

Exchange expenses (transaction and closing costs) paid (relinquished property and replacement property closings) offset net cash boot received.”

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

[Anonymous]

@jonm857 – Nice find on the rules of boot! Thanks for sharing.

[jonm857]

I posted this earlier and I've since found the answer. The answer is yes, cash is included in the total NBV of assets contributed by a shareholder, and if the debt exceeds that total, that triggers a gain. See simulation “Corporate Formation”, the note on answer C7.

Post from earlier: “In a c-corp formation… if you contribute property with a liability that exceeds the total adjusted basis of property contributed, that triggers a gain recognition. Does the total adjusted basis of property contributed include cash contributed? Or is it just property and cash is not included?”

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

[jonm857]

The 3 situations that cause an S-Corp to be taxed:

1) LIFO recapture tax
2) Built-in gains tax
3) Tax on passive investment income

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

[Author]

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