adv. tax- exam 1 guide

7/23/2019 Adv. Tax- Exam 1 Guide

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Chapter 2- Sec. 351 (those who qualify don’t recognize gain or loss when transferring property)

General Formulas

1) Amount Realized = FM ! "ash (whate#er you get from the transfer)$) Realized %ain&'oss = Amount Realized Ad* +asis of the property ,eing transferred

a* Ad* +asis = "ost -epreciation

.) Recognize %ain= 'esser ,etween +oot (cash) / Realized %ain0) hareholders +asis= Ad* +asis of property ! Recognized %ain +oot 'ia,ility (Mortgage)2) +asis on the cash= ,oot (cash)3) "orporation %ain= 4 5always6) "orporation +asis= +asis of the property ! Recognized %ain Reduction

Reduction happens when7

+asis 8 FM9 then7

1) Realized 'oss= FM +asis= (will ,e a negati#e :)$) Recognize %ain&'oss= 4 5always9 ,ecause a corporations ;<<R recognizes a loss

.) hareholders +asis= +asis ! Recognized %ain (will ,e 4) +oot 'ia,ility0) "orporation %ain= 4 5always2) "orporation +asis = FM

Recognize a GAI (ec* .3$) when7

'ia,ility 8 +asis9 then7

1) Amount Realized= FM$) Realized %ain&'oss= FM (of the stoc) ! 'ia,ility +asis.) Recognize %ain= 'ia,ility +asis0) hareholders +asis= +asis ! Recognized %ain +oot 'ia,ility= 5always 4

2) "orporation %ain= 43) "orporation +asis= +asis ! Recognized %ain Reduction (5 in this case it will always ,e 4)

>hen there are er#ices and ?roperty in#ol#ed then7

1) er#ices @ 149 must equal same amount as the property ,eing transferred9 or less to qualify$) Amount Realized = FM.) Realized %ain&'oss = er#ices0) Recognize %ain= er#ices (which is treated as ordinary income)2) hareholders +asis= er#ices ! ?roperty (such as cash)3) "orporation %ain= 4

6) "orporation +asis= +asis of the er#ices (49 ,ecause you’re not transferring property) ! Recognized %ain Reduction (4)

B) Che corporation will ,e a,le to e@pense D29444 in the current year and amortize the remaining ("orporationE) +asis 29444) in 12 years as an organizational cost*

5olding ?eriod= For how long you’#e owned the transfer9 e@cept with cash* Gt ,egins the day after the e@change

date*

Chapter 3



Step 1:



Charitable DistributionGross Income+ Dividend Income-Operating Expenses

Taxable Incomex 10

!aximum Chat"Cont" #or that

$ear

Charitable Distribution

I# an$% -Charitable Distributions madein cash

Carr$#or&ard #or ' $ears ()*E, is an excess

Step 2: Taxable Income #or that $ear

Gross+Dividend-Operating Expenses

Taxable Income-Charitable Deduction

Taxable income be#ore D,D

deduction

Step 3:D,D% i# o&nership is

-less than .0% then /0

deduction

-.0 or more% then 0

-0% then 100 Taxable income be#ore D,D

deduction-*elect the lesser o# Tax"Inc"

be#" D,D or Dividend income%then x"/%"% or 1

D,D

Taxable income be#ore D(D-*elect the lesser o# Tax"Inc"

be#" D(D or 2(I% then x "03

D(D

2(I4Gross Income-

Operating Exp"

Taxable Income

Step 4:I# there is a )et Operating

5oss 6)O57

Gross Income+Dividend Income-Operating Expenses

Taxable Income6Tax"Inc" 8 )O576"1074 Charitable Distribution 6a9ected

b$ )O57 Taxable income be#ore D,DD,D

Taxable income be#ore )O5)O5

Taxable income be#ore D(D



D(D Taxable Income

Chapter 4

General Formulas

Distribution o# (ppreciated ropert$

17 Distribution Dividend Income4 :!; 8 5iabilit$.7 <asis in the land 4 :!;=7 Corporation Gain 4 :!; 8 <asis>7 )e& CE?4 C(E? + Gain 8 Tax'7 E9ect on E?4 )e& E? 8 Dividend Income@7 E9ect on E? a#ter distribution4 CE?+Gain a#ter subtracting tax4 )e& CE? 8

Distribution4 CE?+(E?

AAAhen 5iabilit$ B :!;% then :!;45iabilit$

*toc Dividend Distribution

17 Income ,ecognied- ou need to have had the option bet&een cash or stoc" I#

given the option and $ou chose tax then the gain4cash% i# stoc then the

gain4:!;-<asis.7 ,ecognied GainFloss4 (llocate <asis

a" <asis (llocation #or re#" *toc4 Original <asis x 6Distribution rice or :!; x

"* shares7F6Total #or both7b" Total #or both4 6Distribution rice or :!; x "* shares7 + 6Distribution rince

or :!; C"* x C"*7=7 <asis on the remaining share 6C"* ? "*74 *elling rice 8 6<asis p# "* or C"*7

hen there is no cash distribution% then% $ou Hnd the gain Hrst

17 Corporation Gain 4 ,ealied Gain 6o# individual 17 + an$ other individuals involveda" ,ealied Gain4 :!; 8 <asis

.7 Tax 4 Gain 617 x .'=7 )e& Current E?4 CE? + Gain617 8 Tax

hen% CE&P=Positive Number and theres a deHcit in AE&P=Ne!ative Number"

:!; or Cash

Distribution

CE? (E? Dividend

Income

,OC

Individual 1 617 6.7 61767 Ignore 6174CE? 617 :!; 8

Dividend Inc"Individual . 6.7 6=7 61767 Ignore 6.74CE? 6.7 :!; 8

Dividend Inc" Total6s7 6=7 617 617



Determine

o# each4

617FTotal

)e& <asis 4 *toc <asis 6#or the stoc7 8 ,OC

Individual 14 )e& <asis

Individual .4 6)e& <asis7 8 should be negative

Then% add 6.7 )e& <asis% and &rite% J<asis &as reduced to Kxx%xxx 6sum o# . basis7 and

6negative basis7 capital gain% so his ne& basis4 0"

hen $ou sell and there are cash distributions and CE&P= Positive Number% and

AE&P= Positive Number

Distribution CE? (E? Dividend

Income

,OC

Individual 1 617 6.7 61767

6.7 61 8 CE?7I# the subtraction

is greater than 617%

then allocate

ever$thing in

Ind"1% so 6*tep .7

4 617

6174CE?+(E?

617Distribution

8 Dividend

Inc"

Individual . 6.7 6=7 617

67

6=7 6.74CE?+(

E?

6.7

Distribution

8 Dividend

Inc" Total6s7 6=7

Determine

o# each4

617FTotal

617 617


Individual 1 6seller74 )e& <asis% so since he sold it theres a capital gain

Capital Gain 6seller74 *elling rice 8 )e& <asis

Individual . 6bu$er74 *elling rice 8 )e& <asis 6o# individual 17

hen theres a deHcit in CE&P= Ne!ative Number" it means that there &ill be a loss

ever$ da$ o# the $ear% and AE&P= Positive Number

:!; or Cash

Distribution

CE? (E? Dividend

Income

,OC

Individual 1 617 6.7 Ignore ACalculate 6174(E? 617



the Distribution

8 Dividend

Inc"Individual . 6.7 6=7 Ignore 5oss% in

order%

6.74(E? 6.7

Distribution

8 Dividend

Inc"

Total6s7 6=7Determine

o# each4

617FTotal

617 To obtainho& much

&ill be

allocated

<e#ore continuing to calculate #or (E?% $ou !L*T% calculate the 5oss due to a negative

CE?

17 CE?F=@' da$s4 Kxxx loss per da$.7 5oss per distribution4 da$ be#ore pa$ment x loss

1st distribution 6!arch 1st74 da$ be#ore pa$ment is :ebruar$ .th4 so #rom Man" 1st 8

:eb" .th 4 =1 da$s + . da$s 4 '3 da$s - - - B '3 da$s x 617 loss 4 6loss7.nd distribution 6*ept" 1st74 da$ be#ore is (ug" =1st 4 so #rom !arch" 1st 8 (ug" 1st 4

=1 6mar7 + =0 6apr"7 + =1 6ma$7 +=0 6Nun"7 + =1 6Nul"7 + =1 6aug"74 1> da$s x loss

4 6loss during second distribution7

=7 Distribution

(E? 6given7-1st distribution lossxxx%xxxx-1st cash distributionxxx%xxx 6i# this ans&er is smaller than the 1st

cash distribution that &as made% then allocate

the #ull amount to (E?-.nd distribution lossxxx%xxx-.nd cash distribution 6i# the .nd cash distribution

B xxx%xxx% this means there is not enough

mone$% so allocate xxx%xxx


Individual 1 6seller74 )e& <asis% so since he sold it theres a capital gain

Capital Gain 6seller74 *elling rice 8 )e& <asis

Individual . 6bu$er74 *elling rice 8 )e& <asis 6o# individual 17

E9ect on (E?

Original on (E?-Total Dividend Income 6#or



both7xxx%xxx-CE?)e& (E?

In case both (E? and CE? are negative% then theres no dividend income% no e9ect on

E?% and theres no gain" (nd the distribution &ill be ,eturn on Capital 6,OC7 and

an$thing that exceeds ,OC &ill be negative"

adv. tax- exam 1 guide

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