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Adv. Tax - Exam 1 Guide
Adv. Tax - Exam 1 Guide
351 (those who qualify dont recognize gain or loss when transferring property)
General Formulas
1) Amount Realized = FMV + Cash (whatever you get from the transfer)
2) Realized Gain/Loss = Amount Realized Adj. Basis of the property being transferred
a. Adj. Basis = Cost Depreciation
3) Recognize Gain= Lesser between Boot (cash) & Realized Gain
4) Shareholders Basis= Adj. Basis of property + Recognized Gain Boot Liability (Mortgage)
5) Basis on the cash= boot (cash)
6) Corporation Gain= 0 *always
7) Corporation Basis= Basis of the property + Recognized Gain Reduction
Services x 10%, must equal same amount as the property being transferred, or less to qualify
Amount Realized = FMV
Realized Gain/Loss = Services
Recognize Gain= Services (which is treated as ordinary income)
Shareholders Basis= Services + Property (such as cash)
Corporation Gain= 0
Corporation Basis= Basis of the Services (0, because youre not transferring property) + Recognized Gain
Reduction (0)
8) The corporation will be able to expense $5,000 in the current year and amortize the remaining (Corporation
9) Basis 5,000) in 15 years as an organizational cost.
*Holding Period= For how long youve owned the transfer, except with cash. It begins the day after the exchange
date.
Chapter 3
Step 1:
Charitable Distribution
Gross Income
+ Dividend Income
-Operating Expenses
Taxable Income
x 10%
Charitable Distribution
-Charitable Distributions made
in cash
ANSWER is an excess
Step 2:
Taxable Income for that year
Gross
+Dividend
-Operating Expenses
Taxable Income
-Charitable Deduction
Taxable income before DRD
deduction
Step 3:
DRD, if ownership is:
-less than 20%, then 70%
deduction
-20% or more, then 80%
-80%, then 100%
-Select the lesser of Tax.Inc.
bef. DRD or Dividend income,
then x.7,.8, or 1
-Select the lesser of Tax.Inc.
bef. DPAD or QPAI, then x .09
QPAI=Gross IncomeOperating Exp.
Step 4:
If there is a Net Operating
Loss (NOL)
(Tax.Inc. NOL)(.10)=
Gross Income
+Dividend Income
-Operating Expenses
Taxable Income
Charitable Distribution
by NOL)
Taxable income before
DRD
Taxable income before
NOL
Taxable income before
(affected
DRD
NOL
DPAD
DPAD
Taxable Income
Chapter 4
General Formulas
Distribution of Appreciated Property
1)
2)
3)
4)
5)
6)
When there is no cash distribution, then, you find the gain first:
1) Corporation Gain = Realized Gain (of individual 1) + any other individuals involved
a. Realized Gain= FMV Basis
2) Tax = Gain (1) x 25%
3) New Current E&P= CE&P + Gain(1) Tax
Individual 1
FMV or Cash
Distribution
(1)
CE&P
AE&P
(2) (1)(%)
Ignore
Dividend
Income
(1)=CE&P
Individual 2
(2)
(3) (1)(%)
Ignore
(2)=CE&P
Total(s)
(3)
(1)
(1)
ROC
(1) FMV
Dividend Inc.
(2) FMV
Dividend Inc.
Determine %
of each=
(1)/Total
New Basis = Stock Basis (for the stock) ROC
Individual 1= New Basis
Individual 2= (New Basis) should be negative
Then, add (2) New Basis, and write, Basis was reduced to $xx,xxx (sum of 2 basis) and
(negative basis) capital gain, so his new basis= 0.
When you sell and there are cash distributions and CE&P= Positive Number, and
AE&P= Positive Number
Distribution
CE&P
Individual 1
(1)
(2) (1)
(%)
Individual 2
(2)
(3) (1)
(%)
Total(s)
(3)
Determine
% of each=
(1)/Total
(1)
AE&P
(2) (1 CE&P)
If the subtraction
is greater than (1),
then allocate
everything in
Ind.1, so (Step 2)
= (1)
(3)
Dividend
Income
(1)=CE&P+A
E&P
(2)=CE&P+A
E&P
ROC
(1)
Distribution
Dividend
Inc.
(2)
Distribution
Dividend
Inc.
(1)
When theres a deficit in CE&P= (Negative Number) it means that there will be a loss
every day of the year, and AE&P= Positive Number
Individual 1
FMV or Cash
Distribution
(1)
CE&P
(2) Ignore
AE&P
*Calculate
Dividend
Income
(1)=AE&P
ROC
(1)
the
Individual 2
(2)
(3) Ignore
Total(s)
(3)
(1)
Determine %
of each=
(1)/Total
Loss, in
order,
(2)=AE&P
Distribution
Dividend
Inc.
(2)
Distribution
Dividend
Inc.
To obtain
how much
will be
allocated
Before continuing to calculate for AE&P, you MUST, calculate the Loss due to a negative
CE&P
1) CE&P/365 days= $xxx loss per day
2) Loss per distribution= day before payment x loss
1st distribution (March 1st)= day before payment is February 28th= so from Jan. 1st
Feb. 28th = 31 days + 28 days = 59 days - - - > 59 days x (1) loss = (loss)
2nd distribution (Sept. 1st)= day before is Aug. 31st = so from March. 1st Aug. 1st =
31 (mar) + 30 (apr.) + 31 (may) +30 (jun.) + 31 (jul.) + 31 (aug.)= 184 days x loss
= (loss during second distribution)
3) Distribution
AE&P (given)
-1st distribution loss
xxx,xxxx
-1st cash distribution
xxx,xxx (if this answer is smaller than the 1st
cash distribution that was made, then allocate
the full amount to AE&P
-2nd distribution loss
xxx,xxx
-2nd cash distribution (if the 2nd cash distribution
> xxx,xxx, this means there is not enough
money, so allocate xxx,xxx
New Basis = Stock Basis (for the stock) ROC
Individual 1 (seller)= New Basis, so since he sold it theres a capital gain
Capital Gain (seller)= Selling Price New Basis
Individual 2 (buyer)= Selling Price New Basis (of individual 1)
Effect on AE&P
Original on AE&P
-Total Dividend Income (for
both)
xxx,xxx
-CE&P
New AE&P
In case both AE&P and CE&P are negative, then theres no dividend income, no effect on
E&P, and theres no gain. And the distribution will be Return on Capital (ROC) and
anything that exceeds ROC will be negative.