2009 R-3 Class Notes - Becker CPA Review Regulation 3 Class...

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Becker CPA Review – Regulation 3 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. REGULATION 3 CLASS NOTES This lecture focuses mainly on all aspects of C corporations, depreciation, MACRS and S corporations. According to the AICPA's Content Specification Outline these items and the items on partnerships, estates and trusts in R4 should make up between 22% and 28% of your Regulation examination. C CORPORATIONS, DEPRECIATION, AND MACRS I. C CORPORATION FORMATION A. Shareholder General Rule No Gain or Loss Recognized if property exchanged for 80% control or if no boot is involved. Adjusted basis in stock = Adjusted basis (NBV) of property transferred to the corporation plus any gain recognized by the shareholder. B. Corporation General Rule No Gain or Loss Recognized. Corporation's basis in the property contributed is the greater of the shareholder's basis in the property or the debt assumed . II. C CORPORATION - OPERATIONS A. This is the most heavily tested area of the exam for corporations. B. Book vs. Tax Income – Schedule M-1 on page 4 of Form 1120 is where book income is reconciled to taxable income. There are many different items of income and expense that are treated differently for GAAP and tax rules. You need to have an understanding of how this reconciliation is performed. C. Form 1120 – Familiarize yourself with the form and the different schedules. D. Form M-3 – A more detailed version of the M-1. It actually shows which items are permanent differences between book and tax and which are temporary. An example of a permanent difference is the 50% tax deductibility of meals and entertainment. An example of a temporary difference is the difference between tax and book depreciation because the difference between these two items will eventually reverse. E. Domestic Production Deduction allows a business to deduct a specific percentage of their qualified production activities income (QPAI). 1. The deduction phases in over several years (for 2007-2009, it is a 6% deduction). 2. QPAI is "Domestic" production gross receipts less cost of goods sold and other applicable overhead costs. 3. Domestic production gross receipts are essentially sales of any property produced in the U.S. including property that is manufactured produced, grown, extracted or constructed. F. Compensation 1. Executive compensation for a publicly held company is not deductible over $1,000,000. 2. Bonuses paid by an accrual basis taxpayer must be paid by 2 1/2 months after year- end in order to be deductible. G. Bad Debts = Specific Charge-Off method – are permitted for accrual basis taxpayers if the debt has become worthless which is unlike the treatment for GAAP (allowance method). Since a cash basis taxpayer has not included the amount in gross income, a bad debt is not deductible, except in the case of an uncollectible check.
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Becker CPA Review – Regulation 3 Class Notes 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
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This note was uploaded on 05/15/2010 for the course ACCOUNTING 342 taught by Professor Judelee during the Spring '10 term at Cal Poly Pomona.

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2009 R-3 Class Notes - Becker CPA Review Regulation 3 Class...

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