Becker CPA Review

Regulation Course Errata/Clarifications

2016 Exam Edition

This correction applies to V1.3 of the REG course released May 2016.

The flashcard incorrectly states that depreciation should be reported on an S

Corporation K-1. The corrected flashcard appears below.

Small Business Corporations (S Corporations)

What items must be separately listed on

an S corporation tax return (Schedule K)?

Some items that must be separately listed on an S corporation tax return include
the following:
Flashcard
5/31/16 R3 R3-27
Ordinary income
Rental income/loss
Portfolio income (including interest, dividends, royalties, and all capital
gains [losses])
Section 1231 gains and losses
Charitable contributions
Section 179 deduction
Depreciation
Foreign taxes
Tax-exempt interest

This correction applies to V1.3 of the REG course released May 2016.

The Section 291 rules for depreciation recapture for corporations are stated
incorrectly. The corrected text and subsequent example appear below.

For corporations, the total amount of the taxable recapture on real property as
ordinary income under Section 291 is equal to 20 percent of the lesser of the
recognized gain or the accumulated depreciation. Any gain in excess of the
amount recognized as ordinary income is allowed capital gain treatment under
Section 1231.
R4-35
5/31/16 R4 Item C.2.
EXAMPLE

Lancaster, Inc., a corporation, owned a building used in its business with an

original cost basis of $100,000 and accumulated depreciation of $15,000.
Lancaster sold the building for 95,000. Recognized gain on the sale of the build is
$10,000 (95,000 tax basis of $85,000). Of the $10,000 gain, the amount
recognized as ordinary income is 20 percent of the lesser of $10,000 (gain
recognized) or $15,000 (accumulated depreciation). Ordinary income will be: 20%
x $10,000 = $2,000. The remaining gain of $8,000 will be recognized as a Section
1231 gain.