Discussion:Looking for a Forum for those studying for EA

Thanks for any help, Pat P

I'm studying Recapture of Alimony. The materials are telling me that this provision is intended to prevent large property settlements from being treated as alimony.

I have never reported alimony on either side of the fence, so I guess I'm naive about it. Plus I don't have a "criminal" mind so efforts to avoid taxes aren't always obvious to me until I've completely taken the picture apart and put it back together again.

Using the example in the materials, Joe is paying alimony to Mary. Setting up my own example, Joe paid Mary $75K the first year, $40K the second, and $10K the third. I understand how this qualifies for the recapture (I don't understand why or how Joe would do this). I think I understand the calculation except for what to do in the third year. I understand how to calculate the 3rd year recapture, but (and I'm sorry if this is obvious) does Joe deduct the $10K and then claim $15K and $32,200 ($15K being 2nd year recapture and $32,200 being 1st year recapture). Or does Joe wait until the 4th year? And I'm assuming that Joe is being a bad boy and trying to get away with something, so all of this would only come up when Mary or the IRS blows the whistle on him (or his tax accountant).

Am I close? Pat P

Incidentally, the recapture amounts are $15,000 for the second year payments and $42,500 for the first year payments. There is software available to compute the recapture income, which in this case is $57,500.

The payor of the alimony simply deducts the alimony as he normally would for all three years. In the third year, he would include the $57,500 recapture income in gross income, and the payee spouse would claim a deduction for the recapture income.

FWIW - formula to remember. It's not as hard as it first looks. Y1,Y2,Y3 are the alimony payments for the 3 years.

A = Y2 - Y3 - 15,000

B = Y1 - ((Y2 + Y3 - A)/2) - 15000

Recapture = A + B

In your example A = 40,000 - 10,000 - 15,000 = 15,000

B = 75,000 - ((40,000 + 10,000 - 15,000)/2) - 15,000

 = 75,000 - (35,000/2) -15,000 = 42,500

Recapture = 15,000 + 42,500 = 57,500 (just as Riley said)

That is to say, the exam is quite all encompasing.

When you find such a formula, work through 2 or 3 examples, it will help you remember the concept better than just memorizing a formula.

Some people are auditory learners and need to hear tapes or a live classroom, some are visual learners and do fine with just reading material, others are kinesthetic and need to work through the problems until they've gotten a feel for the concept.

Do not rule out taking a live course when preparing. It won't be enough on its own, but it will reinforce your memory and point out areas you need to spend more time on.

Y1 = $50,000 Y2 = $47,230 Y3 = $28,900 Recapture = $1,930

Again, thanks so much. I'm going to move on to another area now, but I'll check back.

Pat, you'll do great if you don't panic. This may sound cynical, but you only need a 70% to pass, so you have room to relax. You should also take "full" practice exam at least once so you can focus on your weak areas, and use your time better.

Did you schedule a exam date yet? I didn't get serious about reviewing until I set the dates.

Gleim Part 2 was a great help, and I passed Part 2 last Monday. I've got Part 3 on July third. Based on the review it seems easier then the other two part. At least the review guide is half the size.

Anyways, good luck with your exam PatP2005

$1,930 is correct!!!

I can give you a simplified version of the formula (a CAVEAT - this will not work if A is negative).

Recapture = Y1 + Y2 - 2Y3 - 37500

In your case Rec = 50,000 + 47,230 - 2(28,900) - 37,500

                = 97,230 - 95,300 = $1,930

Peyton, I would love to have a mind like yours! The first time I saw the SS Worksheet, I thought, who in the world came up with this thing!!! Probably somebody like you, LOL. But now that I've broken it down into simple (?) math, it make a little more sense. I still think its pretty contrived, but at least I see where it's coming from. Anyway, thanks for the formula. Keep 'em coming!

Form 23 with check and exam results is ready to mail on Wednesday. Does anyone know how long it usually take to process the application? I hope they don't take the full 120 days. I wonder what would get you disqualified on the background checks.

BTW, A rep from Gleim called the other day to ask for feedback on the books. It was a pleasant surprise that a company would do that.

Forget about all those misdemeaners...hehehehe

This forum was a tremendus help in preparing for the test. I love the box(the yellow one, not the stupid one). So thanks to all the contributers for helping me understand various issues.

Now, I just have to parley passing the SEE into a better job.

After I passed I sent in the form 23 late January 2007 & did not get my licence until the 3rd week of May. So it will probably be close to the 120 days.

The IRS cashed my check today, so I'll start running the clock now. ~119 days to go!