 Hello everyone, in this session I'm going to be looking at the current RAG exam structure and I'm going to compare it to the future RAG which is the core RAG and take a look at the TCP section which is part of the 2024 exam changes. Currently the RAG has five sections which are right here ethics, professional responsibilities and federal tax procedures, business law, federal taxation of property transaction, federal taxation of individuals and federal taxation of entities. Well the first thing you want to observe is the same sections will be part of the core. Notice section one, ethics, professional responsibilities and federal tax procedures is the same including the weight, 10 to 20 percent, 10 to 20 percent. Business law, it's going to be a slight expansion, it used to be 10 to 20, it's going to be 15 to 25, so a little bit more of coverage on business law. Federal taxation of property transaction currently 12 to 22 percent. What's going to happen? It's going to be trimmed down and we'll look at the details shortly, it's going to be between 5 to 15 percent, it could be as low as 5 percent property transaction. Now federal taxation of individuals, here we're discussing the individuals, used to be 15 up to 25 up to one fourth of the exam. Now it's going to start at 22 and it could be up to one third, 33 percent of the exam. So there's more coverage from the individual taxation perspective. Federal taxation of entities used to be 28 to 38, which is the largest chunk under the core, it's going to be reduced a little bit, it's going to be between 23 to 33, it could represent up to one third or it could be up to 23 to 23 to 33, that's assumed 25, it could be up to one fourth. Okay, so it's but it's being trimmed down. So the federal taxation is being trimmed down. Now obviously we're going to have a new section called the TCP, think of it as the advance strike. This is this specialization and these are the topics, tax compliance and planning for individuals. So notice we cover the individuals here, then we cover the tax planning and compliance for individual plus a new topic called personal financial planning. This we did not have, entity tax compliance. Well, what are entity tax compliance? Corporation, CS, partnership, which we're going to be considered entities. What's going to happen? We're going to have some entities tax compliance and tax planning for those and some of the topics that were removed from the federal taxation of property transaction, which is going to be covered under section 4 under the TCP, which is the disposition of assets. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation, as well as your accounting courses. 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The only thing that's going to change is we're going to have a little bit more on about the federal law about bankruptcies and anti bribery, a little bit more expanded, otherwise the topics are basically the same. Now let's take a look at the area three. Now we're getting into the federal taxation of property transaction. The old area used to be 12 to 22, the new one is 15, 5 to 15, less coverage. The old section A, now we're going to go through each section separately. The old section A used to be called acquisition and disposition of assets, and we used to learn about basis and holding, taxable and non-taxable disposition, amount and character of gains, netting, the netting process, acquisition of this and disposition of assets. Guess what? The new section A is only basis of assets, simply put, the disposition is removed. The disposition part is moved to a new section in TCP. It's called the disposition of property, not property and plan, disposition of transaction, disposition of assets. Now we're only going to focus on the, under the basis of assets, just figure out the basis if we purchase an asset, convert an asset from personal to business use. If we got an asset through gift, inheritance, wash, sale, intangible asset basis and startup cost, what are the basis of these assets? The old area B, it used to be cost recovery, which is depreciation and amortization, the new one is the same thing. So no change here. You're going to still going to learn about makers and any sorts of amortization under the current exam, the same as the old one. The old area used to, old area C, old area C used to be gift taxation. What's happening to this area, old area C, some of the gift taxation, the basis of it is moved to A and the majority of the gift taxation moved to the TCP and it's going to be expanded. We're going to have more topics covered under gift taxation. This is old area C. Now let's look at area four. Now we're done with area three. We used to have ABC and this is what happened to ABC. Now, old area four, which is individual taxation of individual, as I mentioned, we're going to have more coverage starting with old area A under the old area, you had gross income, inclusion and exclusion. And these were the topics as per the blueprint, calculate the amount that should be included or executed from the individual tax return, analyze projected income for the use and tax planning in future years. So notice under the old blueprint, they used to mention the word planning. Okay, just so it's not going to be new to us, but it's presented as a new topic. Analyze client provided documentation to determine the appropriate amount of gross income. Here's basically this is the simulation. In other words, they could ask you a simulation about this topic. The new area, it's also called the new a gross income included, included and exclusion, all what they do, it's the same, but they expanded on the topics. So they are a little bit more specific. They talk about we're going to test you about capital gains from sale of investment, virtual currency, gifted asset, inherited asset, tax exempt interest, gift received life insurance, decedent, death income, so on and so forth. So they are a little bit more specific, but I don't see that much of a difference, except in the blueprint, they kind of give you a little bit more of specific examples. Otherwise, any income included and executed will be was tested under the old exam will be tested under the new exam. Now they're the part four and part five, those are once you see review 1040 review and resolve discrepancies, those are potential potential CPA exam simulations about this topic. Again, we're staying in area four, but we're looking at area B with an area for reporting of item from past through entities, which is making sure K1 will be there separately stated and non separately stated, you will need to know them under the old blueprint and under the new blueprint, no changes about this part B. Part C, old C used to be adjustment and deduction to arrive at adjusted gross income simply put the adjustments. Do you know your adjustments and your deduction? Well, including QBI, same thing. We have we have area C under the blueprint, again, adjustments and deduction, not much difference, except what they do is they specify the adjustments. They kind of tell you a little bit more. For example, you need to know about the contribution to IRA, HSA, HSA and various deductions like they list the itemized deduction that you need to be familiar with, such as medical interests, so on and so forth. But here they don't mention them, but they imply them. They imply them. They imply them. So not much of a change so far, not much of a change so far. The area three QBI will be there, not much of a change. Then we have again reviewed form 1040, which is basically what they're telling us is there's a potential simulation about adjustments and deductions simply put, make sure you know your schedule A and your adjustments. They were tested under the old exam. They will be tested under the new exam. Again, slightly little bit more coverage, but the topics are there. The old, old area of D under section four was passive activity loss. And those were the topic. Basically recall, it's basically just remember the definition of passive activities for federal income tax purposes, calculate net passive activity gains and losses, prepare a loss forward schedule for the passive activities, and calculate utilization of suspended losses. The new section, it's called loss limitations. Well, to a great degree similar, but some of the topics will be moved to TCP, calculate the net tax loss allowed under the sale of capital property, including the netting of capital gains, capital losses and carry forward, the terminology a little bit different, calculate the amount of ordinary business loss allowed for individual materially participating in the operation of a past through entities with sufficient basis in the entities. I would say to a to a great degree similar, similar, calculate the losses allowed for tax purposes from a hobby, watch sale, sale of personal use asset, we used to learn about those in the old CPA and not exam and don't mention them now a little bit more explicitly. And there could be a simulation about this topic. Again, this is why I have review form 1040 and support and documentation. It means a potential potential CPA simulation could be asked about this topic. Old area five, which is the federal taxation of individual. Okay, we talked about this section F, section F filing status is the same. The old section F was filing status. The new section F is filing status. The old and the new G is the computation of tax and credit. Again, the same topic, but again, those topics will be tested at a different level, maybe a little bit more of an advanced level, but the topics are the same. Moving to area five, which is the federal taxation of entities as I mentioned, it's trimmed down by at least 5%. The first area in this old A under section five, the tax treatment of formation and liquidation of business entities, this whole section is removed from here. So how to form and liquidate business entities, it's moved to TCP, moved to the advanced section. We have a new area, new A, which is called the differences between book and tax laws. It's not really new. It used to be the old B. So the old B became the new A because remember A is gone. So you're going to notice B is becoming A, C is becoming B, D is becoming C, so on and so forth. So you're going to see this. So this is not really new. This is not new A. It's a new A, the naming of it new, but the topic are the same, which is schedule M1, simply put. We have a new B, which is called C corporation, C corporation, and but it's a trim down. Now we have a new B because B is used to be the difference between the difference between book and the tax income. Now it's C corporation. But remember, C corporation here are tested at a basic level, the computation of taxable income, tax liabilities and allowable credit and state and local tax issued, but they're also trimmed down. But what we removed from B used, we used to have the following area under corporation, under the old system, NOL, capital losses, transaction between entities and owner, consolidated tax return, multi-jurisdictional tax issues, including state, local and international. Those are not gone. All these topics for a corporation are moved to the TCP. So when we go to the TCP, you're going to see those topics, but they used to be, they used to be the C corporation under the regular exam. So notice the C corporation is trimmed down. Let's look at the old C. Old C is the C corporation. Again, we talked about this. Now the new C is the S corporation. Remember, the new C is, is S corporation simply put, because we removed A. So everything is going up. Okay. So that's what's happening. So C used to be the S corporation used to be D section. And this is a little bit confusing. S corporation used to be the D section. Now since now it's the new C section. Once again, eligibility and election, determination of ordinary business income or loss and separately stated item will be would remain tested under the core rag. The basis of shareholder interest will be cover, covered, but also the same topic. The basis of shareholder interest will be covered in TCP. And this is what I hate the most about the changes about the tax, about the rag exam is some topics like basis, for example, under S corporation will be covered under the core rag and it'll be covered under the TCP. The following items were removed from the core, which is entity owner transaction, including contribution, loss and distribution, and built in gains. So those are removed from the core rag, they're, they're moved to the TCP. Again, now we have, remember, S, S corporation, I just told you used to be the old D. Now we have a new D, the partnership move to the new D. Just this is basically the, the categorization of it. We still need to know determination of ordinary income and losses and separately stated items. The basis of partner is interest, which is also covered in TCP, same issue as with the S corporation, but we remove the following topics from the core, partner and partnership election move to TCP, everything is moved to TCP here, transaction between a partner and a partnership impact of partnership liabilities on the partners interest in a partnership, distribution of partnership asset, all these topics and ownership changes in a partnership, all these topics used to be covered under the core. They're now they're moved to the TCP. Old E used to be a partnership. Again, now the new E is limited liability companies. Limited liabilities companies used to be the old F, no change here. You need to know few things about limited liabilities, limited liabilities companies. New F is the basics of tax exempt organization. Also tax exempt organization is covered in TCP a little bit more in detail. So you need to know a little bit more about tax exempt organization. Old D used to be trust. Trust is moved to the TCP and the old age tax exempt organization becomes the new F, the new F and a lot of these topics. Also new topics will be about tax exempt organization will also be in TCP. So again, tax exempt organization, you know, you need to know a little bit for the core rag and it's covered into TCP much, much more in details. So here's what we did. This is basically those two are this, those two are the same, the federal taxation, federal taxation of properties were taken some stuff out of it, not some a lot out of it, I would have to say federal taxation of property, a federal taxation of individual will adding more to it, we're adding more to it, and we're subtracting some of from the federal, we subtracted some from the federal taxation of entities. Now let's talk about the core, not the core, sorry, we're done with the core. Let's talk about the specialist, the specialization, the TCP and those are the four topics of TCP tax compliance and planning for individual. And let's start with that, that which is area one tax compliance for individual and personal financial planning. Now I'm going to show you the topics, some of the topics you might be familiar with them, familiar means you already saw them in the core. But at this level, they want you to kind of look at them from a planning or a compliance perspective. So the nature of the question will be little would require more of a judgment. That's the difference. For example, equity compensation award on taxable income, item effect and AMT, they're going to put back AMT, just the items affecting, you know, the items affecting AMT and how imputed interest below market rate compensation earn outside the US. I would say those topics used to be covered under the old drag, child investment and unearned income religious, the kitty, the kitty tax, it's basically the same, changing of tax rate on the timing of income and expense given a scenario, I would say this is a new topic, this will be a new topic. In other words, about income and expense shifting planning tax savings. Well, again, HSA and FSA, you should know the basics of them here, you're going to know how they save your taxes and questions, how do they save your taxes, how to use itemized deductions. Remember, we're going to learn about itemized deduction in the core, but now how to use them such as charitable contribution or other itemized deduction in for planning purposes. So notice, you're going to need to know them on a basic level in the core, then how they're being used for planning purposes to reduce your taxes, estimated tax payment to avoid the penalty. I don't believe this is a new, I don't believe this is a new topic. We are already learning about this in the core and here review on individual projected income and expenses prior to year end to determine the tax implication. In other words, there could be a simulation about this topic. Let's talk about tax planning, compliance for passive activity and at risk limitation. Is this a new topic? Could be a new topic, why not? At risk loss limitation, material versus passive participation, real estate rental activities. All these topics, you kind of touch upon them in the core and here you're going to look at them at a higher level, netting of passive losses and gain, but the higher level, it's going to be much more conflict, much more advanced than the current track. I'm not sure that's the question, suspended losses and disposition of passive activities. It's covered in the current track now, but it's going to be under the TCP now. Again, you could have a CPA simulation about this. Tax compliance and planning for individual, you could have also area C, gift taxation and compliance planning. I told you most of the gift taxation will be moved to this section, explain the unified transfer tax system. This used to be on the CPA exam, it was taken out, now it's going to be back. So you need to know what's the unified transfer tax system. This is will be considered new. Calculate the amount of taxable gift for federal gift tax purposes. Again, this used to be prior to this blueprint, now they're bringing it back. Identify the potential tax saving for gifting ownership. Again, used to be, but it's new compared to the current track exam, but it used to be in the past. Area that's totally should be new is personal financial planning for individual. This is new. This is new. For example, you need to know advantages and disadvantages of different qualified retirement plan like the IRAs, Roth IRA versus traditional IRA, 401K, annuities, set plans, so on and so forth. The risk associated with different investments options that such as equity, mini bond, corporate bond. Now we're talking a little bit more about investments. So this is basically new. I mean, those topics, the risks of equity, mini bonds and corporate bonds kind of do, do are covered in BEC, but I believe they're going to be covered from a personal investment perspective. Understanding the planning of funding post secondary education, including the qualified tuition program, student loan grants and scholarship. It's a quasi new because those topics, you would learn about them under the adjustments under the core, but here you are looking at them from a planning perspective. How do they help you save taxes? Insurance is used in planning to mitigate risk. This is new, including life insurance, long-term care insurance and umbrella policies. This I would say this is a new, new topic. Demonstrate an understanding of the implication of legal ownership of an asset, beneficiary designation on an, on an estate and it's beneficiaries new topic. And also you will expect, you'll be expected to prepare a schedule to be used in the net tax impact. So basically what's the savings net of tax giving a scenario? Again, those will be maybe a potential simulations corporations area to entity tax compliance. Well, they call it entity tax compliance. It's really the old reg, the old rack topic. You remember, we moved some of the C corporation. They are right here, net operating loss, transaction between shareholder and C corporation consolidated tax return international tax issues. Nothing new just moved from old drag to the TCP. Same thing with S corporation basis of shareholder interest. Remember, that's also covered in the core. And I hate this because how much coverage we should give in the core versus the tax compliance tax, tax planning and compliance. I don't know. It's tax compliance and planning transaction between shareholder and an S corporation. This, this is again moved from the old drag to the TCP section. Again, when it comes to the entity tax compliance, there's a section for partnership. Again, whatever we removed from the partnership from the core, it's moved to TCP area to entity tax compliance trust. Again, this is moved from the old drag and we have more coverage about the trust. We have, we need to know the different types of trust and income and deductions before it was just kind of knowing basics, you know, simple versus complex. Now we need to know a little bit more. Section e tax exempt organization basically the same as direct coverage, the current track coverage, because in the current track coverage, you will need to understand a little bit about how to get, how to be a tax exempt status and the unrelated business income. Those topics will be covered in TCP. Now, talking about entity tax planning, this is, I would say, it's not really new. The topics are not new, but the way it's going to be tested, it's going to be new because the planning aspect of it starting with section a formation and liquidation of business entities. This used to be part of the remember that topics that we removed it from formation and liquidation part a of the core. Now it's here. It's a bit more advanced than the old drag, little bit more advanced. It could be just a language. Again, how it's going to be tested, we don't know yet, but it's going to be from a planning perspective, but the topics we should be familiar with them. Prepare a schedule that's used as an input of the, to an entity selection decision to calculate the tax implication of a non-cash transaction for multiple entity types. Again, I'm not going to read them, but the point is they are quasi no, we should be familiar with them, but the way they're going to be tested, they're going to be tested on a different, on a different level. So we're going to have one about formation and liquidation of business entities in general, business entities in general. Then we're going to have planning for specifically C corporation here. You're a little bit more specific. We're talking about C corporation compute the potential tax savings from utilization of not operating capital losses and carry forward. We should be familiar with the topics, but how much they're going to be tested, we'll find out identify opportunities to optimize state and local taxes. Again, we, this is new. I would say because we never had to kind of look at different scenarios, how to optimize tax savings, calculate the effect of changing tax rate and legislation on the timing of income and expenses. This is tax planning indeed, shifting of income expense, income and expenses to safe taxes and calculate estimated tax payment for C corporation note in order to avoid the underpayment. Again, this topic is covered and we're going to see it again. And one more topic derived the tax implication to a shareholder for the proposed transaction after formation of the corporation. I would say this is new, but this is also an extension of section 351. We also have a tax planning for S corporation, S corporation. Let's take a look at those calculate the projected amount subject to built in gains. Again, we used to cover built in gains for a proposed disposition of an asset built in gains were cut are covered currently in rag. They are moved from the core. They're going to be here, but they're going to be tested from a planning perspective. Again, identify the implication of terminating an S corporation, which we already we learned about how to terminate again from a planning scenario from a tax saving scenario, drive the tax implication to a shareholder and S corporation for a proposed transaction after formation of the corporation. Here we're talking about quasi section 351. Also, we're going to be going back and discussing the AAA account, the AEP account, when it comes to distribution, a topic that we are familiar with. Nothing really new to us. Tax planning for partnership, tax implication for the contribution. Again, quasi section 351, tax implication of the various types of payment to a partner, including guarantee payment, non liquidating distribution, topics that again, they're covered right now, but not from a planning perspective. So that's, that's, that's the difference. Now area four, remember area four, we remove the disposition of asset and the property transaction. They're going to have their own section here, which is fancy word for section 1031. So basically 10 section 1031 will be covered here. Section 1231, 1245, 1250, 1244, all of those topics are covered now in rag. They're going to be moved to this area here. So 10, 20% of the current rag will be moved here, including the potential of a simulation. Also, under area four, under TCP, we're going to have related party transaction, including imputed interest. We already covered this in current rag right now. So this is not new topic. What is my summary about, about the new rag and the new TCP? Well, for one thing, if you don't like taxation, avoid TCP. So don't take the specialization. The only people I think they should take TCP is people who are working in tax. They have interest in tax, otherwise avoid it. Okay. So here's what's happening in the core. They're trimming down on property transaction, which is good. They're making it relatively easier, relatively less easier. They're expanding on the individual and individual relatively is easy, although they're doing more expansion, it's easier than property transaction. It's easier than business entities such as CS and partnership and they're trimming down on the business entities. So it's good news. If you're taking the core, it's good news. If you avoid the TCP unless it's your specialty, that's what you are. You are currently working in tax or you want to work in tax or you took tax one, tax two, business law oncology that very well you like the topics otherwise avoid it. Again, what I try to do is just give you a summary of the changes, make your own decision. Don't forget if you want additional resources, go to farhatlectures.com if you are studying for the CPA exam. Good luck everyone and stay safe.