40.3 TCP Basis Planning and Entity Drill

Uniform CPA Examination Exam

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1 Chapter 1: CPA Exam Structure and Licensure Rules

1.1 CPA Evolution Model 1.2 Eligibility, Credit Window, and Scheduling Rules 1.3 Scoring, Pass Rates, and Blueprints

2 Chapter 2: CPA Scoring, Interface, and Exam Strategy

Score Scale and Testlets MCQ/TBS Weighting by Section Sample Test Interface Tools Exam-Day Time Management

3 Chapter 3: AUD Ethics, Independence, and Engagement Acceptance

3.1 Professional Responsibilities and Independence 3.2 Engagement Acceptance and Continuance 3.3 Audit Documentation and Quality Management 3.4 Audit Risk Foundations

4 Chapter 4: AUD Risk Assessment, Controls, and Evidence

4.1 Assertions and Risk Assessment 4.2 Internal Control Design and Operating Effectiveness 4.3 Substantive Procedures and Audit Evidence 4.4 Sampling, Analytics, and Estimates

5 Chapter 21: AUD Sampling, Analytics, and Accounting Estimates

21.1 Audit Sampling Risk and Sample Design 21.2 Substantive Analytical Procedures 21.3 Estimates, Fair Value, and Specialists 21.4 Data Analytics, Exceptions, and Follow-Up

6 Chapter 22: AUD Integrated Audits, IT Controls, and SOC Reliance

22.1 ICFR Integrated Audit Framework 22.2 IT General Controls and Application Controls 22.3 Service Organizations, SOC Reports, and CUECs 22.4 Control Deficiencies and Material Weaknesses

7 Chapter 5: AUD Reporting, Attestation, and Review Engagements

5.1 Audit Opinions and Modifications 5.2 Emphasis, Other Matter, and Going Concern 5.3 Review, Compilation, and Preparation Engagements 5.4 Attestation and Government Auditing Signals

8 Chapter 36: AUD Workbook - From Risk to Report

36.1 Risk-Assertion-Procedure Drill 36.2 Evidence Reliability Drill 36.3 Control Deficiency Classification Drill 36.4 Report Modification Decision Drill

9 Chapter 6: FAR Financial Statements and Reporting Framework

6.1 Conceptual Framework and Standard Setting 6.2 Financial Statement Presentation 6.3 Cash Flow Statement and Disclosures 6.4 Not-for-Profit Reporting Basics

10 Chapter 7: FAR Balance Sheet Accounts and Rollforwards

7.1 Cash, Receivables, and Reconciliations 7.2 Inventory and Cost Flow Errors 7.3 Property, Equipment, and Intangibles 7.4 Debt, Equity, and Contingencies

11 Chapter 8: FAR Selected Transactions and Measurement Models

8.1 Revenue Recognition: Five-Step Model 8.2 Leases, Income Taxes, and Impairment 8.3 Business Combinations and Consolidations 8.4 Accounting Changes, Errors, and Subsequent Events

12 Chapter 32: FAR Revenue, Leases, and Income Taxes Deep Dive

32.1 Revenue Contract Modifications and Variable Consideration 32.2 Lease Classification and Lessee Accounting 32.3 Deferred Tax Assets, Liabilities, and Valuation Allowances 32.4 Simulation Workflows for Revenue, Lease, and Tax Exhibits

13 Chapter 31: FAR Financial Instruments, Fair Value, and Derivatives

31.1 Financial Asset Classification and Measurement 31.2 Fair Value Hierarchy and Disclosures 31.3 Derivatives, Hedge Accounting, and Embedded Features 31.4 Foreign Currency and Comprehensive Income Signals

14 Chapter 24: FAR Consolidations, Equity Method, and Intercompany Workpapers

24.1 Consolidation Decision and Noncontrolling Interest 24.2 Acquisition-Date Measurement and Goodwill 24.3 Equity Method Income, Dividends, and Impairment 24.4 Intercompany Inventory, Debt, and Fixed Asset Eliminations

15 Chapter 9: FAR Governmental Accounting and Fund Reporting

9.1 Governmental Fund Types and Basis 9.2 Government-Wide Statements and Reconciliations 9.3 Budgetary Accounting and Encumbrances 9.4 Governmental and NFP Comparison Traps

16 Chapter 23: FAR Not-for-Profit and Special Reporting Topics

23.1 Not-for-Profit Net Assets and Restrictions 23.2 Contributions, Conditional Gifts, and Agency Transactions 23.3 Functional Expenses and Statement Presentation 23.4 Interim, Segment, and EPS Reporting Traps

17 Chapter 37: FAR Workbook - Journal Entries, Rollforwards, and Reconciliations

Adjusting Entry Workflow Account Rollforward Workflow Reconciliation and Error Correction Drill Statement Presentation Workpaper Drill

18 Chapter 10: REG Tax Procedure, Ethics, and Business Law

10.1 Tax Practice Ethics and Preparer Responsibilities 10.2 IRS Procedure, Statutes, and Penalties 10.3 Contracts, Agency, and Business Entities 10.4 Secured Transactions, Bankruptcy, and Priority

19 Chapter 11: REG Individual Federal Tax Workflows

11.1 Gross Income, Exclusions, and Adjustments 11.2 Filing Status, Dependents, and Deductions 11.3 Credits, Payments, and AMT Concepts 11.4 Retirement, Passive Activity, and Loss Limitations

20 Chapter 12: REG Property Transactions and Entity Taxation

12.1 Basis, Realized Gain, Recognized Gain, and Character 12.2 C Corporations and Shareholder Transactions 12.3 S Corporations, Partnerships, and Basis 12.4 Entity Tax Simulations and K-1 Workflows

21 Chapter 25: REG Entity Choice, Basis, and Owner Tax Consequences

25.1 C Corporation, S Corporation, and Partnership Comparison 25.2 Formation Contributions and Built-In Gain 25.3 Distributions, Redemptions, and Liquidations 25.4 Loss Limits: Basis, At-Risk, and Passive Rules

22 Chapter 26: REG Property Tax, Character, and Deferral Transactions

26.1 Capital, Ordinary, and Section 1231 Character 26.2 Depreciation Recapture and Unrecaptured Gain 26.3 Like-Kind Exchanges, Involuntary Conversions, and Installment Sales 26.4 Related-Party, Wash-Sale, and Imputed-Interest Traps

23 Chapter 33: REG Trusts, Estates, Gifts, and Exempt Organizations

33.1 Trust and Estate Income Tax Basics 33.2 Gift, Estate, and Beneficiary Planning Concepts 33.3 Tax-Exempt Organizations and Unrelated Business Income 33.4 Fiduciary K-1 and Distribution Simulation Workflows

24 Chapter 38: REG Workbook - Tax Return Schedules and Basis Workpapers

38.1 Individual Return Classification Drill 38.2 Property Basis and Character Workpaper 38.3 Pass-through K-1 and Owner Basis Workpaper 38.4 Business Law Issue Spotting Drill

25 Chapter 13: BAR Business Analysis, Economics, and Forecasting

13.1 Financial Statement Analysis and Ratios 13.2 Variance, Forecasting, and Budgeting 13.3 Cost Accounting and Performance Management 13.4 Economics, Finance, and Decision Models

26 Chapter 14: BAR Technical Accounting and Advanced Reporting

14.1 Revenue, Leases, and Complex Arrangements 14.2 Derivatives, Hedges, and Fair Value 14.3 Business Combinations and Consolidations 14.4 SEC Reporting and Public Company Context

27 Chapter 15: BAR State and Local Government Analysis

15.1 Governmental Fund Analysis 15.2 Government-Wide Conversion Workflows 15.3 Budgetary Reconciliation and CAFR/ACFR Reading 15.4 Government Simulation Strategy

28 Chapter 16: ISC Information Systems and Data Management

16.1 Systems Architecture and Data Flow 16.2 ERP, Accounting Systems, and Change Management 16.3 Data Governance, SQL, and Analytics 16.4 Availability, Backup, and Recovery Controls

29 Chapter 17: ISC Security, Privacy, and SOC Engagements

17.1 Security Threats and Control Selection 17.2 Privacy, Confidentiality, and Compliance Frameworks 17.3 SOC 1, SOC 2, SOC 3, and Cybersecurity Reports 17.4 Service Organization Exceptions and User Controls

30 Chapter 18: TCP Individual Tax Planning and Personal Financial Issues

18.1 Nonroutine Individual Income and Estimated Tax 18.2 Passive, At-Risk, and Investment Planning 18.3 Retirement, Education, and Insurance Planning 18.4 Gift, Estate, and Beneficiary Concepts

31 Chapter 19: TCP Entity Compliance and Planning

19.1 C Corporation Tax Planning 19.2 S Corporation Basis and Distributions 19.3 Partnership Tax Planning and Allocations 19.4 Trusts, Tax-Exempt, and International Signals

32 Chapter 34: TCP International and Advanced Entity Tax Topics

34.1 International Tax Signals and Source of Income 34.2 CFC, Foreign Tax Credit, and Permanent Establishment Concepts 34.3 Consolidated Returns and Affiliated Corporations 34.4 Advanced Partnership and S Corp Planning Scenarios

33 Chapter 35: Choosing and Preparing for BAR, ISC, or TCP

35.1 Discipline Fit Matrix by Background 35.2 BAR, ISC, and TCP Blueprint and Skill Comparison 35.3 Discipline Study Plans and Practice Balance 35.4 Switching Disciplines, Retake, and Score Interpretation

34 Chapter 39: CPA TBS Research, Authoritative Literature, and Document Review

39.1 Document Review Simulation Method 39.2 Research and Authoritative Literature Workflow 39.3 Exhibit Overload and Relevant Data Selection 39.4 Written Explanation and Professional Judgment Drills

35 Chapter 20: CPA Simulations, Retakes, and Final Review

20.1 TBS Exhibit Triage and Workpaper Method 20.2 Section-Specific Final Review Plans 20.3 Score Release, Retake, and Credit Window Decisions 20.4 Four-Section Study Roadmaps

36 Chapter 40: Discipline Workbook Drills for BAR, ISC, and TCP

40.1 BAR Ratio, Variance, and Government Drill 40.2 ISC Control Evidence and SOC Drill 40.3 TCP Basis Planning and Entity Drill 40.4 Discipline Final Mock and Review Log

40.3 TCP Basis Planning and Entity Drill

Key Takeaways Explain This Topic AI

TCP drills should start with taxpayer, entity, transaction, property, timing, and relationship classification before any calculation.

Basis schedules are the backbone of partnership, S corporation, property disposition, loss limitation, and distribution questions.

Planning answers must compare alternatives using tax character, timing, recognition, basis recovery, and cash-flow consequences.

Entity drills should separate C corporation, S corporation, partnership, trust, and individual rules before applying shared tax vocabulary.

A TCP review log should identify whether the miss was basis ordering, character, limitation, nonrecognition, or planning conclusion.

Last updated: June 2026

TCP workbook drill: basis, planning, and entity choice

Tax Compliance and Planning (TCP) is the discipline section for candidates who expect to specialize in taxation. It is four hours long, contains 68 multiple-choice questions across two testlets plus 7 task-based simulations across three testlets, and weights MCQs and simulations 50/50 toward the 75-point passing score. TCP practice should begin before the calculator.

The discipline is full of facts that look similar but lead to different results: a partner receives a distribution, an S corporation shareholder deducts a loss, a C corporation distributes appreciated property, an individual sells Section 1231 property, or an owner compares entity choices. Compute before classifying and you may build the right schedule for the wrong taxpayer.

The TCP five-step workflow

Classify the taxpayer and entity: individual, C corporation, S corporation, partnership, trust, tax-exempt organization, owner, or beneficiary.

Classify the transaction: formation, contribution, distribution, sale, liquidation, reorganization, loss deduction, or planning alternative.

Build basis: outside basis, stock basis, debt basis, inside basis, asset basis, at-risk amount, or adjusted basis.

Determine the tax result: realized amount, recognized gain or loss, deferred gain, suspended loss, deduction, or taxable distribution.

Assign character and planning effect: ordinary, capital, Section 1231, depreciation recapture, dividend, return of capital, self-employment effect, cash-flow timing, or compliance risk.

Basis drill table

Setting Basis focus Common trap Drill action

Partnership contribution Outside basis and liability shifts Ignoring debt relief as deemed money Track contributed basis and liability allocation

Partnership loss Outside basis, at-risk, passive limits Deducting a loss after basis reaches zero Apply limits in order and suspend the excess

S corporation loss Stock basis then debt basis Treating a bank loan guarantee as debt basis Separate direct shareholder loans from corporate borrowing

C corporation distribution Corporate gain and shareholder dividend treatment Forgetting gain on appreciated property distribution Compute corporate-level gain first

Property sale Adjusted basis and amount realized Treating all gain as capital Test recapture and Section 1231 character

Partnership and S corporation basis drill

For partnerships, draw two boxes: partner outside basis and partnership inside basis. Contributions generally carry over basis. Liabilities increase or decrease outside basis as the partner's share shifts; relief of debt is treated as a deemed cash distribution. Distributions reduce basis, create gain when money exceeds basis, and otherwise carry over basis to distributed property under the ordering rules.

For S corporations, build shareholder stock basis separately from debt basis . Stock basis rises for contributions and pass-through income, then falls for distributions, nondeductible expenses, and losses. Losses absorb stock basis first, then qualifying shareholder debt basis. A bank loan the shareholder merely guarantees does not create debt basis without an actual economic outlay. The ordering matters: increase for income items, decrease for distributions, then decrease for losses and deductions.

Property character drill

After computing realized gain, pause. TCP often tests whether gain is recognized now, deferred, or partly recaptured. Section 1245 property converts gain to ordinary income up to depreciation taken. Real property can trigger unrecaptured Section 1250 gain taxed up to 25 percent. Like-kind exchanges (real property only, after the 2017 changes), involuntary conversions, installment sales, and related-party rules change timing or character. Write three labels under every disposition: realized, recognized, character. If all three are not filled in, the answer is not finished.

Planning comparison drill

Planning questions are tax comparisons, not opinion essays. When asked to recommend an entity structure, disposition date, compensation method, retirement contribution, charitable gift, or distribution strategy, build a two-column table: Alternative A and Alternative B. Compare income inclusion, deduction timing, basis effect, employment tax or self-employment tax (an S corporation can save self-employment tax on distributions but requires reasonable compensation), owner-level cash flow, and compliance complexity. Then choose the alternative that best fits the stated objective.

Fifteen-minute TCP entity case

Use one integrated fact pattern: an owner contributes appreciated equipment and cash, the entity earns income, borrows money, distributes cash, and sells an asset. Solve it first as a partnership, then as an S corporation, then write three planning differences. This exposes the rules candidates confuse most: liability basis, shareholder debt basis, property distributions, loss limits, and character. Log misses by rule family, not by page number, and retest the same family within forty-eight hours.

High-yield TCP rules and traps

TCP rewards precise recall of recurring rules. Rehearse the following until you can recite them without notes:

Loss-limitation ordering. Pass-through losses pass three gates in sequence: basis (stock then debt for S corporations; outside basis for partners), then the at-risk rules, then the passive activity loss rules. A loss can clear basis yet still be suspended at-risk or as passive. Skipping a gate is the single most common TCP error.

Nonliquidating partnership distribution. Cash reduces outside basis first; gain is recognized only when cash exceeds basis. Distributed property takes a carryover basis limited to the partner's remaining outside basis, and no loss is recognized on a nonliquidating distribution.

C corporation distribution of appreciated property. The corporation recognizes gain as if it sold the property at fair market value (Section 311(b)); the shareholder reports a dividend to the extent of earnings and profits, then a return of capital, then capital gain.

Qualified business income (QBI) deduction. Up to 20 percent of qualified business income from pass-throughs, subject to taxable-income thresholds, wage and unadjusted-basis limits, and a phase-out for specified service trades or businesses. Watch the threshold facts in the exhibit.

Related-party loss disallowance (Section 267). A loss on a sale to a related party is disallowed, but the buyer may use the disallowed loss to offset later gain on resale.

Like-kind exchange scope. After 2017, Section 1031 applies only to real property held for business or investment; equipment exchanges no longer qualify and produce recognized gain.

When a drill miss involves one of these rules, do not just reread the explanation. Rebuild the schedule from a blank page, write the rule in one sentence at the top, and only then plug numbers. TCP simulations punish memorized answers that are not reconstructed from the governing rule, because the exhibit facts shift just enough to make a recalled number wrong while the underlying rule stays the same.