Hello and welcome to this session in which we will discuss the stock attribution rules section 318 of the IRS code Prior knowledge is essential for the session such as the knowledge of stock redemption. And what is stock redemption? Let's do real quick stock redemption is when you sell your shares back to the company Or when the company buys back the shares from the shareholder in the prior session We looked at stock redemption in details and for a stock redemption to be considered a sale It must result in a substantial decrease Substantial decrease in the shareholders interest in the company Now why do we have to determine whether it's a sale or an exchange? Because it makes a difference whether it's a sale slash exchange or dividend because it makes a difference to your taxable amount Well as a shareholder you would prefer that it's considered a sale or an exchange Why because when you make a sale you can deduct your basis It's gonna reduce your taxable income to figure out your capital gains or capital loss So one thing is you can deduct your basis. That's one. That's one benefit The second benefit if you have a capital loss You can deduct your capital loss against other capital gains and we discuss this in a prior session and we work several examples Corporate shareholder if you record if your corporation you would rather have The distribution treated as a dividend. Why? Because you have something called a dividend to receive deduction you include the income then you can deduct it So this is basically a quick review about stock redemption. Let's go back and look at quick example to see The big picture here. What what do we need to discuss? Let's assume? I own 60% of my company Farhat lectures my wife owns the remaining 40% I Sold all my shares back to my company. So I sold 60% of the shares back to the company Now my wife still owns 100% of the company now not still she still owns the 40% and the 40% becomes the only Shareholder and she owns 100% Now what happened to my ownership? My ownership went from 60 percent down to zero. Is this a substantial decrease? Well, that's not only substantial decrease. That's a complete Complete reduction of my shares Well in form it does in substance It does not in substance. I'm deemed to still own Farhat lectures I still own 100% through my wife. So this is what the stock attribution rules. So although I am out. I sold the shares I'm not really out. I'm Dean. I'm deemed an owner through my wife So who are these parties that makes you a deemed owner of the stock stock attribution rules? This is what we need to discuss in this session. Let's go ahead and get started before we proceed any further I have a public announcement about my company farhat lectures calm Farhat accounting lectures is a supplemental educational tool That's gonna help you with your CPA exam preparation as well as your accounting courses My CPA material is aligned with your CPA review course such as Becker Roger Wiley Gleam miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics My resources consist of Lectures multiple choice questions through false questions as well as exercises go ahead start your free trial today For the stock attribution rules You can be connected to the company through either family members like your wife We're gonna look at those rules a little bit more in details all through entity related Entity related relationship through a corporation or through a partnership Starting with the family. Well shares owned by immediate family members such as spouse children grandchildren Parents as well can be attributed at the taxpayer. Although you are out these individuals. They can bring you back in so you're not out really Not siblings or grandparents those that's okay. They own shares. You are not connected to them Let's take a look at an example Adam and Eve married couple each own 60 shares of Phoenix corporation To gather they own 100% of the company All the stock was purchased for 100,000. We're gonna assume 50,000 paid by Adam 50,000 paid by Eve now both Adam and Eve served as Directors of the corporation Now the corporation redeems buys back the 60 shares of Adam But he continued to serve as the on the board director of the corporation Okay, now this redemption is treated as dividend distribution assuming we have enough EMP because Adam still constructively Owns Eve's stock, which is 100% of the Phoenix stock now Adam's basis Of 50,000 is transferred to Eve's don't go away because remember Adams on the whatever the whatever the Sale happens to be let's assume the company gave Adam 300,000 this 300,000 becomes dividend So what happened to his basis that he paid? Well, his basis is transferred to his wife Now Eve's basis is 100,000, which is her 50,000 plus the 50,000 of Adams So the basis when she sells her shares the basis in the stock is 100,000 so bases don't disappear They got transferred to the person that still deemed you as the owner You could also be an owner through partnership attribution rules From partnership to partner for example a partner is considered to own stocks owned by the partnership To the extent the partners proportionate interest in the partnership. What does that mean? Let's assume if a partnership Owns 100% in a company company a and you own And a partner has and a partner has 25% in the partnership So the partnership owns 1,000 shares in company a you are 25% owner in this partnership You own 250 shares of company a or deemed to own them for this rule It could it could also occur from a partner to a partnership The other way around stock owned directly or indirectly by a partner is considered as owned by the partnership For example, if a partner owns 500 shares in a company The partnership is deemed to own those 500 shares It could also be transferred from partner to partner if a partner owns Stock directly or indirectly Any other partner who owns more than 50% of the partnership is deemed to own that stock as well For example of partner a owns 100 1000 shares in company a And partner b owns more than 50% of the partnership Partner b is considered to own those 100 1000 shares by partner a of company a You could also be connected through corporate attribution rules from corporation to shareholders and vice versa as well A shareholder is considered to own the stock Owned directly or indirectly by a corporation again in proportion to the share of the ownership in that corporation Example for example that the corporation owns 1000 shares of apple stock And shareholder a owns 10% of the corporation that shareholder is considered to own Deemed 100 shares of apple stock And conversely if the shareholder owns the stock the corporation is also considered to have owned that stock as well Now what are transactions that are treated as redemption? in other words What are some of the transactions that when the company buys back the shares from the shareholders? It's treated as a redemption It's treated as a sale where we have a sale minus the basis And that's what the shareholder want to get to the capital gain or capital loss Well the following are exceptions Distribution resulting in termination of shareholder interests Well, you just told me if I sell all my shares I might I might not I may not be out Well, we're going to look at specific rules. You may sell all your shares Even between a husband and wife and there's an exception where you can get out of it Then you are no longer deemed a shareholder would look at these rules Distribution for settling estate taxes. Well, the person dies Then we need to buy back their shares to pay for estate taxes. We'll look at that Distribution not fundamentally equivalent to a dividend and this is going to be evaluated by a subjective test This proportionate distribution. This is called the 8050 rule. That's also when it applies Now remember if the transaction not qualify as a stock redemption It's qualified as ordinary dividend assuming the company has EMP earnings and profit And remember if it's qualified as ordinary dividend the basis in the redeemed stock is allocated to the remaining stock owned Either directly or indirectly via the constructive ownership. So the basis don't go away. The basis are transferred. For example, they went from Adam to Eve because Eve is the person that kept Adam involved in this corporation. Let's take a look at exception one. Okay The complete termination is eligible for sale or exchange treatment Okay, but remember if you have a family due to the stock contribution It's often does not qualify at this proportionate redemption However, there's an exception family and attribution rules are not applicable if The former shareholder retain no interest except as a lender for a minimum of 10 years So you have to be out and you have to be out for 10 years. You can't go back and buy Any stocks now if you have a creditor relationship creditor means if you lend them money, that's fine, but you cannot be an owner Also, you have to send a letter to the IRS saying I am out for 10 years Also, you have to be out in terms of management consultancy advice You're no longer involved in the company except as a creditor if that's the case Then When I sell my shares, I'm not involved. My wife is still involved. That's fine. I'm out. I can treat the redemption as a sale Let's take a look at an example Thomas holds 60 percent in blue corporation The remaining shares are owned by his wife Amelia And 10 percent by Sophia a vital employee Blue corporation purchase all of the interest of thomas at its fair value What happened is a result what's left is Amelia and Sophia Amelia and Sophia remember Amelia owns 30 percent Sophia owned 10 percent now together they own the full 40 percent 30 out of 40 is 75 percent now Amelia 75 percent owner in Sophia 10 out of 40 is 25 percent owner so Amelia sell the major at 75 percent If the two requirements for the family attribution waivers are met If they are met the transaction would qualify as a complete termination and would result in a sale for thomas If the waiver are not satisfied Thomas will will deem to own the shares of his wife And the entire distribution will be taxed as dividend assuming we have enough EMP Let's take a look at this Continue with this example assuming that thomas qualify for the family attribution waiver In the year of redemption thomas will treat this transaction as a sale or an exchange however If he purchases Sophia start or get involved by any interest In the next seven years after the redemption what he has to do He has to tell the IRS I acquired a prohibited interest And as a result we have to go back to that transaction Where we redeem the shares and reclassify it as dividend So thomas must notify the IRS that that happened and he will owe additional taxes The second exception redemption to pay death taxes and other expenditure What does that mean? It means in case of death we need to The company needs to buy back the shares from the shareholder to give them some cash It could be considered a redemption This rule allow liquidity for an estate to pay taxes when it involved non publicly traded companies Usually this happens with small family business because they need money to pay the estate taxes So well if that's the case would allow you to redeem some of the stock the corporation to give you cash And it will be considered a redemption Sale or exchange treatment applies of the stock value Surpasses exceeds 35 percent of the adjusted value of the estate. What does that mean? What what happened when someone dies they look at the the fair market value of their estate? Look at everything from fair market value stocks bonds real estate boats airplanes, whatever they owned as long as 35 or more is tied up in stock Then we can liquidate and have it as a redemption if it's not 35 Then you can so the first thing these the stock value of the estate has to exceed 35 the stock This special treatment is restricted to the combined sum of death taxes funeral expenses at administrative cost So when you take out the money What's considered a redemption the amount that you use for death taxes funeral expenses and administrative cost anything else will be considered a dividend The basis of the stock is stepped up to the fair fair market value at the time of that all an alternate valuation date We'll talk about that later, but simply put Usually the redemption price will match the adjusted basis because in case of that the fair market the basis Equal to the fair market value Why because there's a step up basis So when you step up the basis and you sell the stock immediately the fair market value and the basis should be the same should be no tax implication Let's take a look at an example Victoria's adjusted gross estate is worth 30 million. So all her estate is worth 30 million That that taxes and the funeral cost expenses for the estate amounted to 2,880 The gross estate of the violet corporation valued at 11,200,000 So we have stocks in there and we have 11.2 million worth of stocks In this company and v company Well, let's take a look at the percentage if we take 11.2 million divided by 30 million So if we take 11.2 divided by 30 million, that's going to give us 37.33 percent We have enough stocks in the company to qualify for the redemption because it's more than 35 percent Victoria bought the stock eight years ago for 1.2 million. We really don't care Because what we're going to be using we're going to have a step up basis And the corporation redeemed 2,880,000 the needed amount for that taxes and for the funeral Okay As the value of the stock is exceeds 35 percent. We qualify for the 303 exception And what we do is we Liquidate the stock 2.8 million. We say the basis are 2.8 million. Therefore, there's no tax consequences third exception Not essentially equivalent dividend. This is where you have to argue that this exchange is essentially not dividend Okay It's basically it's a subjective determination This rule was specifically meant for the redemption of preferred stock but could apply to common stock as well So basically the preferred stock would say look I am buying you are buying back my shares, but I'm not really an owner. So it's really it's a purchase Common stockholder they started to argue look you're buying back my shares, but I'm losing a lot of control of the company I'm not I'm no longer in control. It should be considered a substantial reduction. Okay So the reduction must the redemption must lead to a substantial reduction meaningful reduction in the shareholder interest. Okay now What could be some indicators? What could you argue? You would argue that I'm no longer have a voting control I'm no longer in charge or you can say I am reducing my participation in corporate profit or liquidation Receive assets upon liquidation So let's take a look at this example. Again, this is a subjective measurement. Alex owned 75% of the common stock of phoenix After the redemption his ownership went from 75 to 65. Okay Alex still maintained voting control over phoenix. So for example, Alex cannot argue. This is a meaningful reduction Okay, consequently the the old the redemption the 10% redemption will be considered dividend assuming the company has sufficient earnings and profit How about if Alex goes from 75 to 40% Alex might try to argue. Look, I'm no longer in control I want this Transaction to be treated as a sale Just it's a subjective measurement The fourth exception is called the 8050 rule. It's a qualifying disproportionate redemption 8050 A redemption is seen as a disproportionate redemption if we have to we have to have two Conditions to be met The shareholder retained less than 80% of their previous interest post redemption So after the redemption he owns 80% less of his previous redemption not 80% of the company 80% less of his previous redemption and notice here and His shareholder total shareholder interest is less than 50%. So after the sale he owns less than 50% of the company And less than 80% of his previous Possession the best way to illustrate this with a number with numbers if shale holder owns 60 out of 100 So right now the shareholder owns 60% of the company This shareholder decided to redeem sell back 25 shares. What's left is for him is 35 now he owns 35 out of 75 simply put his his new structure of ownership is 35 out of 75 which is he owns now current ownership is 46.66 Which is less than 50% so the first The first condition is met. He owns less than 50% Does he less owns less than 80% of his previous position? Well, he owns 60% times 80% 48% He has to own less than 48% and 46.66 is less than 48% He met both conditions This transaction will be qualify as what as a redemption why he owns Overall less than 50% and he owned less than 80% of his previous ownership What's the effect on the corporation with the redemption if there's a gain or loss of property other than cash is used for redemption Corporation recognize the gain Not the loss. We already should know this rule. What should the company do under those circumstances sell the asset Sell the property recognize the loss use the proceeds to buy back the shares from the shareholders What is the effect on EMP? Corporate effect on EMP and a qualifying stock redemption means it's a sale Well, if it's a sale EMP is reduced by the sum not exceeding the proportional share of EMP attributed to the redeem stock Now you can reduce EMP, but it has to be in proportion to the ownership of the Person so if you reduce their ownership by 25 percent EMP is reduced by only 25 percent Bear in mind any corporate expenses related to the stock redemption Such as accounting brokerage legal loan fees are non deductible non deductible expenses Why because those are not expenditure needed to operate the business. This is not operating the business This is a finance. This is you're changing the ownership structure. This is a finance transaction. Therefore not operating expenses Therefore not deductible. You're going to reduce the equity. It's not deductible on the income statement not deductible for tax purposes ocean corporation Which currently has 200 shares of stock? In a qualifying stock redemption ocean corporation pays 300 000 to buy back 60 shares 60 out of 200 is this is a 30 percent redemption at the time of the redemption ocean paid in capital Has paid in capital of 200 000 and earnings and profit of 600 000 well EMP is reduced only by 180 Why 180 it's 30 percent reduction in the ownership 30 percent reduction in EMP This is what this is what this is what I just said earlier The remaining amount of the redemption reduces what the remaining reduces paid in capital reduced paid in capital We don't expenses not an expense not an expense. We just reduced paid in capital equity However, if 60 shares were redeemed for 100 000 instead The EMP would be reduced by 100 000, which is the exact amount paid by the corporation Not we don't we don't reduce it by 180 if we paid 100 our reduction is 100 000 So it's the lower you cannot go more than 30 percent But if you paid less well of the owner accepted less, that's fine Um, you will reduce EMP by less. What should you do now? You should go to far hat lectures look at additional mcqs true false additional lectures simulations that's going to help you understand stock redemption Stock attribution rules whether you are a CPA exam candidate Whether you are an enrolled agent or an accounting student invest in yourself. You need to know these topics. Good luck study hard And of course stay safe


Righty ho unlock the gates. Let's do this. Let's do this unlock them gates Dylan with the 200. Holy moly Holy moly. Thank you Now we have to go all the way down Wow You have also cheated total of one thousand four hundred and forty-four. That is a pretty satisfying number Not gonna lie Rose with the two. I appreciate it You have cheated total of seven that's getting up there that is getting up there. I appreciate it as well. Thank you both of you Righty ho. Let's get these guys down Dylan blonde cash, I know he just wants to solidify his spot was number one for the week It's just how he wants it to be and that's fine.  He's asserting his dominance Asserting his dominance on the leaderboard I'm paying your rent with the premium snapchat. I mean That's not a that's not a feature, but Yeah, that's not something you get from fitting that short thing Pitting is that a word probably not. Yeah Amazing. Thank you Dylan. Thank you Dylan. I appreciate it. Look. We have a Bonnie Anne amazing another Bonnie Anne So cool Blood flames Who do magic What's my only fans?  I don't assert dominance fair enough fair enough Just finalizing your place at the top of the leaderboard for the week. It's just how it works. I Mean I kind of am why I'm not I mean sure. Yeah, we have a we have a pretty long street as well What is our streak at the moment? It's um Our streak currently is at 448 448 That's some pretty Pretty long It's a pretty long time, you know Right that snake just Destroyed itself. It was dumb.  By the way, I don't even know Probably like one more I think actually wait no No, no, we've got Like one three I think I think three possibly four I Don't need to assert dominance. I annihilate competition fair enough fair enough Fear enough Let's go for this just because I can actually I need to heal you I'm not close enough range That's unfortunate. We'll do that then You can do that sure you can Make like a tree and get out of there Done I mean, we're not married, but I mean it kind of would seem like that I guess I guess you could say it kind of seems like that I guess Yes, so Let's see what happens now Here we go Let's see. How many are we gonna kill? Are we gonna finish this one? We're not really married. I'm Not gonna be married for a while We're just friends We're just friends Make like a tree and leave. Yeah, I Just say make like a tree and get out of here just because that's a name of the question was I can't remember which one of this But when's the wedding? That's a great question great question I I thought we've been over this Me and Rose are friends Fun fact for all those who didn't know that me and Rose are friends. Wow I'm not friends owning you. I'm just stating fact. Oh god Right Super Amazing Amazing super hit super amazing super hit and he's dead. Okay Popping off with heels heels for days. I'll heal Gracie next Um Someone told me they are watching my stream from discord noise Um, I heard I drew arts on the card and for what I mean, I mean I I'm just not gonna say anything because obviously I'm just wrong Obviously, it's just how it works Is this snake just not gonna do anything Because that would be funny. I'm not really but it would be kind of funny I Still don't get That joke on was to me. It's make like a tree and leave me alone. I mean Yeah, I mean, I guess it's kind of more like make like a tree and leave Because that's kind of how the saying goes but instead they just made it like make like a tree and get out of here Because basically leave but not quite, you know That's what I think the joke is at least That's why I now say make like a tree and get out of here and Get out of here. Yeah Because I think that's hilarious but I'm bum bum hill and Trap because we're just trap city here This is just trap city. I mean this guy better come and fight us. He's just staying there.  He might be broken. He's not even immobilized. Like what is this problem?  I believe in you hopefully follow through Relentless Look at this if it kidding if it kidding right here amazing As by always human counterpart we can actually get out. Yeah, that is true relentless No, I look at that fantastic Nice work there. Nice work. That's work. That's work putting in the hard yards there. Emma. Is my heel gonna pop off? I really wish it would have plugged in some unlucky, but hey, it's fine Eagle a mem non I Said it right. Look at me go to the palace Here we go Righty-ho Let's go like one two three four or we keep to go three four five. We'll do that then Can't hit them. So we'll just move you up there. You can go like that and Done easy peasy easy peasy. Let's get this done Okay Cuz remember our true form was the white head Yeah, with the shiny metal. Yeah Yep, that is that is our true form now and was This is our true form Will it remain our true form who knows but for now that is it that is it's our true form All that we have ever needed and more all that we have ever needed and more Okay Let us see what we can do here Actually No, I think you hit there Why doesn't was get fast combat to hi Tyler welcome Yeah, I mean, I think they were think they did mention something about that Or like thinking about it and a KL I've or something a wee while ago. So I would love it I would love fast combat and was I Mean even fast combat and pirate does feel a bit slow though not on life It's so much faster than like normal combat, but like it still feels way too slow How are you Tyler? How are you today my dude? Lag, what is this? Okay, don't worry. It's back. We back. Don't worry. We back. That was a beard. That was really odd peculiar in fact Okay, I think basically we got this Think we've got this We basically became OP in a fight 50k health with the mastery of all schools and always doing 9999. Yep, pretty much that was fun. That was a fun fight. I love that fight You're good. That's good. It is good that you're good How many more do we have I think we've got like two more fights, I think It's hard to know because like all of these are basically the same Please click done button to advance combat I Like how I'm stuck in a battle screen because Mac oof I've been called a hacker for winning the bundle Why? Why are you a hacker? Next thanks it does. Yep. This is me. I would love to I know the feels don't worry. I know the feels How are you a hacker for winning a bundle? I Don't quite understand how that works Watch me not do as well as the other guy because I don't need to No relentless Wow, I did two hits and not even a relentless. That's just rude honestly That's just selfish The only thing you hack is hearts Dykes That is a very passive aggressive wine as well Like very very passive aggressive. I mean there's a lot of things and like thing and like the games that are very passive aggressive Please click the done button to advance combat Like that is so passive aggressive. That's not even very that's just extremely passive aggressive I didn't even know that was a thing either Yeah, let's just back stab you Don't worry boys. I got it. I got it. I got it. I got it. I got it. I got it I got this I got this I got this. Let me let me try I get this I can do it It's all good for the same enemy No Still stuck. Oh, no. Oh, no If I don't do this, I'm gonna be actually kind of mad, but I should be able to I should be able to do this I should be fine Should be okay Relentless finally. Yes my one relentless that I have good job Oh You're good now. That's good. Well, I did it. Don't worry team. I did it. I'm good Oh, but wait, there's another fight. Wow, who would I have thought that haha? Mmm Righty-ho next fight. Let's go. There's just too many fights in this place. It's ridiculous We can do that sure you can do That sure it's gonna say like you cannot reach it up there at all Yeah, we'll do a critical boost done easy peasy easy peasy should be fine crit boost go and orders this nice way accuracy I think Yeah, just accuracy that one. I'll give some agility next agility accuracy and dodge next and double tap and We go for a nice way Dragons Dragons for agility agility dragons amazing spell power Agility more more times agilities epic hit boom Mega hit boom Not too bad Righty-ho. He didn't even get it. That's disappointing really really disappointing there. Oh well Maybe someone else will walk over that mine or get close to it. Yes pop off Bonnie. You can do it. I believe in you This is just quick crazy like That is crit testicle that's But wait, there's more critting Well, that crit buff is really good Plus all of the agility that she got she's just unstoppable All of these all of these guys are gonna be unstoppable all the musketeers are gonna be unstoppable You just throw up in your mouth Another good menu chat saying on whizzes. Did you win?  I have done old scratch once That was difficult. That was very difficult Very difficult very very difficult never again. I tried to I was trying to solo often I managed to solo all but um old scratch all of the original is sitting bosses, which I was quite proud of I was really proud that I could do that Press X to get on my mount. Yeah, that one's also pretty good. That one's pretty decent Let's go for that We can go for that. They're all just charging me. That's No, not what I wanted you to do. You can do that Get into the thick of it Right, let's see how this goes Let's see how this do Let's see how this do Hopefully this do well Should be good. Hopefully Maybe blocked nice Get rekt Follow through. Yep Vengeance strike. Do you have vengeance? You do have vengeance. Good job Relentless mega hit. Noice Bladestorm Noice. Relentless. Noice Relentless again. Super hit. You're just OP. Buccaneers are actually so good Like they are really decent. I really need to work on a buccaneer Mega hits Vengeance strike. Relentless More relentless even more relentless Recover orders. Wow finally and now an attack Noice look at that damage. That was crazy Um You can get on my mount any day. Okay. Thanks. I will keep that as the um I will keep that as a um In mind Shadow, thank you for the follow. Welcome. Um, we got to do mu-man shu And another time we do once I've finished with all of this. I'm gonna do I need to do it on my witch doctor first Um, and then I'll do it on my um Musketeer and then my privateer PJ thank you for the follow as well Um boom and boom Noice look at that. Is that it? That is a good job Good job. We did it. We did it team. We did it We did it This way. Here we go. Now we need to head to troi palace Finally storming the palace Can we go in please that'd be great. Thanks There's a life fountain in here.  I haven't done this in so long. I don't even remember what this is.  Don't even remember um Is find me the golden egg pirate great honor and the sacred water shall both be yours. I swear it righty-ho Next fights of more aphidian snakes.  They're just so annoying. They just keep coming They just don't stop coming So what um, you got to come to america sometime. I've already been to america um Pop onto my three person mount. Oh There's less sheep though Yeah, that's a that's a no for me That's a no for me. I've been to america nice place um Nice place great people, but you know been there done that not really but But yeah, maybe again another day sometime. Maybe who knows Who knows About the moment no plans to At the moment no plans to Righty-ho, let's see How are we go here? Nice we're blocking damage. Noice Okey-dokey, just get destroyed by the blood flames as you go. Don't worry about that Don't worry about that No burst fire kind of upsetting there Misery is the best state that sounds terrible Misery sounds terrible just saying Um The department stores of big here in america why I can just go to Auckland for that um Not that I would ever want to go to Auckland But I could I could um What do we have we have 25? absorb and then prevents 50 We're gonna just cut that um and that one Uh, we're gonna go for that one I'm gonna go for that you can do that Water received captain Done should be good Righty-ho who has not pressed Done to continue to forward combat Um Go to the barn place. What was it called? Steal from everyone's doing it. What pottery barn? The cool thing about misery is that um someone tries to Shoot up a place you can shoot the back You have the least the least stressed open carry laws in the world. Congratulations. Congratulations I am proud of your state for doing that Definitely Um, whatever works there Whatever works for you guys, you know Whatever works Chickens god love chickens love me some chickens High fives for the second amendment boys Oh Yeah, we got all of our guns confiscated in New Zealand as of Friday. So that's fun Or all of the dangerous ones apparently I'm pretty sure that they haven't all gone Um, but you know, that's fine. It's the thought that counts, you know Why do something actually productive when you can just think about something productive possibly productive? Who knows? Um, yeah You never hear about the ones where the victims shoot back. That is so true. That is really true That is very very true Um Does everyone stab people now? um Well, I mean, it's only been since Friday So no But then I haven't really read the news. So maybe maybe Or you could just ram a car and I mean we have more of a problem of people dying in car crashes than anything else We literally have one person die a day At least sometimes like five or six. So I think there are other Things that we need to worry about before guns, but that's just my opinion. You know, that's just my opinion Could be wrong Most likely is wrong, but just my opinion there at least in New Zealand I don't know about other countries and I'm not gonna talk about their politics because it's not my place to say But at least in New Zealand, um, Tyler, can you watch your language, please? Can you watch your language, please? Um, I wish someone would stab you. Why would you want someone to stab you? That's just sad That's just sad reacts on me Well, there we go boys. We did it. Nice work Look at that another quest another battle not quest another battle done Righty-ho finding the golden egg. Can we do it? Probably not Because we're bad just all of the footsteps just hear them behind me just constant footsteps We don't have four people. Damn it. That's a four person chest They time to shake the pillars of Elios only it was a three person chest. That would have been cool That would have been really cool. Oh well. Oh well, um Two more fights after this well two more fights including this. Sorry sweet. Um, does this game get updated? Not really. Um You've got media channels with the anti-gun agendas. Oh, don't worry. I know about that.  Yeah, I mean I mean that happens everywhere, but they complain about a high death road toll um And then and then they ban guns.  So that's fun. Um Yeah You almost got hit yesterday. Some old lady wasn't watching the road.  So annoying Whoa crit chance. What are you good?  Um, I'm I'm the old lady beat me It's like you've been doing this for like 80 years. You should know how to drive I mean very true very true Sometimes things just work better in theory and not in actual practice The u.s. Shouldn't miss more in public transportation. I think New Zealand should as well um But then I'm also I'm also for like free public transport um Especially especially since um, you know climate change and Carbon fuels and stuff like that. There should definitely be more of a emphasis on um freer public transport Because currently for me it is cheaper for me to drive a car Um to get to work every day then go on a bus because it just is cheaper to do that So Yeah, which is not It's not ideal. Why why should that be Like the cheapest option in this day and age since there is such a threat of climate change If you don't believe in climate change, that's fine, but I'm just saying that is quite a um major issue at the moment So, yeah, I think I don't think that's right, but hey, that's just my opinion. Um Do didn't do didn't do didn't do didn't I could ride the metro, but I'll probably get stabbed. Yeah Honestly, we should all just get jetpacks jetpacks. I could get behind. I would love a jetpack I would love a jetpack. That would be cool. That would be so cool Over here. They should have built metro station, but they couldn't because they're lazy. I mean, that's just everything though They could have done this but they decided not to because it was too much money Story of my life really, um Like the scene from the joker brings us to stabby good. Maybe I haven't seen it. So I have absolutely no idea what you're talking about But I'm glad that it is a good movie I'm glad Right that is that nearly done. We've got what like three left three left maybe Four left actually I can count don't worry But half health mega hit during during during nice Relentless Oh dodge unlucky Unlucky okie dokie. Don't hit bonnie. That is rude. I need to heal her now. That ain't good That ain't cool zero out of 10. Please stop Actually, I might just put an absorb on her just because just because why not Just because why not I might as well. I have it. I don't really use it much So might as well do it might as well do it That file is it is also really cool. That is such a cool pair Such a cool pair. Okay, it's an absorb It is an absorb um You can do that You can't do anything because you're useless You can only hit that one Okay, hit that one Do that one um I'll get The other guys I'll get the other guys don't do and stuff. Um Let's have hex in the commons Maybe one day. We'll see You take the train a lot to the city and people can be crazy And they're quiet coach people get so angry when somebody whispers Yikes sounds bad. We don't have trains in our city There's only like two cities in New Zealand that have trains and that's Auckland and Wellington um And they always break down and stop so not really useful Do Why not now because I'm playing pirate that's why not now That is why not now Take it to the die shop. Oh I never took training your time life. I have taken a train before I've taken a few I just we just don't have commuter trains. Um Because that's just not something we have in our city um Unfortunately, unfortunately, they always seem to break down here. So I mean So, you know, I don't know if it's a good thing or a bad thing really.  They just won't be going for like technical reason anyway So there's no real point having trains in New Zealand because they just never work. They just never work. It's so annoying well gg gg nice work righty ho Last fight I believe in this area and then we will have a quick break and then go and do Bonnie Ann's Side quest thingy um, who is this Who'd be dis who dis? Oh epic fight Um, well, I'm just going to use these two because might as well might as well What level do you do I get faint? Yeah level 26 26 is the earliest you can um get faint That sounds good. We'll summon a hero of mollybone Tomorrow morning you have to take the train to manhattan for last minute christmas gift. Oh Tomorrow morning nash tomorrow afternoon. I'm flying to in the cargo for christmas So I need to wrap all of the presents that I got um tonight. I think probably tonight probably end up doing it tonight. Maybe maybe Maybe who knows I have food here. I only just realized this. I'm getting hungry and I'm like I need food But I have food here. So it's fine. It's perfectly fine.  It's where my um, dad's parents and um, my dad's parents I said parents. What the heck my dad's um parents live That's how you spell it In chat I feel like you mess make up new zealand names just to mess with americans. No, you can google it as a completely real real place Or at least it was last time I was here um I mean, there's not much you can do there so Yeah, but it is a real place a real city in the very basically the south of the south island of new zealand fun fact Righty ho, how are we going here? How are we going? Why have I said righty ho too much? I think I've said it way too much today, but that's fine City in the south island of new zealand No, wouldn't you look at that exactly? See told you Told you it's real Did it just stop existing since our time? I mean I might have but you never know Say crayon. Why do you want me to say crayon?  It's obviously arkansas not arkansas. Just saying Just saying uh here in the midwest we pronounce it Crane That's weird. Yeah, I know it's not pronounced arkansas is arkansas How do you get arkansas from that anyway? Like how do you get sore? Like there's literally no sore there at all Just saying but like Seriously, how why I don't understand cranberry cranberry Cran like Cran That's weird America I am confusing america explained Arkansas there we go. That's a more bitter. That's a better spelling of arkansas Um, I hate it. Thanks tux It's actually sess not sore If that's not called arkansas is it? It's arkansas You guys are weird and you complain about my weird city names disappointing Disappointing Honestly very disappointed in your Or should I say y'all? Um, that's probably how it is spelled in a different timeline probably Probably I mean at least in vikago has literally said how it is spelt at the end of every sentence. I say the wrong cranberry. What? I'm so confused. I don't even know what's happening anymore A lot of our names were stolen from the uk too. Don't worry Don't worry It's like we have new plinth Very original just put new in it boom whole new place And what's really funny? We have two parmesans. So we've got parmesan and parmesan north Um So that's funny Um Yeah, plinth as in ply mo th Yeah, that's how that's how it's spelled. It's like the one and um Like the what plinth from england Because england is our city not really maybe one day. Um Pop off a hill real quick. We'll do that. Gracie's just like just chilling here at the back just doing nothing. It's great. I love it. Um Yeah, obviously york, what else do we have? We have um, we have a couple. We don't have many I mean most of them are Sort of like original names But yeah Those that's probably like the most um Most notable one Uh plinth one new plinth. I should say Most of the others are basically like original I would say Pretty original So, yeah Yeah That's um, that's new zealom for you though Um The second You enter misery you just start crying really if you aren't crying they stop you at the airport really Oh, they're not go there then. I have no tears left to cry. Um Then slap us on Righty ho let's see. What is next? I mighty eaglem afnan fulfill the will of the immortals pirate What is this? No, is this captain if you still seek the sacred water of the oracle?  Let me lend my spear to your quest and I shall be honored There's a new person. He has second one. Whoa He'll up to 50 health. Uh hold the line and turn the tide nice. That's actually really cool Really really dope. Um new new boy in our ranks Easy peasy. He is probably level 61 62 in fact. Are we level 60? Oh, yeah, we are level 60 I don't know why I didn't think we were but we are and now we need to go to Delphos. Um What would be the easiest way to get there probably this way Probably this way Um, all your friends are dead Uh-huh Except for me. I'm next. I don't like the sound of that at all. I really don't Just really don't like that at all Um, but yeah, that was cool. Let's go to The oracle and finish off this quest and then um, what time is it? Nearly two o'clock. I might end off for today and we'll do um the rest of this stuff another time the rest of Bonnie Ann's quest another time maybe before we start the Before we start the next stream or I might do it after stream And we'll call it we'll see but yeah, we'll head over to the oracle. I'm gonna do this while we're waiting um Let's not run into things please or get pulled by Cyclopes Cyclops Cyclops is there's one the right cycle pie cyclop. Hi. Is that right? I don't know. I don't know We'll get the rest of the seat. Um Okay, and we go to ship get in the ship Get in the ship. Thank you. Um, everybody for your help as well. Um pj and ducks. I appreciate that Really appreciate that much helpful such well Uh Let's just boost out of here. So we don't get into any fights not a fan of fighting ships by myself Not cool done too much of that And we will head over to um the oracle lady thing person thinking of a joke Who is just here Love you too. I will not call you but I love you too. Don't worry. Um, let's head to Oracle Is this way hi Hi people We're going to see oracle lady. I heard she's pretty pretty cool. So we're gonna see if you guys are not your lame Those guys down there. They're lame. They're not allowed up here because they're lame, but we're not we're cool Hi oracle Level 61. Wow. What a way to end the stream. Nice and we got a hoplite shield Jam is not good and a golden chicken And now basically we need to go and find argos for the map piece Which is basically the whole next chapter of the um the world Um, which we will be continuing in a couple of days. I will be off streaming for the next few days. Um The next time I am streaming is on Uh, let me quickly bring up my schedule is on thursday my time At late and we'll probably be doing some whiz stuff or something of the sort. Um So, yeah, the streaming schedule as always is uh down below Um, or in my discord, which you can join exclamation point discord Um, you can also follow me on uh, subscribe to me on youtube where I post videos basically every single day Um, which is exclamation point youtube Um, but yeah, otherwise, thank you for stopping by. Thank you for all of those who helped me I appreciate it. Great. Um, I'm gonna quickly see if we have anybody we can raid Uh, I don't think we do have anybody playing pirate. Um, otherwise We will just end off really quickly I think I'm just the only pirate streaming I am I'll see who's playing whiz real quick Whoa dylan thank you for the 20 bits. I appreciate it my dude um Nobody to is any raven community people streaming No, um, right, so we're just gonna end off. Thank you for stopping by. Thank you for coming along everybody I appreciate you and I will catch you all in a couple days or tomorrow if you're watching my youtube video tomorrow Death walkthrough by the way, so don't tell anybody but that's what it will be the last episode So yeah, thank you for watching and remove the crafts outside the box


Hello, everyone. I'm Julian. And today I'm going to discuss my recent work, how to build a trapdoor function from an encryption scheme. And this is a joint work with Sanjim Garg, Muhammad Ajiabadi and Rafael Stroski. Before telling, telling what this work is about, I would like to revisit some concept, some basic concept in cryptography, and this will allow me to establish some notation for later. So on the left, we have the standard notion of public encryption, which consists of three algorithms, a key generation and encryption and a decryption algorithm. And they are defined naturally, namely that the key generation outputs a key pairs, the secret of public key. And together with the public key, the encryption algorithm allows anyone to encrypt a message M. And with the usage of some random coins are and the result in cyber text can be decrypted using the secret key by the decryption algorithm. On the other hand, the trapdoor function is a very related notion, but there's slightly different interfaces, and I'm going to go through them and I like the difference in a second. So the first algorithm is analogous to the key generation algorithm outputs an index key that shall be thought of as the public key of the scheme and a trapdoor TD that should be taught as the secret key of the scheme. And the index key allows everybody to evaluate the function F in the forward direction, namely given an input fx, we can compute f of x efficiently. The important property of the trapdoor function is that it's efficiently invertible awesome. Namely, we can evaluate F in the inverse direction. But for this we need the knowledge of the trapdoor. And besides having different name names for the variables. The exceptions have also slightly different syntax, namely, that in terms of correctness, the public encryption does not require the decryption algorithm to recover the random mess used during the encryption procedure. Whereas on the other hand, the inversion of the function of the trapdoor function requires one to recover the entire input x. So this is an important difference. And it's the central focus of this work. And of course, it's pretty easy to see that trapdoor functions generically imply public encryption, but the other direction of the implication is not known. And the focus of this work is to make progress on this question. So if I'm telling you what the exact results of this work are, let me tell you exactly what kind of security we want from from a trapdoor function. And the canonical security notion is that of one way. And my witness intuitively says that the function should be our twin bird. But of course, we need to define a distribution over the inputs. The easiest distribution is just when the input tax is uniformly sampled over the domain of the function. And we call this notion, just simply one way, one witness. But we can ask for something more, namely, we can require x to be from an arbitrary distribution, as long as it has enough enough enough mean entropy. And we call this requirement that deterministic security. And this is of course a strict generalization of the uniform case. And for those of you who are familiar with the concept. This is also called deterministic encryption in the literature, depending on your talking. So, here are our results. So our main result is a compiler that starts from a primitive which we call robust in team PRG which is something we define in this work. And we also provide a construction from either the learning with our assumption or the computational detail on assumption. And takes takes this building block together with a public encryption scheme and obtains the corresponding trapdoor function. Depending on the exact public key that we probably key encryption that we plug into our compiler, we obtain a slightly different flavor of the after function as an example. If you if you plug in an identity based encryption we obtain something which is called identity based trapdoor function. On the other hand, if we plug in an attribute based encryption. We obtain something which is called an attribute based trapdoor function, and the same holds for for predicate encryption. And all of this, all of this trapdoor functions they satisfy the strong notion of deterministic security. And the one caveat of this transformation is that the input public key encryption needs to have pseudorandom ciphertext over some over some group, which is doesn't have to be an obedient group. It needs to be, it needs to be well defined group operation. But natural schemes always satisfy this, this requirement. And so, right, so what does our, what does our work advance in the grand scheme of team of things. In the F, it doesn't really imply any, any results from any new assumption that we didn't know before besides giving a modular, more modular way to construct trapdoor functions. But already in terms of identity based trapdoor functions. We show the first construction from the competition or the family assumption and pairing three groups. And in terms of our work, we only knew how to construct identity based trapdoor functions from pairings or learning with ours. And in terms of attribute based on trapdoor function and predicate trapdoor functions, we are not aware of any other world to obtain a construction under any computational assumption, whereas by plugging in the appropriate. We obtain constructions from by inner pairings for NC one predicates and from LWB for all for all polynomial size circuits. So this is our main result. And as a bonus, as a bonus result, we introduce a notion which is called trapdoor garbling. And the syntax of trapdoor garbling is exactly the same as any other garbled circuit scheme. And so given a common randomness are there's a garbling garbling scheme consists of a garbling procedure that takes as input a circuit and outputs garbled version of the circuit city. And there's an alternative encoding procedure that allows one to encode prepare an input X, and using the same, the same pool of random coins. And normally, the standard syntax of garbled circuits allows one to recover covex, whereas we have slightly orthogonal requirements, namely we have a decoding algorithm that takes input both the garbled circuit and the garbled input. If the circuit evaluates one, then the decoding output just the output of the circuit, red, whereas if the circuit evaluates to zero then the decoding also outputs the entire set of randomness so in a sense we make garbled circuits and the randomness recoverable. We use this as an intermediate notion to achieve stronger security guarantees for our trapdoor functions but we believe that this is a notion of independent interest, and actually constructing it turns out to be quite non trivial. And we propose two constructions. One from the DBH assumption and one from the LW assumptions, and those use the randomness key circularity properties of the BHHO encryption scheme. And if you're curious I encourage you to use the paper there to see the paper. I believe that this primitive will find some interesting applications. Okay, so now throughout the rest of the talk, I'm just going to ignore this part. And again I encourage you to look at the paper if you're curious. We're going to focus on our main compiler. And before getting into our construction I have to define what are in team PRG is in particular what are robust in team PRG is. So, hidden PRG PRG stands for pseudo random generator by the way. In team PRG start with the sampling of a uniform seed, and the robust, the robust requirement comes from the fact that we don't limit this distribution, the distribution of the seed to be uniform but again, we consider arbitrary distribution, so long as they have enough probability mass. And well the idea is that this this Indian PRG will take this seed, which for simplicity now we consider it to be a binary string from 01 to the power of lambda, and produce lambda many L bit blocks so while setting L to be greater than L can be can be thought of as the as of the stretch of the PRG so by setting it greater than one will obtain expanding PRG. And it is useful to visualize the transformation of a hint in PRG in blocks, which will keep for for the rest of the talk. And now the important part of in team PRG is their security definition and their security definition is as follows, we wanted to to distribution visualize here are computationally distinguishable. On the right hand side, we have a distribution of lambda many L bit blocks, which are completely uniform so they're just uniformly sampled and arranged in this to buy and matrix. On the left side on the other hand. We have to buy and matrix where the for each column the row corresponding to the bit of the seed is set to be the I block of the hint in PRG, whereas the other row is set to be a uniformly sample block. And again the requirement is that these two distributions are computationally distinguishable. I think it's useful to to remark that such security does not follow immediately by a hybrid argument of a PRG. And the reason is that the position of the blocks on the left distribution depends on the big representation of the seed so there is a circularity in the argument that one cannot just wash away with a hybrid argument. So you need more structured assumptions in order to construct those. And we show in the paper how to construct these from from the computation of the problem or from the LW assumption, though our construction are heavily based on prior works and essentially account only for changing the parameter and a slightly different analysis. Okay, so with that out of the way I'm ready to present our main construction, which is a way to compile a public encryption into hint in PRG. And we call this in the paper, a universal TDIR, and it works as long as the public encryption has pseudo random ciphertext. And for the sake of this talk I'm just going to assume that they are just uniformly or computationally distinguishable from uniformly sample binary strings. And again for simplicity I'm going to only treat the case of public encryption, whereas the case of identity based encryption and attribute based encryption will follow. Essentially immediately. Of course in the paper we present this in the most general form as possible. So these are the ingredients. So all it's left to do is now to describe our trapdoor function. The next key consists of the public key of the public encryption scheme, the public parameters of the Indian PRG and Lambda many uniformly sample string from the domains your one gamma, where again gamma is the domain of the ciphertext. The trapdoor, naturally, of the of our of our trapdoor function is said to be the secret key of the encryption scheme. Now let us see how to evaluate the function. So the function is going to be evaluated bit by bit on input. We're going to set string x for all indices I in one to lambda, we're going to set why I to be an encryption of zero. So there's actually nothing special about zero this can be actually any distinguished strings so long as it's going to be publicly recognizable, we just set it to zero for convenience. So one coins of this encryption scheme is going to be the ith block of the Indian PRG evaluated on x. So this is what this notation means. So here there's an index I here. So this is going to be what why I set if the ith bit of x is equal to zero. Because if the ith bit of x is equal to one, we're going to set it to be the same thing, except that we are going to explore the resulting ciphertext with our eye, which is the ith block of the public parameters. And recall that the ciphertexts are in are always lambda bit string sorry always gonna be string so this operation is always well defined. Good. So now, why I up to my land is just going to be the output of our trapdoor function. And so let's see even the trapdoor we can invert it. So we can recover essentially the input bit by bit. Again, for indices I from one to lambda, we can just set Xi to be equal zero. If the description of why I is equal to zero. And one otherwise, and correctness is actually pretty easy to argue, though one has to be a little bit careful about the union bound that doesn't kill the efficiency of the scheme. As I said, this is pretty much our compiler. And it is so simple that I can even give you a proof sketch why that should be should should satisfy one wayness. And after that is going to be the conclusion of my talk so bear with me for a few more minutes. And as usual, the proof will be by hybrid hybrid argument, where we're going to modify the distribution of the challenge image. And then we're going to argue about the indistinguishability of neighboring distributions. The hybrid is just the original distribution the challenge images sample uniformly from the from the distribution as defined by the trapdoor function. In each one we're going to program the index key after seeing the challenge image. So namely, the blocks are I to be as follows so for each for each index I from one to London. If Xi, which is going to be the challenge pre image, if Xi is equal to zero we're going to set our eye to be why I which is again an encryption of zero using the random coins as the random coins the I block of the Indian PRG. So this piece here, absorb with some uniformly sample string as I again as I is sampled from the from the property domain. Whereas if Xi is going to be equal to one, we're going to sample why I uniformly and our eye as the XOR of this uniform string with an encryption of zero using the appropriate block of the Indian PRG. And actually, if you squint very, very, very carefully, you will notice that we didn't really do anything. We've just been moving variables around so this these two distributions are actually identical. So, so far nothing has happened. So in the next step. Instead of computing as I uniformly, we're going to compute it as an encryption of zero, although note that I'm not specifying the random coins here. So this means that Xi is going to be sampled using uniformly sample randomness. And now we can argue that since the encryption scheme is to the random ciphertext and encryptions of zero computation in this indistinguishable to to random string that's the definition of pseudo random ciphertext so computation and distinguishability of these two hybrids follow. Now in the next hybrid. We're going to compute all ciphertext as encryption of zero using truly random coins and the security here does not follow immediately from the fact that the coins are super random but one really means the security of the Indian PRG. And the reason is that the position of the ciphertext does leak something about the seed, but it turns out that that leakage is precisely the leakage which is allowed by the Indian PRG. So, again computation and distinguishability follows follows by a simple invocation of that property. And finally, as the last step, we can change all ciphertexts of the challenge image as encryptions of one. And at this point, since all ciphertexts were previously computed with truly truly uniform coins. We can appeal to the CPA security of the encryption scheme. And finally the proof is concluded by observing that at this point the challenge image is no pre image and therefore it cannot be inverted. And with this, I would like to thank you for your attention and conclude my talk.