Question 1

_____ 7.The taxpayer-use test for deferral of gain on an involuntary conversion requires the taxpayer to acquire property that has the same function as the involuntarily converted property that he or she used prior to the conversion.

Accepted Answer

False

Question 2

_____ 1.The holding period for property received in a qualifying like-kind exchange begins on the date the new property is received.

Accepted Answer

False

Question 3

_____ 17.Liabilities assumed by either a partnership or corporation have identical effects on the owners' bases in their ownership interests.

Accepted Answer

Liabilities assumed by a partnership or corporation have different effects on the owners' bases in their ownership interests. In a partnership, assuming liabilities increases each partner's basis, whereas in a corporation, assuming liabilities does not affect the basis of the shareholders.

Question 4

_____ 2.Boot received in a like-kind exchange never causes loss to be recognized.

Accepted Answer

According to the like-kind exchange rules under Section 1031 of the Internal Revenue Code, boot received (cash or property that is not of like-kind to the property being exchanged) may cause gain to be recognized, but never causes loss to be recognized.

Question 5

All of the following are deferral provisions except:
A)Sale of a personal residence
B)Like-kind exchange
C)Exchange of a life insurance contract for an annuity contract
D)Property transfers pursuant to divorce proceedings
E)All are deferral provisions

Accepted Answer

The sale of a personal residence may qualify for exclusion of gain up to $250,000 for single filers or up to $500,000 for married couples filing jointly, but it does not involve deferral of gain. B, C, and D are all examples of deferral provisions.

Question 6

Cal exchanges office furniture (fair market value = $100,000;adjusted basis = $90,000)and a business auto (fair market value = $10,000;adjusted basis = $6,000)for fire retardant filing cabinets (fair market value = $110,000;adjusted basis = $80,000).How much gain or loss does Cal recognize on the exchange?
A)0
B)$4,000 gain on auto
C)$10,000 gain on furniture
D)$14,000 total gain
E)None of the above

Accepted Answer

Cal recognizes a $4,000 gain on the auto because the fair market value ($10,000) exceeds the adjusted basis ($6,000). The exchange of like-kind property (furniture for filing cabinets) does not trigger gain recognition.

Question 7

Which of the following is not a characteristic of a like-kind exchange?
A)The holding period for like-kind property includes the holding period of the property surrendered.
B)Receipt of boot can cause gain recognition up to the gain realized.
C)Business realty can be exchanged for business personalty.
D)Personal-use assets do not qualify for like-kind exchanges.
E)All are like-kind characteristics.

Accepted Answer

The answer of Which of the following is not a...

Question 8

_____ 14.If a taxpayer's personal residence is involuntarily converted,the taxpayer can only defer gain by acquiring a new residence in the required time period using Internal Revenue Code Section 1033.

Accepted Answer

The answer of _____ 14.If a taxpayer's personal residence is...

Question 9

How much does a taxpayer in the 33 percent tax bracket save by deferring a $1,000,000 gain for 3 years using a 6 percent discount rate for evaluation?
A)$330,000
B)$277,200
C)$165,000
D)$52,800
E)None of the above

Accepted Answer

The taxpayer saves by deferring the tax payment, which is calculated as the present value of the tax savings. The tax savings is $330,000 (33% of $1,000,000), and the present value of this amount over 3 years at a 6% discount rate is approximately $52,800.

Question 10

_____ 12.A theft loss of $10,000 cash by an individual results in a $10,000 casualty loss deduction.

Accepted Answer

A theft loss is not automatically deductible as a casualty loss; it must meet specific criteria under tax law, and personal theft losses are generally not deductible after 2017 due to changes in tax legislation.

Question 11

_____ 3.A business airplane exchanged for a fleet of trucks,all used for the delivery of manufactured goods,is a qualifying like-kind exchange.

Accepted Answer

A like-kind exchange, under IRS Section 1031, requires that the exchanged properties be of the same nature or character, typically real estate. A business airplane and a fleet of trucks do not qualify as like-kind property.

Question 12

_____ 15.A taxpayer must transfer a sufficient amount of property,along with any services performed for the stock received in a corporate formation,for the stock received in the exchange to be used to meet the control requirement.

Accepted Answer

This statement accurately describes the requirement for a taxpayer to satisfy the control requirement when exchanging property for stock in a corporate formation. The taxpayer must transfer enough property, as well as any related services, to meet the threshold for control, which generally requires ownership of at least 80% of the corporation's voting stock.

Question 13

_____ 6.For a nonsimultaneous exchange to qualify for like-kind provisions,the taxpayer must identify the property to be acquired within 90 days and actually close the transactions within 180 days.

Accepted Answer

For a nonsimultaneous exchange to qualify for like-kind provisions, the taxpayer must identify the property to be acquired within 45 days and actually close the transactions within 180 days.

Question 14

_____ 13.To defer gain recognition on an involuntary conversion,qualifying property must be obtained within a specified time period.

Accepted Answer

This is true. In order to defer gain recognition on an involuntary conversion (such as due to theft or destruction), the taxpayer must obtain qualifying property within a specific time period. This is known as the replacement period, which is generally two years for real property and two or three years for personal property depending on the circumstances of the conversion.

Question 15

_____ 9.A condemnation is one type of involuntary conversion.

Accepted Answer

A condemnation occurs when the government takes private property for public use, and compensates the owner for the fair market value of the property. This is considered an involuntary conversion under tax law.

Question 16

_____ 16.Internal Revenue Code Section 351,relating to transfers to a controlled corporation,can apply to transfers to both a new and an existing corporation.

Accepted Answer

Section 351 of the Internal Revenue Code allows for tax-free transfers of property to a controlled corporation, whether it is a new or existing corporation.

Question 17

_____ 4.The holding period for boot in a like-kind exchange begins on the date of the exchange.

Accepted Answer

The holding period for boot in a like-kind exchange does begin on the date of the exchange.

Question 18

_____ 8.Both gain and loss are deferred in a wash sale.

Accepted Answer

The answer of _____ 8.Both gain and loss are deferred...

Question 19

_____ 5.Both gain and loss are deferred in a like-kind exchange.

Accepted Answer

In a like-kind exchange, both the gain and loss are deferred until the taxpayer sells or disposes of the replacement property received in the exchange.

Question 20

_____ 10.The loss on the total destruction of business property is always its adjusted basis regardless of fair market value.

Accepted Answer

The loss on total destruction of business property is calculated as its adjusted basis, which is the original cost minus depreciation, and is not affected by the fair market value of the property.

Quiz 8: Tax-Deferred Exchanges