Question 1

The holding period for nontaxable stock dividends that are the same type i.e., common on common) includes the holding period of the original shares, but the holding period for nontaxable stock dividends that are not the same type i.e., preferred on common) is new and begins on the date the dividend is received.

Accepted Answer

The answer of The holding period for nontaxable stock dividends...

Question 2

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

Accepted Answer

When property is received as a gift, the donee's basis is generally the same as the donor's adjusted basis. However, if the fair market value of the property at the time of the gift is higher than the donor's adjusted basis, the donee's basis is the donor's adjusted basis plus any gift tax paid on the transfer. This is known as the carryover basis. Therefore, in some cases, the carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

Question 3

The holding period for property acquired by gift is automatically long term.

Accepted Answer

The holding period for property acquired by gift includes the time the property was held by the donor, not automatically making it long-term. It depends on the combined holding period of the donor and the recipient.

Question 4

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

Accepted Answer

Lump-sum purchases of land and a building are typically allocated based on their relative fair market values, rather than being treated as a single asset. This is done to accurately reflect the value of each asset and ensure proper accounting treatment.

Question 5

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift assuming no gift taxes are paid). The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

Accepted Answer

The statement is true. Depreciation is based on the donor's adjusted basis at the time of the gift, regardless of the fair market value at the date of the gift.

Question 6

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Accepted Answer

If the adjusted basis exceeds the fair market value at the date of gift, the loss basis will be equal to the fair market value and the gain basis will be equal to the adjusted basis.

Question 7

Parker bought a brand new Ferrari on January 1, 2018, for $125,000. Parker was fatally injured in an auto accident on June 23, 2018, when the fair market value of the car was $105,000. Parker was driving a loaner car from the Ferrari dealership while his car was being serviced. In his will, Parker left the Ferrari to his best friend, Ryan. Ryan's holding period for the Ferrari begins on January 1, 2018.

Accepted Answer

The answer of Parker bought a brand new Ferrari on...

Question 8

For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock, the taxpayer is required to allocate a portion of the stock basis to the stock rights.

Accepted Answer

According to IRS regulations, if the fair market value of nontaxable stock rights is 15% or more of the fair market value of the stock, the taxpayer must allocate a portion of the stock basis to the stock rights. This allocation is necessary to accurately determine any gain or loss upon the sale or disposition of the stock rights.

Question 9

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Accepted Answer

This is generally true for tax purposes, as the date of death establishes a "stepped-up" basis for the beneficiaries. However, there may be exceptions or variations depending on state law or specific circumstances.

Question 10

If a husband inherits his deceased wife's share of jointly owned property in a common law state, both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

Accepted Answer

In a common law state, only the deceased's share of the property receives a step-up (or down) in basis to the fair market value at the date of death. The surviving spouse's original share retains its original basis.

Question 11

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot
identify the lot of stock that is being sold, he should use either a weighted average approach or a LIFO approach.

Accepted Answer

The answer of When a taxpayer has purchased several lots...

Question 12

If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.

Accepted Answer

In a related-party transaction where losses are disallowed, the holding period for the buyer does not include the holding period of the seller. The holding period starts anew with the buyer.

Question 13

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

Accepted Answer

The use of the alternate valuation date is optional and it can only be used if it results in a lower estate tax liability compared to the fair market value on the date of death.

Question 14

In 1973, Fran received a birthday gift of stock worth $75,000 from her aunt. The aunt had owned the stock adjusted basis $50,000) for 10 years and paid gift tax of $27,000 on the transfer. Fran's basis in the stock is $75,000-the lesser of $77,000 $50,000 + $27,000) or $75,000.

Accepted Answer

Fran's basis in the stock is the lesser of the donor's adjusted basis ($50,000) or the fair market value at the time of the gift ($75,000), which is $50,000. The gift tax paid by the donor does not affect Fran's basis in the stock.

Question 15

If the alternate valuation date is elected by the executor in 2018, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Accepted Answer

The answer of If the alternate valuation date is elected...

Question 16

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Accepted Answer

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Question 17

For the loss disallowance provision under § 267, related parties include certain family members, a shareholder and his or her controlled corporation i.e., greater than 50% in value of the corporation's outstanding stock), and a partner and his or her controlled partnership i.e., greater than 50% of the capital interests or profits interest in the partnership).

Accepted Answer

This is a correct statement as per the Internal Revenue Code § 267. Related parties include certain family members, a shareholder and his or her controlled corporation, and a partner and his or her controlled partnership if they hold greater than 50% in value of the corporation's outstanding stock or capital/profit interests in the partnership, respectively.

Question 18

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

Accepted Answer

When a related party transaction results in disallowed losses, the related party buyer may be able to use those losses to offset future income for tax purposes, resulting in a tax benefit. This is allowed under certain circumstances, as long as the transactions were entered into for a legitimate business purpose and are not deemed to be tax avoidance schemes.

Question 19

Wade is a salesman for a real estate development company. Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000. The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000. Wade must recognize a gain of $10,000 $100,000 developer's adjusted basis
- $90,000 cost to Wade), and his adjusted basis for the lot is $100,000 $90,000 cost + $10,000 recognized gain).

Accepted Answer

Wade must recognize a gain of $60,000, which is the difference between the fair market value ($150,000) and his purchase price ($90,000). His adjusted basis for the lot would be the cost to him, $90,000, not adjusted by the gain recognized.

Question 20

Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

Accepted Answer

This statement is true. Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

Quiz 14: Property Transactions: Determination of Gain or Loss and Basis Considerations