Question 1

The basis of property received by inheritance is a carryover basis.

Accepted Answer

The basis of property received by inheritance is generally the fair market value at the date of the decedent's death, known as a "step-up" in basis, not a carryover basis.

Question 2

Purchased goodwill is assigned a basis,but developed or self-created goodwill is not assigned a basis.

Accepted Answer

Purchased goodwill is recorded as an asset with a basis equal to its purchase price, while self-created goodwill is not recorded on the balance sheet and thus has no assigned basis.

Question 3

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

The statement accurately describes the definition of related parties under § 267 for loss disallowance provision.

Question 4

Cassie purchases a sole proprietorship for $125,000.The fair market value of the tangible assets is $100,000 and the agreed to value of goodwill is $15,000.Assuming there are no other intangible assets,Cassie's basis for the tangible assets is $108,696 ($100,000 + $8,696)and her basis for the goodwill is $16,304 ($15,000 + $1,304).

Accepted Answer

Cassie's basis for the tangible assets should be $100,000, and her basis for the goodwill should be $15,000. The total purchase price of $125,000 is allocated to the tangible assets and goodwill based on their agreed values, without any additional amounts.

Question 5

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

Accepted Answer

According to IRS rules, the holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed. This is important for determining whether the gain or loss from selling the rights or the underlying stock is short-term or long-term.

Question 6

Nontaxable stock dividends result in no change to the total basis of the old and new stock.

Accepted Answer

Nontaxable stock dividends do not result in any taxable income and therefore do not change the total basis of the old and new stock. The basis remains the same as before the dividend was distributed.

Question 7

Parker bought a brand new Ferrari on January 1,2010,for $125,000.Parker was fatally injured in an auto accident on June 23,2010,when the fair market value of the car was $98,000.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on January 1,2010.

Accepted Answer

Ryan's holding period for the Ferrari begins on the date of Parker's death, June 23, 2010, not on the date Parker originally acquired the car.

Question 8

A donee receives depreciable property worth $85,000 (basis to donor of $150,000)with no gift tax being paid on the transfer.The donee's basis for depreciation purposes is $85,000.

Accepted Answer

The answer of A donee receives depreciable property worth $85,000...

Question 9

Section 267 provides that realized losses and realized gains from related party transactions are not recognized.

Accepted Answer

The answer of Section 267 provides that realized losses and...

Question 10

A related party purchaser includes in the basis of the property acquired the seller's disallowed loss.

Accepted Answer

The answer of A related party purchaser includes in the...

Question 11

This year,Fran receives a birthday gift of stock worth $75,000 from her aunt.The aunt has owned the stock (adjusted basis $50,000)for 10 years and pays 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

The answer of This year,Fran receives a birthday gift of...

Question 12

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 may choose which lot of stock is deemed to be sold.

Accepted Answer

When a taxpayer cannot identify which lot of stock is being sold, the IRS requires the use of the First-In, First-Out (FIFO) method, where the oldest stock is considered sold first.

Question 13

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 14

In the case of a bargain purchase,the adjusted basis of an asset can exceed the cost of the asset to the purchaser.

Accepted Answer

In the case of a bargain purchase, the fair value of the asset acquired exceeds the consideration paid for it. As a result, the adjusted basis of the asset can be higher than the cost paid by the purchaser.

Question 15

The alternate valuation date amount cannot be elected if the property in the estate appreciates in value during the six-month period after death.

Accepted Answer

The alternate valuation date allows for the valuation of the estate property to be based on its fair market value six months after the date of death, rather than the date of death itself. However, if the value of the property increases during that six-month period, the alternate valuation date cannot be 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

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

Question 17

Todd gives Sam stock (adjusted basis of $72,000;fair market value of $69,000).Sam later sells the stock for $71,000.Sam's recognized loss is $1,000 ($71,000 amount realized - $72,000 adjusted basis).

Accepted Answer

The recognized gain in this scenario is $1,000, not a recognized loss. This is because the amount realized ($71,000) is greater than the adjusted basis ($72,000). Therefore, the stock was sold at a gain.

Question 18

Angela receives stock (worth $11,000)as a gift from her aunt.Her aunt's adjusted basis is $7,000 and the transfer did not result in a gift tax.Angela's basis in the stock is $11,000.

Accepted Answer

Angela's basis in the stock is the same as her aunt's adjusted basis of $7,000, since the fair market value at the time of the gift ($11,000) is greater than the aunt's basis and no gift tax was paid.

Question 19

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

Accepted Answer

If the alternate valuation date is elected, the value of the inherited property for tax purposes is determined six months after the date of the decedent's death. This may result in a lower valuation compared to the value on the primary valuation date. As a result, the total basis of inherited property will be less if the alternate valuation date is used.

Question 20

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.

Quiz 13: Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges