Deck 8: Tax-Deferred Exchanges

Question 1

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 IRC §1033.

Answer 1

False

Question 2

What is the difference between a carryover basis and a substituted basis?

Answer 2

When there is a transfer of property between two parties and the basis of the property attaches to the property and also transfers to the recipient,there is a carryover of the basis.When there is an exchange of property and the basis of the property received takes the same basis as the property surrendered,the basis of the property received is said to have a substituted basis.

Question 3

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

Answer 3

True

Question 4

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

Question 5

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.

Question 6

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

Question 7

A taxpayer must transfer a minimum required amount of property,along with any services performed,to include the stock received in meeting the control requirement for a corporate formation.

Question 8

By what mechanism is a deferral of gain normally accomplished?

Question 9

When is gain recognized in a like-kind exchange?

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

Expected insurance settlements have no effect on the timing of the deduction for a casualty loss.

Question 16

Both gain and loss are deferred in a wash sale.

Question 17

A condemnation is one type of involuntary conversion.

Question 18

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

Question 19

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

Question 20

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

Question 21

Georgia's home was damaged by flood.Its fair market value before and after the flood are $125,000 and $75,000,respectively.Its adjusted basis was $90,000.Georgia received $50,000 from her insurance company and she was able to have the house repaired for $40,000.What is the amount of Georgia's basis in the house after the repairs?

A)$ 40,000
B)$ 80,000
C)$ 90,000
D)$125,000

Question 22

What is the control requirement to qualify a gain on transfer to a corporation for tax deferral?

Question 23

How is a new partner's basis in a partnership interest determined if the partnership has no liabilities?

Question 24

When may a taxpayer deduct a casualty loss in a year other than the year in which the loss occurred?

Question 25

What effect does the assumption of liabilities by the corporation normally have on gain or loss recognition and stock basis determination by a transferring shareholder in a Section 351 transfer?

Question 26

What is the limit of the gain that can be recognized on a like-kind exchange?

Question 27

What is the functional-use test in an involuntary conversion?

Question 28

In what year is a theft loss reported for tax purposes?

Question 29

What is a wash sale?

Question 30

How long does a taxpayer have to replace real property that has been condemned?

Question 31

What effect do liabilities assumed by the partnership have on a partner's basis?

Question 32

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's realized gain on the exchange?

A)zero
B)$3,000
C)$6,000
D)$9,000

Question 33

How is the basis of stock received for appreciated property in a Section 351 transfer determined?

Question 34

Twining Corporation has some land it wants to trade for a building owned by Clopp Corporation.Clopp does not want to exchange the building because it wants to recognize its loss on the building.Twining,however,does not want to recognize its gain.What alternative(s)does Twining have that will allow it to avoid recognizing gain?

A)Twining can sell its land to a third party and take the money and purchase the building.
B)Twining can have a third party purchase the building and have the third party trade for the land.
C)Twining can complete a nonsimulataneous exchange within one year of identifying the desired property.
D)All of the above are acceptable alternatives.

Question 35

What are the time limits imposed on a nonsimultaneous exchange to qualify as like kind?

Question 36

What is the taxpayer-use test in an involuntary conversion?

Question 37

Which of the following would not be considered an involuntary conversion?

A)The theft of jewelry
B)Sale of property in a flood zone
C)Condemnation of a building for a highway
D)Destruction of a home by a tornado

Question 38

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's basis in the displays received in the exchange?

A)$9,000
B)$6,000
C)$3,000
D)zero

Question 39

What is the amount of the casualty loss on a business truck that had a fair market value of $14,000 before an accident and $4,000 after an accident,if its adjusted basis is zero?

A)$14,000
B)$10,000
C)$4,000
D)0

Question 40

Elizabeth exchanges her retail storage assets for retail displays.In this like-kind exchange,Elizabeth receives $2,000 in cash.The storage assets have a fair market value of $12,000 and Elizabeth's basis in the assets is $3,000.The displays have a fair market value of $10,000 and a basis of $8,000.What is Elizabeth's recognized gain on the exchange?

A)zero
B)$2,000
C)$6,000
D)$9,000

Question 41

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is AB Corporation's basis for the machines?

A)$150,000 b $160,000
C)$170,000
D)$180,000

Question 42

Sam's land was condemned for a sewage treatment plant.He received $600,000 for the land that had a basis of $650,000.What is his realized and recognized gain or loss,respectively,on this involuntary conversion?

A)($50,000),($50,000)
B)($50,000),0
C)$50,000,$50,000
D)0,0

Question 43

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is A's basis for his AB stock?

A)$180,000 b. $170,000
C)$160,000
D)$150,000

Question 44

Sid's home was destroyed by fire.He had purchased the home 18 months ago for $950,000.He received $1,300,000 from his insurance company to replace the home.If he fails to rebuild the home or acquire a replacement home in the required time,how much gain must he recognize on this conversion?

A)$350,000
B)$162,500
C)$100,000
D)$0

Question 45

In early 2015,Conrad Corporation discovered their bookkeeper had embezzled $30,000 over the last three years at a rate of approximately $10,000 per year.Conrad also suffered uninsured hurricane damage of $40,000 late in 2015 in a presidentially declared disaster area.If Conrad wants to deduct its losses at the earliest time possible,what are the amounts (before any limitations)and year(s)of its loss deduction?

A)2015 = $70,000
B)2014 = $30,000,2015 = $40,000
C)2014 = $40,000,2015 = $30,000
D)2013 = $10,000,2014 = $10,000; 2014 = $50,000

Question 46

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is AB Corporation's basis for the real property?

A)$300,000 b $310,000
C)$320,000
D)$330,000

Question 47

Which of the following is not a required characteristic of a qualifying Section 351 transaction?

A)If more than 20 percent of the stock is transferred for services,property must also be transferred by the service provider.
B)Gain may be recognized if the transferor receives something other than stock.
C)The transferors must control the corporation after the transfer.
D)Control requires shareholders owning only 80 percent of the voting stock if nonvoting stock is outstanding.

Question 48

Simon purchased 1,000 shares of ABC stock for $8,000 on April 4.On March 1 he had sold 1,500 shares of ABC stock for $9,000 that he had purchased three months earlier for $15,000.What is Simon's realized and recognized loss,respectively,on the March 1 stock sale?

A)$6,000,$6000
B)$6,000,0
C)$6,000,$4,000
D)$4,000,$6,000

Question 49

The taxpayer-use test for qualifying replacement property

A)applies only to personalty
B)requires replacement property used by the taxpayer to be used in the same business as the converted property
C)only requires leased realty to be replaced with other leased realty
D)Is more restrictive than the functional-use test

Question 50

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

Question 51

Wally's investment real estate was condemned on November 14,2015.On February 14,2016,he received $250,000 for the property that had a basis of $210,000.What is the last date that Wally can acquire replacement property to avoid gain recognition?

A)November 14,2018
B)February 14,2019
C)December 31,2018
D)December 31,2019

Question 52

In 2015,Larry's car,which he purchased six years ago for $6,000,was demolished in a traffic accident.As a result of the delay caused by this accident,Larry missed a business meeting and lost out on an important sale on which he could have earned a $1,200 commission.When he arrived home,he found his house had been broken into and his personal video equipment currently worth $3,200 (original cost = $5,000)had been stolen,along with his baseball card collection valued at $2,000 (basis = $1,500).Larry's homeowner's policy covered only $3,000 of this theft loss.He had dropped the collision coverage on his auto insurance policy because that portion was too expensive,so he had no insurance coverage for his auto accident.His adjusted gross income is $82,000 and the fair market value of the car at the time of the accident was $8,000.How much can Larry deduct as an itemized deduction for his casualty and theft losses?

A)zero
B)$2,100
C)$2,700
D)$3,700

Question 53

Carol had adjusted gross income of $40,000 in 2015.Late in the year she had an accident with her car and sustained a $1,000 loss,the amount of her insurance policy deductible.Her home was broken into and she had $15,000 of jewelry stolen (basis = $12,000); her insurance only covered $5,000 of this loss.What is her deductible loss?

A)$7,800
B)$3,800
C)$7,000
D)$3,000

Question 54

Which of the following is not a characteristic of involuntary conversions?

A)Gain only is deferred
B)The taxpayer can receive cash to invest in qualifying replacement property
C)The provision applies to both realty and personalty
D)All of these are characteristics

Question 55

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What is B's basis for his AB stock?

A)$340,000 b $320,000
C)$310,000
D)$300,000

Question 56

A transfers machines valued at $170,000 (basis = $150,000)along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000)to the corporation.A receives 40 percent of the outstanding stock and B receives 60 percent.B also receives $20,000 from the corporation.What are A's and B's recognized gains,respectively,on these transfers?

A)$20,000,0
B)0,$20,000
C)0,$10,000
D)0,0

Question 57

Juan owned a small rental property,which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's recognized gain on the involuntary conversion of his rental property?

A)$5,000
B)$10,000
C)$30,000
D)$35,000

Question 58

Juan owned a small rental property,which was condemned by the county to expand a local park.His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county.A year later he purchased a similar piece of real estate for $70,000.What is Juan's basis in the replacement property?

A)$40,000
B)$45,000
C)$50,000
D)$70,000

Question 59

As part of a divorce decree,Janet must give her ex-spouse Herman her half-interest in stock with a total value of $120,000 (total basis = $70,000)in exchange for his half-interest in their home with a total value of $150,000 and a basis of $130,000.What are Janet and Herman's realized and recognized gains or losses on this exchange? Janet: Realized Recognized Herman: Realized Recognized

A)$30,000 $30,000 ($20,000)($20,000)
B)$30,000 0 $20,000 0
C)$40,000 0 ($5,000) 0
D)$40,000 $10,000 ($5,000) ($5,000)

Question 60

Bertam transfers property with a $50,000 mortgage,a fair market value of $350,000,and a basis of $200,000 for stock valued at $300,000.If the corporation assumes the mortgage,what is Bertram's basis in the stock received in this qualifying Section 351 transaction?

A)$150,000
B)$200,000
C)$250,000
D)$300,000

Question 61

Which of the following is not a divisive reorganization?

A)Spin out
B)Split up
C)Spin off
D)Split off

Question 62

David owns 600 shares of K Corporation stock when K is merged into Parent Corporation.David receives 500 shares of Parent Corporation stock (fair market value = $10,500)and $500 cash in exchange for his K Corporation stock.David's K stock had a basis of $8,000 and an $11,000 fair market value.What is David's realized and recognized gain,respectively?

A)$3,000 and $3,000 b $3,000 and $2,500
C)$2,500 and $500
D)$3,000 and $500

Question 63

Corporation P acquires 95 percent of Corporation T's assets for $19.5 million of P's stock in a qualifying reorganization.The assets transferred have a basis of $14 million.T retained $500,000 of cash to pay its remaining liabilities.It only used $200,000 of the cash and the remaining cash and P stock are distributed to T's shareholder,who has a basis of $14 million in her stock.What is the gain recognized on this reorganization?

A)0
B)$300,000
C)$5.5 million
D)$7.5 million

Question 64

Which type of reorganization is a recapitalization?

A)Type B
B)Divisive Type D
C)Type C
D)Type E

Question 65

Which type of reorganization does not allow the parent corporation to make a qualifying transfer to a subsidiary of the property received in the reorganization?

A)Type A
B)Type B
C)Type C
D)Type D

Question 66

Cal contributes property valued at $50,000 (adjusted basis = $30,000)to a partnership in exchange for a partnership interest valued at $40,000 and $10,000 cash.What is Cal's recognized gain or loss on these transfers?

A)0
B)$4,000
C)$10,000
D)$20,000

Question 67

Sophie received a 30 percent interest in a general partnership in exchange for property valued at $35,000 (adjusted basis = $25,000)and services valued at $5,000.In addition,the partnership assumed the $10,000 liability on the property.What is Sophie's basis in her partnership interest?

A)$20,000
B)$23,000
C)$25,000
D)$39,000

Question 68

A tax-deferred reorganization can involve all of the following except:

A)an exchange of assets for stock in a corporation
B)an exchange of stock in one corporation for stock in another corporation
C)a division of one corporation into two corporations
D)the liquidation of a corporation followed by reincorporation

Question 69

Which of the following characteristics is the same for transfers of property to both a corporation and to a partnership in exchange solely for an ownership interest?

A)The transferors must have control of the corporation or partnership after the transfer.
B)Liabilities assumed affect the owner's basis in the entity's business in the same manner.
C)Loss is not recognized.
D)The holding period for all the assets transferred begins on the date of the transfer.

Question 70

In a qualified reorganization:

A)Gain is generally deferred.
B)Only stock can be exchanged for stock.
C)One corporation must acquire all the assets of another corporation.
D)Two or more corporations are always involved.

Question 71

Which type of reorganization does not entail a transfer of assets for stock?

A)Type A
B)Type B
C)Type C
D)Type D