A corporation owns many acres of timber,which it acquired three years ago,and which has a $150,000 basis for depletion.The timber is cut during the current year for use in the corporation's business.The FMV of the timber on the first day of the current year is $280,000.If the corporation makes the appropriate election,the tax result is
A)recognition of a Sec.1231 gain of $130,000.
B)no recognition of gain or loss since the timber is used in the business.
C)recognition of a gain at the time of sale if the timber is later sold with the gain equal to the sales price less the basis in the timber.
D)recognition of a gain if the timber is later sold with the gain equal to the sales price less $280,000 (FMV on the first day of the year of the cutting).

Question

Quizplus · Accepted Answer

The corporation can elect to treat the cutting of timber as a sale or exchange under Section 631(a), resulting in a Section 1231 gain of $130,000, which is the FMV of $280,000 minus the basis of $150,000.

A Corporation Owns Many Acres of Timber,which It Acquired Three