Which of the following transactions is a taxable event? (Assume that the condition of being substantially identical is determined in terms of rate of return and fair market value.)
A)Conversion of bonds into stock under a conversion privilege contained in the bond instrument
B)Exchange of substantially identical bonds of state or municipal governments
C)Exchange of substantially identical stocks of publicly held corporations
D)Conversion of stock into some other stock of the same corporation pursuant to a right granted under the stock certificate

Question

Quizplus · Accepted Answer

The exchange of substantially identical stocks of publicly held corporations is a taxable event because it may result in a gain or loss that is subject to capital gains tax.

Choice A (conversion of bonds into stock) is not a taxable event if it is done under a conversion privilege contained in the bond instrument.

Choice B (exchange of substantially identical bonds of state or municipal governments) is not a taxable event because these types of bonds are generally exempt from federal income tax.

Choice D (conversion of stock into some other stock of the same corporation pursuant to a right granted under the stock certificate) is not a taxable event as long as the transaction meets certain requirements under Section 1036 of the Internal Revenue Code.

Which of the Following Transactions Is a Taxable Event? (Assume