Which of the following statements is correct?
A)In a nontaxable exchange in which gain is realized, the transaction results in a permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
B)In a nontaxable exchange in which loss is realized, the transaction results in a permanent recovery of less than the taxpayer's cost or other basis for tax purposes.
C)In a tax-free transaction in which gain is realized, the transaction results in the permanent recovery of more than the taxpayer's cost or other basis for tax purposes.
D)All of these.
E)None of these.

Question

Quizplus · Accepted Answer

In a tax-free transaction, no gain or loss is recognized. Therefore, option A and B are incorrect. Option D is incorrect as option A is wrong. Option E is incorrect as there is a correct answer which is option C. In a tax-free transaction in which gain is realized, the taxpayer does not recognize the gain for tax purposes, but the taxpayer's cost or other basis for tax purposes is permanently increased by the amount of the gain avoided. Therefore, option C is correct.

Which of the Following Statements Is Correct