Sandra sells a business-use warehouse to her wholly owned corporation. Sandra realizes a loss of $13,000 on the sale. (Sales price, $102,000, less adjusted basis, $115,000). Tax law does not permit Sandra a deduction for the $13,000 loss. Which of the following explain(s) this tax result?
I.Arm's-length Transaction Concept.
II.Pay-As-You-Go Concept.
III.Legislative Grace Concept
IV.Business Purpose Concept.

Question

Sandra sells a business-use warehouse to her wholly owned corporation. Sandra realizes a loss of $13,000 on the sale. (Sales price, $102,000, less adjusted basis, $115,000). Tax law does not permit Sandra a deduction for the $13,000 loss. Which of the following explain(s) this tax result?
I.Arm's-length Transaction Concept.
II.Pay-As-You-Go Concept.
III.Legislative Grace Concept
IV.Business Purpose Concept.
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Quizplus · Accepted Answer

The Arm's-length Transaction Concept states that transactions between related parties must be treated as if they were between unrelated parties. In this case, Sandra and her corporation are related parties, so the sale of the warehouse is treated as if it were between two unrelated parties. This means that Sandra cannot deduct the loss on the sale, even though she would be able to if she sold the warehouse to an unrelated party.

Sandra Sells a Business-Use Warehouse to Her Wholly Owned Corporation