AC553MiniStudy4 - Gain or Loss: Sales to Related Party 1)...

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Gain or Loss: Sales to Related Party 1 ) Big Betty owned stock costing $12,000 which she sold to her daughter, Bertha, for $8,000. Bertha sold the stock later for $14,000. a. What is Big Betty’s gain or loss? b. What is Bertha’s gain or loss? c. If Bertha had sold the stock for $10,000, how much gain or loss would she recognize? d. If Bertha had sold the stock for $6,000, how much gain or loss would she recognize?. a. There is a realized loss of $4,000 ($8,000 - $12,000), but it is disallowed because it is a sale to a related party. IRC 267(a) b. $2,000 gain. The $6,000 gain is reduced by the $4,000 disallowed loss. IRC 267(d) c. None. The $2,000 realized gain is eliminated by a portion Big Betty’s disallowed loss. The rest of Big Betty’s disallowed loss is gone forever. d. $2,000 loss. Assume this is business or investment property. Big Betty’s loss cannot ever be used again. 2 ) Mrs. Duck owned stock with a basis of $50,000 which she sold to her sister, Daffy, for $42,000. Three months later, Daffy sold the stock through a broker for $52,000. What is the gain or loss to Mrs. Duck? What is the gain or loss to Daffy? The loss of $8,000 is disallowed for Mrs. Duck because the transaction is between related parties. IRC 267(a) The $10,000 realized gain to Daffy is reduced by the $8,000 disallowed loss to Emily, resulting in a recognized gain of $2,000. IRC 267(d). Like-Kind Exchanges
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This note was uploaded on 11/03/2010 for the course AC553 553 taught by Professor Online during the Summer '10 term at Keller Graduate School of Management.

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AC553MiniStudy4 - Gain or Loss: Sales to Related Party 1)...

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