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AC553MiniStudy4

# AC553MiniStudy4 - Gain or Loss Sales to Related Party 1 Big...

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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).

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AC553MiniStudy4 - Gain or Loss Sales to Related Party 1 Big...

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