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TB Individual Income ch. 15

TB Individual Income ch. 15 - CHAPTER 15 TRUE/FALSE 1 Gains...

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CHAPTER 15 TRUE/FALSE 1. Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the form but not the substance of the taxpayer’s relative economic position. ANS: T PTS: 1 DIF: 1 REF: p. 15-3 OBJ: 1 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 2. One of the justifications for nontaxable exchange treatment is that the taxpayer lacks the wherewithal to pay. ANS: T PTS: 1 DIF: 1 REF: p. 15-3 OBJ: 1 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 3. In a nontaxable exchange, recognition is postponed. In a tax-free transaction, nonrecognition is permanent. ANS: T PTS: 1 DIF: 1 REF: p. 15-3 OBJ: 1 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 4. In a nontaxable exchange, the replacement property is assigned a carryover basis. ANS: T PTS: 1 DIF: 1 REF: p. 15-3 OBJ: 1 NAT: AICPA FN-Measurement | AACSB Analytic MSC: 2 min 5. A taxpayer cannot recognize a realized loss on a § 1031 like-kind exchange. ANS: T The nonrecognition provisions of § 1031 like-kind exchanges are mandatory for both gains and losses. PTS: 1 DIF: 1 REF: p. 15-4 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 6. Stocks and bonds held for investment purposes qualify under the like-kind exchange provision. ANS: F Stocks and other securities held for investment purposes are not eligible for like-kind exchange treatment. PTS: 1 DIF: 1 REF: p. 15-4 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 15-1
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15-2 2010 Annual Edition/Test Bank 7. Livestock of different sexes cannot qualify for like-kind exchange treatment even if the livestock has been held for over one year. ANS: T Livestock of different sexes do not qualify as like-kind property. PTS: 1 DIF: 1 REF: Example 2 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 8. To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years. ANS: F Real property must be exchanged for other real property. PTS: 1 DIF: 1 REF: p. 15-3 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 9. The exchange of unimproved real property located in Topeka (KS) for improved real property located in Atlanta (GA) qualifies as a like-kind exchange. ANS: T Both properties are realty and are located in the United States. PTS: 1 DIF: 1 REF: Example 2 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 10. Jena owns land as an investor. She exchanges the land for a warehouse in which she will store the inventory of her business. The exchange does not qualify for like-kind exchange treatment. ANS: F Both assets are in the real estate category. Exchanging investment property for business property is a qualified exchange. PTS: 1 DIF: 1 REF: Example 2 OBJ: 2 NAT: AICPA FN-Reporting | AACSB Analytic MSC: 2 min 11. A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.
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