Ch_12_Questions - Income Tax I Name_Christian Yimgnia...

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Income Tax I Name ____Christian Yimgnia_________ Chapter 12 Questions Explain and/or discuss the following based on reading the chapter and viewing the power points. Be thorough with your answers. You may take all the space you need. 1. Explain the special situations in capital vs ordinary treatment of certain sales starting on page 12-5. Taxpayer are not allowed to avoid capital asset treatment by showing that the property was previously acquired for business purposes rather than investment reasons. This means when there is a sale of assets, only the assets that are classified in section 1221 as capital assets will qualify, otherwise will not undergo an exception and will be treated as ordinary such as inventory. For a sale of businesses, when it is a sole proprietorship, the sale is treated as the sale of individual assets and the assets are valued at their fair market value at that time. The sale of a partnership interest is the sale of a capital asset and results in capital gain or loss to the partners except that of the gain or loss that is related to unrealized receivables. The sale of corporate stock results in a capital gain or loss if the stock was a capital asset in the hands of the seller. For agreements on franchises and transfer on patents, it depends on the actual situation. 2. Explain the special rules for the holding period. Holding period are significant because of the reduced rate at which net capital gains are taxed and because the basic structure for capital gains and losses has been retained in the code. When figuring the holding period, the date when the property was acquired is excluded but the day it was disposed is included. Property acquired on the last day of the
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