Exam 9: Nontaxable Exchanges

IPM Inc. and Zeta Company formed IPeta Inc. by transferring business assets in exchange for 1,000 shares of IPeta common stock. IPM transferred assets with a $675,000 FMV and a $283,000 adjusted tax basis and received 600 shares. Zeta transferred assets with a $450,000 FMV and a $98,000 adjusted tax basis and received 400 shares. -Which of the following statements is false?

In March, a flood completely destroyed three delivery vans owned by Totle Inc. Totle's adjusted tax basis in the vans was $48,900. Totle received a $90,000 reimbursement from its property insurance company, and on September 8, it purchased one new delivery van for $70,000. Compute Totle's recognized gain on loss on the involuntary conversion and its tax basis in the new van.

Kimbo Inc. exchanged an old asset ($180,000 FMV and $145,000 adjusted basis) plus $10,000 cash for a new asset with a $190,000 FMV. What is Kimbo's basis in the new asset if the transaction qualifies as a like-kind exchange?

Nagin Inc. transferred an old asset in exchange for a new asset worth $84,000 and $6,000 cash. The old asset and new asset were like-kind properties. Which of the following statements is true?

Eliot Inc. transferred an old asset with a $53,100 adjusted tax basis plus $5,000 cash in exchange for a new asset worth $75,000. Which of the following statements is false?

In June, a fire completely destroyed office furniture owned by W&S Inc. W&S's adjusted tax basis in the furniture was $17,040. W&S received a $15,000 reimbursement from its property insurance company, and on August 8, it paid $16,000 to replace the furniture. Compute W&S's recognized gain on loss on the involuntary conversion and its tax basis in the new furniture.

Sissoon Inc. exchanged a business asset for an investment asset. Both assets had a $620,000 appraised FMV. Sissoon's book basis in the business asset was $518,900, and its tax basis was $443,400. a. Compute Sissoon's book and tax gain if the business asset and investment asset were like-kind properties for tax purposes. b. Determine Sissoon's book and tax basis of the investment asset acquired in the nontaxable exchange properties for tax purposes. c. Compute Sissoon's book and tax gain if the business asset and investment asset were not like-kind properties for tax purposes. d. Determine Sissoon's book and tax basis of the investment asset acquired in the taxable exchange.

When unrelated parties agree to an exchange of noncash properties, the economic presumption is that the properties have the same adjusted book basis.

Mr Bentley exchanged investment land subject to a $300,000 mortgage for commercial real estate subject to a $188,000 mortgage. Mr Bentley is treated as paying $112,000 boot in the exchange.

Carman wishes to exchange 10 acres of Iowa farm land in a like-kind exchange. Which of the following properties will qualify for like-kind exchange treatment?

Mr Jamail transferred business personalty (FMV $187,000; adjusted tax basis $29,900) to J&K Inc. in exchange for J&K common stock. Which of the following statements is true?

Doppia Company transferred an old asset with a $68,750 adjusted tax basis in exchange for a new asset worth $90,000 and $10,000 cash. Which of the following statements is false?

Vandals destroyed a business asset owned by L&L Company. L&L's adjusted tax basis in the asset was $60,800, and the reimbursement from its property insurance company was $90,000. L&L must pay at least $60,800 for a replacement asset in order to defer gain recognition on the involuntary conversion.

A taxpayer who realizes a loss on the sale of marketable securities and reacquires substantially the same securities within the 30 day period before the sale cannot recognize the loss.

Three individuals transferred property to newly formed Triple Inc. in exchange for 1,000 shares of common stock. Mr Albert transferred assets with a $50,000 tax basis in exchange for 820 shares, Mrs Billig transferred assets with a $9,000 tax basis in exchange for 148 shares, and Mrs Crisp transferred $4,000 cash for 32 shares. Based on the FMV of the transferred assets, each Triple share is worth $125. Which of the following is false?

Mr Lexon owns investment property with a $719,000 basis. If the property is worth only $500,000, Mr Lexon would prefer a taxable disposition of the property over a like-kind exchange.

Nixon Inc. transferred Asset A to an unrelated party in exchange for Asset Z and $15,750 cash. Nixon's tax basis in Asset A was $400,000, and Asset Z had a $510,000 appraised FMV. Which of the following statements is true?

Five years ago, Q&J Inc. transferred land with a $345,000 book and tax basis for a different parcel of land worth $472,000. Q&J included its $127,000 realized gain in book income, but the exchange was nontaxable. This year, Q&J sold the parcel of land received in the exchange for $533,000 cash. -Which of the following statements is true?

Which of the following statements about the wash sale rule is false?

Toffel Inc. exchanged investment land subject to a $240,000 mortgage for unencumbered farmland. If Toffel realized a $168,000 gain on the exchange, it must recognize the entire gain.