Question 1. A realized gain whose recognition is postponed results in th

1. A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer’s cost or other basis.

a. True

b. False

2. A realized loss whose recognition is postponed results in the temporary recovery of more than the taxpayer’s cost or other basis.

a. True

b. False

3. Wade is a salesman for a real estate development company. Because he is the “salesperson of the year,” he is permitted to purchase a lot from the developer for $90,000. The fair market value of the lot is $150,000 and the developer’s adjusted basis is $100,000. Wade must recognize a gain of $10,000 ($100,000 developer’s adjusted basis – $90,000 cost to Wade), and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

a. True

b. False

).

4. When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he should use either a weighted average approach or a LIFO approach.

a. True

b. False

5. Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

a. True

b. False

6. Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

a. True

b. False

7. The holding period for nontaxable stock dividends that are the same type (i.e., common on common) includes the holding period of the original shares, but the holding period for nontaxable stock dividends that are not the same type (i.e., preferred on common) is new and begins on the date the dividend is received.

a. True

b. False

8. For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock, the taxpayer is required to allocate a portion of the stock basis to the stock rights.

a. True

b. False

9. The carryover basis to a donee for property received by gift can be an amount greater than the donor’s adjusted basis.

a. True

b. False

10.In 1973, Fran received a birthday gift of stock worth $75,000 from her aunt. The aunt had owned the stock (adjusted basis $50,000) for 10 years and paid gift tax of $27,000 on the transfer. Fran’s basis in the stock is $75,000—the lesser of $77,000 ($50,000 + $27,000) or$75,000.

a. True

b. False

11.The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property’s fair market value.

a. True

b. False

12.The basis for depreciation on depreciable gift property received is the donor’s adjusted basis of the property at the date of the gift (assuming no gift taxes are paid). The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor’s adjusted basis.

a. True

b. False

13.The holding period for property acquired by gift is automatically long term.

a. True

b. False

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