Questions and Answers of Intellectual Property

How does the wherewithal-to-pay concept affect the recognition of gains on asset dispositions? What else is necessary for non-recognition of a gain upon disposition of an asset?
How is the tax treatment of a deferred gain similar to and different from the treatment of an excluded gain?
When a gain on a property disposition is deferred, the basis of the replacement property is reduced by the amount of gain deferred. Which concept supports this treatment? Explain.
When a gain on a depreciable property is deferred through a nonrecognition transaction, the tax attributes of the first property carry over to the second property.Why is this important, particularly
What is boot? How does boot affect the recognition of gains or losses on like-kind exchanges?
What constitutes an exchange of assets?
Does an exchange have to occur simultaneously to qualify for nonrecognition? Explain.
Define like-kind property as it applies to like-kind exchanges, and give examples of like-kind properties and properties that are not of like-kind.
Why does the assumption of a mortgage when exchanging related assets constitute boot?
Discuss the restrictions placed on like-kind exchanges between related parties. Include the reasoning behind the restriction in your discussion.
What is the recapture potential of an asset?
The rules for loss recognition on involuntary conversions are more liberal than those for exchanges. What features of an involuntary conversion contribute to the difference in treatments for the two
How long does a taxpayer who suffers an involuntary conversion of an asset have to replace the asset to qualify for non-recognition? Explain.
What is a principal residence of a taxpayer?
Losses on exchanges must be deferred. A loss on an involuntary conversion is never deferred. In contrast, a loss on the sale of a principal residence is never recognized.Explain why losses on the
What are the requirements for excluding gain on the sale of a principal residence?
In general, a taxpayer can exclude up to $250,000 of gain on the sale of a principal residence. However, this exclusion is only available every two years. Explain the circumstances under which the
Honre Corporation's warehouse and Filip Company's office building were located side by side until a fire raced through both structures, completely destroying them. The warehouse has an adjusted basis
Which of the following transfers meet the exchange requirement for deferral under like-kind exchange provisions?a. Bonita sells her rental condominium in Park City and uses the proceeds as a down
Which of the following exchanges of property are like-kind exchanges?a. Land traded for an airplane.b. A warehouse used in a trade or business exchanged for land to be used as a personal residence.c.
Which of the following exchanges of property are like-kind exchanges?a. Horace trades his personal use auto for another personal use auto.b. Lian trades an office building she rents out for a
Mayfair Corporation exchanges a machine with a fair market value of $15,000 and an adjusted basis of $10,000 for land in Nevada with a fair market value of $15,000. Does Mayfair have a recognized
Return to the facts of problem 22. Assume that Mayfair Corporation exchanges its machine for another machine worth $18,000. How much boot must be paid to make the exchange, and who must pay the boot?
Jalapeno Company trades in its old delivery van for a new delivery van. The old van cost $22,000 and has an adjusted basis of $15,000. Jalapeno is given a $13,000 trade-in allowance on the new van
Pauline's Pastry Shop decides to remodel its offices this year. As part of the remodeling, Pauline's trades furniture with a cost of $12,000 that had been expensed in the year of purchase (Section
Beaver Corporation owns a parcel of land with a fair market value (FMV) of $75,000 and a basis of $40,000. Beaver exchanges the land for a building with an FMV of $65,000. The corporation also
Tinh exchanges business equipment with an adjusted basis of $55,000 (initial basis was $105,000) for business equipment worth $42,000 and $20,000 in cash.a. What is Tinh's realized gain or loss on
Armando owns a pizza parlor. Because his business is declining, he trades his old pizza oven in on a smaller oven that is worth $12,000. The old oven cost $30,000 and has an adjusted basis of
Leon exchanges an office building which he held as investment property for a bowling alley. His office building has a basis of $175,000 and a fair market value of $160,000, and it is subject to a
Jose owns a warehouse in Mexico City with a basis of $430,000 and a fair market value of $700,000. Lucien owns a warehouse in Boulder, Colorado, with a basis of $200,000 and a fair market value of
Fremont Corporation and Dement Corporation exchange equipment with the following particulars:What are Fremont€™s and Dement€™s realized and recognized gains or losses on the
Shirley has an old tractor that has an adjusted basis of $9,000 and a fair market value of $5,000. She wants to trade it in on a new tractor that costs $25,000. Write a memorandum to Shirley advising
Jerry sells his delivery truck, which has a basis of $25,000, to Tom’s Truck Company for $10,000. On the same day, he purchases a new truck from Tom’s Truck Company at a cost of $40,000.a. Does
Olga trades in a computer she had used in her trade or business for a new computer. The old computer cost Olga $5,300 and has an adjusted basis of $800. The computer dealer gives her a $1,200
Return to the facts of problem 34. Two years after acquiring the new computer, Olga sells it for $6,000. The adjusted basis of the computer is $3,800. What is the character of the recognized gain on
Maya exchanges an office building with a fair market value of $200,000 and a basis of $110,000 for $20,000 cash and a warehouse with a fair market value of $300,000. In the exchange, she assumes the
Evelyn’s Excavating Service trades an excavator for a new backhoe. The excavator has a fair market value of $37,000 and an adjusted basis of $24,000. The backhoe is worth $34,000. The owner of the
Oscar and Harriet agree to exchange apartment buildings and the mortgages on the buildings, with any difference in value to be paid in cash. Particulars of their respective buildings are as
On July 8, 2011, Cynthia and her daughter Constance agree to exchange land they held for investment. Both tracts are worth $18,000. Cynthia acquired her land 4 years earlier for $9,000. Constance
Walker Corporation acquires a business automobile with a fair market value of $20,000 by trading in an old automobile and giving $14,000. Walker paid $12,000 for the old automobile, which has an
Which of the following are qualified replacement properties for properties involuntarily converted? Explain.a. The insurance proceeds from a warehouse destroyed by a fire are used to purchase a
Which of the following are qualified replacement properties for properties involuntarily converted? Explain.a. The city of Marble River announces plans to condemn Heima’s rental apartment complex
A fire in the factory of Franny’s Famous Frankfurters destroys several stuffing machines. The machines have an adjusted basis of $125,000 and a fair market value of $225,000. Franny’s insurance
Grant Industries’ warehouse is condemned by the city on August 18, 2011. Because of widespread publicity leading up to the condemnation, Grant anticipates it and purchases a replacement warehouse
Refer to the facts of problem 44. Write a letter to Grant Industries explaining why it might want to recognize the entire gain on the condemnation.
One of Reddy’s Fancy Dog Food factories is destroyed by a tornado. The factory has an adjusted basis of $375,000. Reddy’s receives $540,000 from its insurance company to cover the loss. What is
A fire totally destroys a manufacturing plant owned by Ansel Corporation. The plant, located in Louisiana, has been used for more than 30 years and is fully depreciated. Ansel’s insurance pays
MacKenzie owns a boat rental business. During the current year, a tidal wave sweeps through the harbor where she keeps her boats anchored. Four boats are totally destroyed, but the rest of the rental
Alley’s automobile dealership, which has an adjusted basis of $400,000, is destroyed by a hurricane in the current year. Alley’s receives $600,000 from its insurance company to cover the loss.
In each of the following cases, determine the amount of realized gain or loss and the recognized gain or loss:a. Cheryl sells her house for $73,000 and pays $4,000 in commissions on the sale. She
Aretha sells her house on June 9, 2011, for $220,000 and pays commissions of $10,000 on the sale. She had purchased the house for $60,000 and made capital improvements costing $15,000. What are
Mai, a single taxpayer, sells her residence in the suburbs for $300,000. She bought the house twelve years ago for $60,000 and made $30,000 of improvements to it. Mai buys a new downtown condominium
Manuel and Rita sell their home in Minneapolis for $495,000, incurring selling expenses of $25,000. They had purchased the residence for $85,000 and made capital improvements totaling $20,000 during
Kerri and John are married. On May 12, 2011, they sell their home for $190,000 and purchase another residence costing $225,000. What are Kerri and John’s realized gain and recognized gain in each
Gary and Gertrude are married on April 8, 2010. They use Gertrude’s home as their residence. Gertrude purchased the home on November 14, 2008, for $60,000. On February 19, 2011, Gertrude is killed
Bonnie wants to trade her Snow Bird, Utah, condominium, which she has held for investment, for investment property in Steamboat Springs or Crested Butte, Colo. On April 20, 2011, she transfers title
Erica owns A-1 Landscaping Services. She trades a lawn tractor with a basis of $200 for a powered post hole digger worth $300.Identify the tax issue(s) posed by the facts presented. Determine the
Rollie exchanges a parking lot used in his business for a tract of land worth $20,000 and $4,000 in cash. He plans to subdivide and sell the land as residential lots. The adjusted basis of the
Johann exchanges an apartment building for an office building worth $100,000. The apartment building has an adjusted basis of $80,000 and is encumbered by a $30,000 mortgage, which the owner of the
Lorraine is an avid baseball card collector. She gives a card dealer $50 and a Roger Maris card for a Sammy Sosa card.Identify the tax issue(s) posed by the facts presented. Determine the possible
Stephanie owns 75% of the Gould Corporation. She exchanges land that she owns as an investment for an office building owned by Gould that has a fair market value of $130,000. In the exchange,
Festus Farmers Cooperative truck barn, which has a $50,000 adjusted basis, is destroyed by a fire. Festus receives $80,000 from its insurance company for the barn and uses the proceeds as a down
Raylene's personal automobile is destroyed by a tornado. Her insurance company paid her $5,000, which she used to purchase a new automobile costing $10,000. Raylene received the automobile that was
Inez is a freelance artist. She purchased 10 acres of land in 2006 for $5,000. On July 15, 2011, the land is condemned by the county government to build a new courthouse and jail facility. The county
Laurie bought a home in 2008 for $65,000. On November 2, 2011, she sells it for $114,000. Laurie uses the proceeds to purchase a duplex costing $200,000. She uses one unit in the duplex as her
Harvey sells his personal residence on March 18, 2011, for $78,000. He paid $86,000 for it on April 22, 2009.Identify the tax issue(s) posed by the facts presented. Determine the possible tax
Eva and Mario are married on June 14, 2010. They use Eva's home as their principal residence. Eva purchased the home for $97,000 in 2007. On January 13, 2011, Eva and Mario are divorced. As part of
Othello trades a concrete ready mix truck and a general purpose truck used in his landscape business to Sonja for an ore truck and a general purpose truck and $1,000 cash. The adjusted basis and fair
The Internal Revenue Service provides information on a variety of tax issues in its publication series. These publications can be found on the IRS World Wide Web site
Will owns residential rental property that is destroyed by a tornado in March 2010. He files a claim with his insurance company and receives $90,000 for the property. The building is fully
Orley, Goutam, and Serena each own undivided one-third interests as tenants in common in three parcels of land held as an investment. One of the parcels is mortgaged for $60,000, for which each is
During the current year, the Harlow Corporation, which specializes in commercial construction, has the following property transactions:a. In April, a tornado damages a crane and a dump truck at one
On July 8, 2009, Joe and Jill sell their principal residence for $650,000. Their adjusted basis in the property is $275,000. To complete the sale, Joe and Jill have to take back a second mortgage for
The city of Stillcreek decides to expand the runway at the local airport. To get the land for the expansion, it condemns the property it needs and pays the owners the current appraised value.
In October 2011, fire completely destroys the principal residence of Olaf, who is 63 and single, and lives in Bemidji, Minnesota. He owned the home for 16 years; his adjusted basis is $58,000. Olaf
Ken and Helen own a bed and breakfast in Vermont. They acquired the property in 1996 for $190,000, and their adjusted basis in it is $95,000. The property is worth $260,000, and they have a mortgage
Claude is a CPA and a partner with SKH and Associates, a regional public accounting firm. In September 2009, Brokaw Technologies approached one of his clients, Walter Fenner, about acquiring 100
Articles on tax topics are often useful in understanding the income tax law. CPA firms and other organizations publish tax articles on the Internet. Using a search engine or one of the tax directory
Search the Internet for articles relating to the amortization of intangible assets. Trace the process you used to find the article (search engine or tax directory used). Summarize the information
On April 3, 2010, Arlene sells land that she holds as an investment to a construction company. The deed conveying the land to the construction company contains a covenant restricting construction on
Taxpayers can structure transactions through third parties that qualify as like-kind exchanges if certain time requirements for identifying the properties and closing the transaction are met. This
Identify a technological change that has facilitated globalization, aside from those mentioned in the text. Identify a policy change that has contributed to globalization, aside from those mentioned
How has the average level of openness in the world economy changed over the years in question?
How many countries experienced an increase in openness between 1991 and 2001? How many experienced a decrease?
Looking at the last year of the data, compare the average openness of the 20 largest countries (measured in terms of population) and the 20 smallest countries. Which is more open?
Again looking at the last year of data, compare the average openness of the 20 richest countries (measured in terms of per capita GDP) and the 20 poorest countries. Which is more open?
Based on your results in questions (4) and (5), summarize what kind of countries tend to be more open, and what kind tend to be less open. Can you speculate as to why this is the case?
In the model in the text, comparative advantage comes from a pure technological difference between the countries. Identify some other differences that might drive comparative advantage? Provide
In the model presented in the text, no one in Nigeria would have any reason to object to trade. Do you find this realistic? What assumptions does this depend on? Do you think these assumptions are
Which country has an absolute advantage in fish? In wheat? Which country has a comparative advantage in fish? In wheat?
Find the autarky relative price of fish in both countries (i.e., the price of fish divided by the price of wheat), and draw the typical worker's budget line in both countries.Consider the following
Derive the relative demand curve relating the relative demand for fish to the relative price of fish. Solve algebraically, and then draw the curve in a diagram with the relative price of fish on the
Derive the world relative supply curve and draw it on the diagram that you created in Problem 5.Consider the following model of trade between Iceland and Finland. Assume throughout that those two
Compute the equilibrium relative price of fish under free trade, and draw the budget lines for a typical worker in each country. Which country produces which good or goods? Is there complete
How does your answer in Problem 7 change if Finland has 3 million workers instead of 1.5 million? Answer verbally; no computation is needed. Consider the following model of trade between Iceland and
Your firm wants to sell its product in each of several foreign countries, and you must decide whether to do so by exporting or by producing locally for that market through FDI. Suppose that in each
Suppose that one of the countries discussed in question (1) imposed a tariff, or a tax on imports, which your firm must then add to the cost of exporting to that country. The tariff does not apply;
In the model of reallocation of production under the Auto Pact in Section 3.1, we have assumed that GM takes the wage in each country as given. Suppose that the market wage, w, is unaffected by
The spreadsheet "bilateral trade data 2001.xls" records manufacturing trade between the United States and every other country, broken down into 374 industrial categories (all within manufacturing).
The Melitz effect. Open the spreadsheet ''heterogeneous firms.xis." This provides data for a hypothetical monopolistically competitive market with heterogeneous firms. Each firm is numbered from 1 to

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