Problem $7-16($LO$.1)$

Faith Godwin is a dealer in securities$.$ She has spotted a fast$-$rising company and would like to buy and hold its stock for investment. The stock is currently selling for $$2$ per share, and Faith thinks it will climb to $$40$ a share within two years. Faith's coworkers have told her that there is $"$no way" she can get long$-$term capital gain treatment when she purchases stock because she is a securities dealer. Faith has asked you to calculate her potential gain and tell her whether her coworkers are right.

Question Content Area

a$.$If Faith clearly identifies the security as held for investment purposes by the close of business on the$$

acquisitionsales

$$date$,$ she will have$$

ordinary incomea capital gain

$.$

Question Content Area

b$.$Complete the letter to Faith, responding to her request.

SWFT$,$ LLP

$5191$ Natorp Boulevard

Mason, OH $45040$March $17,2025$Ms$.$ Faith Godwin

$200$ Catamon Drive

Great Falls, MT $59406$Dear Ms$.$ Godwin:The purpose of this letter is to discuss the rules for purchases of stock by a securities dealer such as yourself. Your co$-$workers are

incorrectcorrect

$$that a securities dealer may not have a long$-$term capital gain from the sale of stock. The tax law

allowsdoes not allow

$$you to designate stock you purchase as being held for investment. You must make this designation by the end of the business day on which the stock is$$

acquiredsold

$.$ I suggest you check with your supervisor on how this designation is normally done at your firm. I am sure it is a relatively simple procedure.As long as you continue to hold the designated shares for investment until you$$

sellbuy

$$them$,$ the shares are a

capital assetfixed asset

$.$ When you sell them at $$40$ per share, your $fill in the blank $6$cfc$30067076061\_6$per$-$share gain will be taxed as a long$-$term capital gain $($if you have held the shares for more than one year$).$Thank you for the opportunity to be of service. Please telephone me if you have additional questions.Sincerely,Michelle Brown, CPA

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