accounting question 346

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1. Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2014, Owen and Lisa exchange business pickup trucks. Lisa gives up a blue pickup truck with an adjusted basis of $2,000 and a fair market value of $6,000. In return for this property, Lisa receives from Owen a red pickup truck with a fair market value of $5,500 and cash of $500. Owen’s adjusted basis in the truck he exchanges is $2,500. In March 2015, Owen sells the blue pickup truck to a third party for $5,800.- Required: Go to the IRS website ( Locate and review Publication 544, Chapter 1, Nontaxable Exchanges. Write a file memorandum stating the amount of Owen and Lisa’s gain recognition for 2014. Also determine the effect, if any, of the subsequent sale in 2015.

2. Lisa Sizemore, a taxpayer in the 10–15 percent tax bracket, purchased stock as an investment on July 11, 2013. She sold the stock on July 9, 2014, 2 days before qualifying for the long-term holding period. If Lisa had waited until July 12, 2014 to sell the stock, she would have qualified for the 0 percent tax rate. Instead, the sale will now be taxed at ordinary income rates. Upon realizing this, Lisa has told you that she will “fudge” the sale date to July 12. She says to you, “What’s the big deal? It’s just 2 days.” What would you say to Lisa?

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