2009 AICPA newly released questions – regulation

Rule: The taxable amount of a dividend to a shareholder from a corporation's earnings and profits is the amount received in cash or the fair market value of the property received.. If t

Following are multiple choice questions recently released by the AICPA These

questions were released by the AICPA with letter answers only Our editorial board has provided the accompanying explanation.

Please note that the AICPA generally releases questions that it does NOT intend to use again These questions and content may or may not be representative of questions you may see on any upcoming exams

1

Under which of the following circumstances is trust property with an independent trustee includible in the grantor's gross estate?

a The trust is revocable

b The trust is established for a minor

c The trustee has the power to distribute trust income

d The income beneficiary disclaims the property, which then passes to the remainderman, the grantor's friend

Solution:

Choice "a" is correct If a revocable trust is created by a grantor, the trust assets may be returned to the grantor upon the grantor's "revocation" of the trust (i.e., no "complete" gift exists); thus, the assets never left the control (or possible ownership) of the grantor and remain includible in the gross estate of the grantor

Choice "b" is incorrect When a trust is established for a minor, a complete gift is made to the trust, and the assets are no longer includible in the estate of the grantor

Choice "c" is incorrect The trustee typically has the power to distribute trust income in various types of trusts; thus, this fact alone would not make the assets includible in the gross estate of the grantor

Choice "d" is incorrect This type of arrangement has nothing to do with the requirement of assets to be included in the gross estate of the grantor, as it could exist in an irrevocable trust or a revocable trust The beneficiary is simply passing his/her distribution to another party

2

Brisk Corp is an accrual-basis, calendar-year C corporation with one individual shareholder At year end, Brisk had $600,000 accumulated and current earnings and profits as it prepared to make its only dividend distribution for the year to its shareholder Brisk could distribute either cash of $200,000 or land with an adjusted tax basis of $75,000 and a fair market value of $200,000 How would the taxable incomes of both Brisk and the shareholder change if land were distributed instead of cash?

Rule: The taxable amount of a dividend to a shareholder from a corporation's earnings and profits is the

amount received in cash or the fair market value of the property received

Rule: The general rule is the payment of a dividend does not create a taxable event, unless the

distribution is appreciated property When the distribution is of appreciated property, the corporation recognizes gain as if the property were sold at fair market value

Choice "b" is correct If Brisk Corp were to distribute $200,000 of accumulated earnings and profits in cash as a dividend, the shareholder would recognize $200,000 in dividend income, and the corporation would reduce its earnings and profits by $200,000 If, instead, the dividend were the $200,000 FMV land with a basis of $75,000, the shareholder would still recognize $200,000 of dividend income (the FMV of the property received, as per the above rule), but the corporation would recognize a gain of $125,000 on the distribution ($200,000 FMV - $75,000 basis, per the above rule), the corporation's earnings and profits would increase $125,000, and the corporation would reduce its earnings and profits by the $200,000 dividend distribution Thus, Brisk's taxable income would increase if the land were distributed, but the shareholder's taxable income would not change

Choice "a" is incorrect Per the above discussion and rules, Brisk's taxable income would increase

$125,000

Choice "b" is incorrect Per the above discussion and rules, Brisk's taxable income would increase

$125,000 and the shareholder would have no change in taxable income

Choice "c" is incorrect Per the above discussion and rules, Brisk's taxable income would indeed

increase ($125,000), but the shareholder would have no change in taxable income

Choice "c" is correct The drawer of a draft is secondarily liable The drawer is liable only after the draft

is presented to the drawee, the draft is dishonored, and the drawer is given notice of dishonor

Choice "a" is incorrect because an acceptor is primarily liable When a drawee signs a draft, the drawee becomes an acceptor and is primarily liable

Choice "b" is incorrect because with a cashier’s check, the bank is both the drawer and the drawee As the issuer the bank would be primarily liable

Choice "d" is incorrect because the maker of a note is primarily liable

4 (Adapted)

Train issued a note payable to Blake in payment of contracted services that Blake was to perform Blake endorsed the negotiable note "pay to bearer" and delivered it to Reed in satisfaction of a debt owed Reed Train refused to pay Reed on the note because Blake had not yet performed the services Reed was unaware of this failure when he took the note Under the Negotiable Instruments Article of the UCC, must Train pay Reed?

a No, Train does not have to pay Reed until the services are performed

b No, Train does not have to pay Reed because the note was issued to Blake

c Yes, Train has to pay Reed because the note was converted into bearer paper

d Yes, Train has to pay Reed because Reed was a holder in due course

Solution:

Choice "d" is correct Reed met all the requirements to be a holder in due course He was the holder of a negotiable instrument (the note) He gave value (taking a note as payment for debt constitutes value) Nothing in the facts indicates that Reed lacked good faith He was without notice of Blake's

nonperformance of services Nonperformance of services is a personal defense and not a real defense

A holder in due course takes free of personal defenses and is subject only to real defenses Thus, Train will have to pay Reed

Choices "a" and "b" are incorrect because both indicate that Train will not have to pay Reed Train will have to pay Reed due to Reed's status as a holder in due course

Choice "c" is incorrect Train must pay Reed because Reed was a holder in due course, not because the

note was bearer paper

5

Assuming appropriate disclosure is made, which of the following fee arrangements generally would be permitted under the ethical standards of the profession?

a A fee paid to the client's audit firm for recommending investment advisory services to the client

b A fee paid to the client's tax accountant for recommending a computer system to the client

c A contingent fee paid to the CPA for preparing the client's amended income tax return

d A contingent fee paid to the CPA for reviewing the client's financial statements

6

Fox, the sole shareholder in Fall, a C corporation, has a tax basis of $60,000 Fall has $40,000 of

accumulated positive earnings and profits at the beginning of the year and $10,000 of current positive earnings and profits for the current year At year end, Fall distributed land with an adjusted basis of

$30,000 and a fair market value (FMV) of $38,000 to Fox The land has an outstanding mortgage of

$3,000 that Fox must assume What is Fox's tax basis in the land?

Choice "a" is correct Absent information to the contrary, we should assume this distribution is in the form

of a dividend (especially because Fox is the sole shareholder) If the shareholder is an individual, the taxable amount of a property dividend from a corporation's earnings and profits is the fair market value of the property received (and the property's basis then becomes that fair market value) In this case, the shareholder is also taking on the responsibility for the mortgage on the property, but this affects only the amount of taxable income, as the debt is reported as a separate line item and does not affect the basis of the land The tax journal entry follows and indicates that the basis of the land is $38,000:

Dr Cr

Choice "b" is incorrect This is the amount of the taxable income on the dividend ($35,000), not the basis

in the land, as per the above journal entry

Choice "c" is incorrect This amount of $30,000 is the basis of the land on the corporation's books In a dividend situation, assets are transferred from the corporation using the fair market value of the assets at the date of distribution

Choice "d" is incorrect This amount of $27,000 was arrived at by using the basis of the land on the corporation's books ($30,000) and subtracting the mortgage assumed by the shareholder ($3,000) As is discussed in the explanation of the answer for item "a" (above), the fair market value should be used as the basis, and the debt does not have an effect on basis (debt affects taxable income, as shown in the journal entry above)

7

Dart, a C corporation, distributes software over the Internet and has had average revenues in excess of

$20 million dollars per year for the past three years To purchase software, customers key-in their credit card number to a secure web site and receive a password that allows the customer to immediately download the software As a result, Dart doesn't record accounts receivable or inventory on its books Which of the following statements is correct?

a Dart may use either the cash or accrual method of accounting as long as Dart elects a calendar year end

b Dart may utilize any method of accounting Dart chooses as long as Dart consistently applies the method it chooses

c Dart must use the accrual method of accounting

d Dart may utilize the cash basis method of accounting until it incurs an additional $10 million to

develop additional software

3 Certain farming corporations, and

4 C corporations, trusts with unrelated trade or business income, and partnerships having a C corporation as a partner provided the business has greater than $5 million average annual gross receipts for the three-year period ending with the tax year

The information in the facts tells us that Dart does not maintain inventory, so the first item that requires accrual method of accounting does not apply However, the facts also tell us that Dart is a C corporation with average annual gross receipts in excess of $20 million for the last three years (all of its sales are via credit card, which is turned into cash immediately; thus, gross receipts for the year are over $20 million) The fourth requirement above indicates that accrual method of accounting for tax purposes is required if a

C corporation has annual average gross receipts in excess of $5 million for the three-year period ending with the tax year-thus, Dart must use the accrual method of accounting for tax purposes

Choice "a" is incorrect, per the above explanation

Choice "b" is incorrect, per the above explanation

Choice "d" is incorrect, per the above explanation

8

Spinner, CPA, had audited Lasco Corp.'s financial statements for the past several years Prior to the current-year's engagement, a disagreement arose that caused Lasco to change auditing firms Lasco has demanded that Spinner provide Lasco with Spinner's working papers so that Lasco may show them

to prospective auditors to help them prepare their bids for Lasco's audit engagement Spinner refused and Lasco commenced litigation Under the ethical standards of the profession, will Spinner be

successful in refusing to turn over the working papers?

a Yes, because Spinner is the owner of the working papers

b Yes, because Lasco is required to direct prospective auditors to contact Spinner to make

arrangements to view the working papers in Spinner's office

c No, because Lasco has a legitimate business reason for demanding that Spinner surrender the working papers

d No, because it was Lasco's financial statements that were audited

Choices "c" and "d" are incorrect Both indicate that Spinner must disclose to Lasco and Spinner is not required to disclose the workpapers

9

The Simone Trust reported distributable net income of $120,000 for the current year The trustee is required to distribute $60,000 to Kent and $90,000 to Lind each year If the trustee distributes these amounts, what amount is includible in Lind's gross income?

Choice "c" is correct Distributable net income is the maximum amount of income from the trust that may

be taxed (passed through) to the beneficiary and be deductible by the trust as "the income distribution deduction." [The reason is that the beneficiary will report this amount of taxable income on his/her personal income tax return.] However, while DNI is the maximum amount of the income distribution deduction, the income distribution deduction is the LESSER of DNI or the actual amount distributed to the beneficiary The amount of the income distribution deduction to the beneficiary is the amount of income that is taxed to the beneficiary

Typically, we see a situation in which DNI exceeds the amount distributed to the beneficiary; thus, the income distribution deduction would be the amount distributed In this case, the examiners are truly testing the candidate's ability to understand the concept of DNI, distributions, and the amount that can be deducted by the trust (and thus taxed to the beneficiary) because actual (and required) distributions exceed DNI Further, the examiners are requiring candidates to make a calculation based on the

prorated amount of actual distributions required to be made Kent is required to receive $60,000 and Lind

is required to receive $90,000 per year (for a total of $150,000) The applicable pro-rata portion of the income distribution deduction ($120,000 in this case) for Lind and the amount that would subsequently be includible in Lind's gross income is calculated as follows:

Choice "d" is incorrect Lind received $90,000 in actual distributions, but the maximum income

distribution for Lind (and the amount that will show up on Lind's K-1 from the trust) is $72,000

[$90,000/$150,000 * $120,000]

10

Sands purchased 100 shares of Eastern Corp stock for $18,000 on April 1 of the prior year On February

1 of the current year, Sands sold 50 shares of Eastern for $7,000 Fifteen days later, Sands purchased

25 shares of Eastern for $3,750 What is the amount of Sand's recognized gain or loss?

Rule: A loss on a wash sale is disallowed for tax purposes A wash sale exists when a security is sold for

a loss and is repurchased within 30 days before or after the sale

Choice "c" is correct A wash sale exists in this case, but only a partial wash sale Unfortunately, the dollar amounts for the recognized loss and wash sale (disallowed) loss are the same in this question (so the illustration can become somewhat confusing) Let's use 20X1 and 20X2 for illustration On 4/1/X1, Sands purchased 100s of Eastern stock for $18,000 ($180/share) On 2/1/X2, Sands sold 50s of the

stock for $7,000 ($140/share), creating a realized loss of $2,000 (50s * ($140 - $180)) Now, if Sands had stopped there, it would have also had a recognized loss of $2,000 However, on 2/16/X2 Sands

repurchased half of the shares it had sold at a loss (25s/50s), and this was within the 30-day period indicated in the rule (above) Thus, half of the realized loss is not recognizable in year 2, and it becomes part of the basis of the 25s of Eastern stock owned by Sands [note that the 50s not initially sold by Sands has a basis of $180/share, or $9,000] The calculation follows:

Basis 50s (9,000) [$180 * 50 = $9,000, from the initial purchase]

Realized Loss $ (2,000) [$40/share loss]

2/16/X2 Purchase 25s $ 3,750 [Repurchased within 30 days of loss sale]

Add: Wash Sale Loss 1,000 [($140 - $180) * 25s = $1,000]

Resulting Basis of 25s $ 4,750

Result: Sands owns 75s of Eastern stock The first 50 shares (those that were not sold on 2/1X2) has a basis of $9,000 in total ($180/share), and the 25 shares repurchased on 2/16/X2 has a basis of $4,750 ($190/share)

Choice "a" is incorrect Sand is allowed to recognize a loss on the shares it did not repurchase The total loss on the 50 shares sold is $2,000, but Sands only repurchased 25 shares, so 50% of the $2,000 realized loss (or $1,000) is recognized by Sands in the year sold

Choice "b" is incorrect Sand is allowed to recognize a loss on the shares it did not repurchase The total loss on the 50 shares sold is $2,000, but Sands only repurchased 25 shares, so 50% of the $2,000 realized loss (or $1,000) is recognized by Sands in the year sold [Sands sold only 50% of the stock it initially purchased Then, it repurchased 50% of the amount it sold.]

Choice "d" is incorrect A wash sale exists in this situation The entire $2,000 realized loss is not able to

be recognized in the year sold because 25s of the 50s sold were repurchased in year 2 Only $1,000 of the realized loss is recognized in the year of sale The remaining $1,000 loss is a wash sale loss that

becomes part of basis (as shown above)

Choice "d" is correct A promissory note is a "promise to pay" A draft is an order for a third party to pay

A certificate of deposit is a bank promissory note and is therefore a promise to pay

Choices "a", "b", and "c" are all incorrect because they are drafts and therefore an order for a third party

to pay They are not a promise to pay

often referred to as a private placement because it excepts transactions not involved in a public offering

Choices "a", "b", and "d" are incorrect because there are no 3-month, 6-month or 24-month restrictions found in Rules 504, 505 or 506 of Regulation D

13

In April, A and B formed X Corp A contributed $50,000 cash, and B contributed land worth $70,000 (with

an adjusted basis of $40,000) B also received $20,000 cash from the corporation A and B each

receives 50% of the corporation's stock What is the tax basis of the land to X Corp.?

Rule: There is no gain or loss to the corporation issuing stock in exchange for property for the issuance of

stock The general rule is that the basis of the property received from the transferor/shareholder is the greater of: (1) adjusted net book value of the transferor/shareholder plus any gain recognized by the transferor/shareholder or (2) debt assumed by the corporation

Choice "c" is correct "A" and "B" form X Corporation so that each receives a 50% interest in the

corporation "A" contributes $50,000 in cash, and "B" contributes land worth $70,000 and receives

$20,000 from the corporation [note that each has contributed a net $50,000] X Corporation will record the basis of the land at the basis of "B" ($40,000) plus any cash it paid to secure the land ($20,000), or

$60,000 total basis Per the above general rule, the basis of the property received from the

transferor/shareholder is the greater of: (1) adjusted net book value of the transferor/shareholder plus any gain recognized by the transferor/shareholder or (2) debt assumed by the corporation As there is no indicated debt on the land nor any gain recognized by "B" on the transfer [because "A" and "B" own at least 80% of the voting stock immediately after the transaction and there is no taxable boot (no cash withdrawn and no cancellation of debt) on the transaction], the basis is the adjusted net book value of "B"

($40,000) plus any cash X Corporation pays for the land ($20,000) [Note that we have not addressed

the shareholder consequences in this question.]

Choice "a" is incorrect The answer includes only "B's" $40,000 basis in the land X Corporation will record the basis of the land at the basis of "B" ($40,000) plus any cash it paid to secure the land

"c."

14

Which of the following is a capital asset?

a Inventory held primarily for sale to customers

b Accounts receivable

c A computer system used by the taxpayer in a personal accounting business

d Land held as an investment

Solution:

Rule: Capital assets include property (real and personal) held by the taxpayer for investment, such as:

• Personal automobile of the taxpayer

• Furniture and fixtures in the home of the taxpayer

• Stocks and securities of all types (except those held by dealers)

• Personal property of a taxpayer not used in a trade or business

• Real property not used in a trade or business

• Interest in a partnership

• Goodwill of a corporation

• Copyrights, literary, musical, or artistic compositions purchased

• Other assets held for investment

Items that are NOT capital assets include:

• Property normally included in inventory or held for sale to customers in the ordinary course of business

• Depreciable personal property and real estate used in a trade or business

• Accounts and notes receivable arising from sales or services in the taxpayer's business

• Copyrights, literary, musical, or artistic compositions held by the original artist (with the exception

of musical compositions held by the original artist)

• Treasury stock (not an ordinary asset and not subject to capital gains treatment)

Choice "d" is correct Per the above information and rule, real property not used in a trade or business (e.g., land held for investment) is a capital asset

Choice "a" is incorrect Per the above information, property normally included in inventory or held for sale

to customers in the ordinary course of business is NOT a capital asset

Choice "b" is incorrect Per the above information, accounts and notes receivable arising from sales or services in the taxpayer's business are NOT capital assets

Choice "c" is incorrect Per the above information, depreciable personal property and real estate used in

a trade or business (such as a computer system) is NOT a capital asset

15

Aviary Corp sold a building for $600,000 Aviary received a down payment of $120,000 as well as annual principal payments of $120,000 for each of the subsequent four years Aviary purchased the building for $500,000 and claimed depreciation of $80,000 What amount of gain should Aviary report in the year of sale using the installment method?

Rule: Under the installment method, revenue is reported over the period in which the cash payments are

received The amount of cash received is multiplied by the gross profit percentage on the sale to

determine the revenue (which retains its character as capital gain or ordinary income, depending on the transaction)

Choice "d" is correct The gross profit percentage is calculated as follows:

Accumulated Depreciation ( 80,000) (420,000)

Gross Profit Percentage = $180,000/$600,000 = 30%

Gain Recognized in Year of Sale:$120,000 [cash received] * 30% = $36,000

Choice "a" is incorrect The answer option recognizes as income the total realized gain ($180,000) on the sale As indicated in the rule above, under the installment method, revenue is reported over the period in which the cash payments are received The amount of cash received is multiplied by the gross profit percentage on the sale to determine the revenue

Choice "b" is incorrect This answer option is the total amount of cash received in the year of sale

($120,000) The gross profit percentage must be applied before the amount of revenue is determined As indicated in the rule above, under the installment method, revenue is reported over the period in which the cash payments are received The amount of cash received is multiplied by the gross profit

percentage on the sale to determine the revenue

Choice "c" is incorrect This assumes a gross profit percentage of 45% The actual gross profit

percentage is 30%, as per the above calculation

16

Which of the following payments would require the donor to file a gift tax return?

a $30,000 to a university for a spouse's tuition

b $40,000 to a university for a cousin's room and board

c $50,000 to a hospital for a parent's medical expenses

d $80,000 to a physician for a friend's surgery

Solution:

Rule: Every transfer of money or property, whether real or personal, tangible or intangible, for less than

adequate or full consideration is a gift There are four items that qualify for unlimited exclusion from gift tax and qualify to be excluded from being reported on a gift tax return: (1) payments made directly to an educational institution for a donee's tuition, (2) payments made directly to a health care provider for medical care (3) charitable gifts, and (4) marital transfers Relationship of the donee to the donor is not of consequence

Choice "b" is correct While payments made to the university for a cousin's tuition would be excluded from the requirement to file a gift tax return, the direct payment to the university for room and board is considered a gift and would require the filing of a gift tax return

Choice "a" is incorrect Per the above rule, payments made directly to an educational institution for a donee's tuition qualify for exclusion from gift tax and from the gift tax return filing requirement

Choice "c" is incorrect Per the above rule, payments made directly to a health care provider (e.g., a hospital) for medical care qualify for exclusion from gift tax and from the gift tax return filing requirement Choice "d" is incorrect Per the above rule, payments made directly to a health care provider (e.g., a physician) for medical care qualify for exclusion from gift tax and from the gift tax return filing requirement

17

Which of the following groups may elect to file a consolidated corporate return?

a A brother/sister-controlled group

b A parent corporation and all more-than-10%-controlled partnerships

c A parent corporation and all more-than-50%-controlled subsidiaries

d Members of an affiliated group

Solution:

Rule: An affiliated group of corporations may elect to be taxed as a single unit, thereby eliminating

intercompany gains and losses To be entitled to file a consolidated return, all the corporations in the group (1) must have been members of an affiliated group at some time during the tax year and (2) must have filed a consent (the act of filing a consolidated return qualifies as consent) An affiliated group

means that a common parent owns (1) 80% or more of the voting power of all outstanding stock and (2)

80% or more of the value of all outstanding stock of each corporation

Rule: Not all corporations are allowed the privilege of filing a consolidated return Examples of those

denied the privilege include S corporations, foreign corporations, most real estate investment trusts (REITs), some insurance companies, brother-sister corporations where an individual (not a corporation) owns 80% or more of the stock of two or more corporations, and most exempt organizations

Choice "d" is correct An affiliated group of corporations may file a consolidated return (electing to be taxed as a single unit and eliminating intercompany gains and losses) This answer option comes right out and defines the entities as an "affiliated group," thereby removing the need to determine if the group is actually affiliated!

Choice "a" is incorrect Per the above rule, not all corporations are allowed the privilege of filing a

consolidated return Examples of those denied the privilege include S corporations, foreign corporations,

most real estate investment trusts (REITs), some insurance companies, brother-sister corporations

where an individual (not a corporation) owns 80% or more of the stock of two or more corporations, and most exempt organizations

Choice "b" is incorrect Per the above rule, an affiliated group means that a common parent owns (1)

80% or more of the voting power of all outstanding stock and (2) 80% or more of the value of all

outstanding stock of each corporation In this answer option, the parent owns partnerships, not

corporations [and, even if it did own corporations, the percentage ownership is too small at "more than 10%"]

Choice "c" is incorrect Per the above rule, an affiliated group means that a common parent owns (1)

80% or more of the voting power of all outstanding stock and (2) 80% or more of the value of all

outstanding stock of each corporation In this answer option, the parent owns only "more than 50%" of

the controlled corporations

18

A 33-year-old taxpayer withdrew $30,000 (pretax) from a traditional IRA The taxpayer has a 33%

effective tax rate and a 35% marginal tax rate What is the total tax liability associated with the

Rule: Generally, unless an exception applies, retirement money cannot be withdrawn until the individual

reaches the age of 59 ½ If retirement money (without an exception) is withdrawn before the age of 59 ½, the premature distribution is subject to a 10% penalty tax (in addition to the applicable regular income tax that applies to all distributions of traditional IRA money)

Choice "d" is correct The taxpayer is under the age of 59 ½, and the facts do not indicate that an

exception applies; therefore, the taxpayer is subject to the 10% penalty on the IRA distribution in addition

to the regular income tax The regular income tax that applies is the marginal rate (the rate for the next dollar of taxable income) The effective tax rate is simply the total tax divided by the total taxable income

In this case, the taxpayer would have to pay the regular tax on the distribution at the 35% effective rate PLUS the 10% penalty on early distribution without an exception The calculation to arrive at the total tax associated with the withdrawal follows:

Choice "b" is incorrect This answer option includes the $30,000 distribution multiplied by the (proper) marginal tax rate, but it omits the inclusion of the applicable 10% penalty tax [$30,000 * 35% = $10,500] Choice "c" is incorrect This answer option assumes the effective income tax rate (rounded, assuming 33.33%) applied to the $30,000 distribution plus the applicable 10% penalty tax [($30,000 * 33.33%) + ($30,000 * 10%) = $13,000] It uses the incorrect tax rate (the marginal rate should be used)

19

A heavy equipment dealer would like to trade some business assets in a nontaxable exchange Which of the following exchanges would qualify as nontaxable?

a The company jet for a large truck to be used in the corporation

b Investment securities for antiques to be held as investments

c A road grader held in inventory for another road grader

d A corporate office building for a vacant lot

Solution:

Rule: Nonrecognition treatment is accorded to a "like-kind" exchange of property used in the trade or

business or held for investment (with the exception of inventory, stock, securities, partnership interests, and real property in different countries) "Like-kind" means the same type of investment (e.g., realty for realty or personalty for personalty, assuming the personal property falls within the same "asset class" for tax depreciation purposes)

Choice "d" is correct The exchange of a corporate office building for a vacant lot qualifies for like-kind nonrecognition treatment It is the exchange of realty for realty of property used in the trade or business

or held for investment

Choice "a" is incorrect Although this answer option exchanges personal property used in a trade or business, the "asset classes" for the corporate jet and the heavy equipment differ (This is a tricky question!)

Choice "b" is incorrect The exchange of investment securities for antiques to be held as investments does not qualify for nonrecognition treatment It is one of the exceptions identified in the rule, above Choice "c" is incorrect The exchange of a road grader held in inventory for another road grader does not qualify for nonrecognition treatment It is one of the exceptions identified in the rule, above