Question 1

A taxpayer sells stock (Basis $50,000) to their sister for $30,000 (FMV). The sister later sells the stock to an unrelated party for $55,000. What is the sister's recognized gain?

Accepted Answer

1. Original Sale: Loss of $20k ($30k - $50k) is disallowed (Related Party §267). 2. Sister's Sale: Realized Gain = $55k - $30k = $25k. 3. Use Disallowed Loss: Gain is reduced by the previously disallowed loss ($20k). Recognized Gain = $25k - $20k = $5,000.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting to use the disallowed loss to offset the gain.

A taxpayer sells stock (Basis $50,000) to their sister for $30,000 (FMV). The sister later sells the stock to an unrelated party for $55,000. What is the sister's recognized gain?

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