Question

Gain or loss may have to be recognized under the acceleration rule in all of the following situations except which one?

A. A sale of 60% of the stock in a subsidiary that purchased property in an intercompany transaction from another group member.

B. A tax-free transfer of land purchased in an intercompany transaction to a partnership.

C. If a corporation takes a substituted basis in property that it purchased in an intercompany transaction from another group member.

D. P, a parent corporation, owns 100% of both S and B. S owns land with basis of $120 and FMV of 150%

Answer 1

Ans. :-

• The situation under which gain or loss shall not be recognized under acceleration rule is:-

D. P, a parent corporation, owns 100% of both S and B. S owns land with basis of $120 and FMV of 150%

Explanation :-

• A. A sale of 60% of the stock in a subsidiary that purchased property in an intercompany transaction from another group member :-

As in this transaction, the subsidiary company, 60% of the stock of which is sold shall cease to be a member of that group corporation; Acceleration rule shall be applicable to this transaction.

• B. A tax-free transfer of land purchased in an intercompany transaction to a partnership :-

As in this transaction, the basis of the property of a member company would be reflected in the property of the non member company, it would attract the Acceleration rule.

• C. If a corporation takes a substituted basis in property that it purchased in an intercompany transaction from another group member:-

This transaction involves deferred intercompany gain/loss, which would trigger the application of the Acceleration rule.