Joyce, a Farmer, Has the Following Events Occur During the Tax

question 204

Multiple Choice

Joyce, a farmer, has the following events occur during the tax year. Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion) ?

• A) Her farm tractor is hauled to the city dump because it is worn out.
• B) She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd in preparation for her retirement.
• C) Her personal residence, adjusted basis of $100,000, is condemned to make way for an interstate highway. She recovers condemnation proceeds of $175,000.
• D) She sells 10 acres of pasture land at a loss of $40,000 because she has reduced the size of her dairy herd due to a reduction in milk prices.
• E) None of the above.

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Definitions:

Benefits Principle

A taxation theory that suggests taxes should be levied according to the benefits received by the taxpayer from government services.

Ability-To-Pay Principle

This principle suggests that individuals should be taxed based on their ability to pay, regardless of the benefits they receive.

Equity Principle

A concept in finance that emphasizes fair distribution of wealth and assets, ensuring that financial transactions are conducted fairly and equitably.

Taxes

Mandatory financial charges or levies imposed by a government on individuals or businesses to fund public expenditure.