Which of the Following Statements Is False Regarding Involuntary Conversions

question 2100

Multiple Choice

Which of the following statements is false regarding involuntary conversions?

• A) Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property.
• B) A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion.
• C) If deferral of gain is elected, the holding period of the converted property carries over to the replacement property.
• D) A taxpayer must replace the destroyed property within the same tax year in which the gain is realized.

---

Definitions:

Interperiod Tax Allocation

The method of accounting that recognizes the tax effect of differences between the timing of income recognition for financial reporting and tax purposes.

Investment Income

The money earned from various types of investments, including stocks, bonds, mutual funds, and real estate.

Municipal Bonds

Bonds issued by local, state, or county governments to finance public projects, typically offering tax-exempt interest payments.

Deferred Income Taxes

Tax liabilities that arise due to timing differences between the recognition of income and expenses in the financial statements and their recognition in the tax returns, deferred to future periods.