Patti sells a painting that has a fair market value of $9,000 to James for $6,000. Which of the following statements about the tax effect of the sale is/are correct? I. If James is an employee of Patti's, no income is recognized from the sale. II. If James is Patti's brother, James does not recognize any income from the sale. III. If Patti is an art dealer and she sold the painting to James because she needed cash quickly, James does not recognize any imputed income from the sale. IV. If James owns 60% of Patti's company, James does not recognize any income from the sale.

Question

24-03-2020
Business

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Patti sells a painting that has a fair market value of $9,000 to James for $6,000. Which of the following statements about the tax effect of the sale is/are correct? I. If James is an employee of Patti's, no income is recognized from the sale. II. If James is Patti's brother, James does not recognize any income from the sale. III. If Patti is an art dealer and she sold the painting to James because she needed cash quickly, James does not recognize any imputed income from the sale. IV. If James owns 60% of Patti's company, James does not recognize any income from the sale.

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stanfordgoddy stanfordgoddy · Answer 1 · 2020-03-27T02:31:40+01:00

Answer:

II and III

Explanation:

According to the IRS tax guidelines this two scenario matches them correctly;

The statement that James is Patti's brother, would imply that he (James) would not recognize any income from the sale to be deducted as tax.

Second, assuming Patti is an art dealer and she sold the painting to James because she needed cash quickly, James would not recognize any imputed income from the sale.