Reference no: EM132591247

Questions-

Q1. When you have a constructive sale, the transaction is treated, for tax purposes, as if you've sold and repurchased the security on the date of the constructive sale.

True or False

Q2. Taxpayer purchases 100 shares of XYZ Corp on February 1, 20x1 for $100.

Taxpayer sells short 100 shares of XYZ Corp on June 1, 20x1 for $110.

Taxpayer closes the short position on July 1, 20x1, buying 100 shares of XYZ Corp for $90.

Taxpayer sells the original position on February 2, 20x2 for $120.

What is the amount and character to recognize in 20x2?

a. $20 Long-term capital gain

b. $20 Short-term capital gain

c. $10 Short-term capital gain

d. $10 Long-term capital gain

Q3. On July 1, 20x1, a taxpayer purchases a regulated futures contract for $100 which, by rule, is marked-to-market at year-end. At December 31, 20x1, the regulated futures contract is worth $110. This regulated futures contract is an appreciated financial position, for purposes of the constructive sale rule.

Q4. Taxpayer sells short 100 shares of BIG Corp on February 1, 20x1 for $10/share. On December 31, 20x1, the shares are worth $15/share. On July 1, 20x2, taxpayer purchases 100 shares of BIG Corp for $12/share to cover the original short sale.

What is the amount and character that taxpayer must recognize in 20x2?

a. $200 short-term capital loss

b. $200 long-term capital loss

c. $200 short-term capital gain

d. $200 long-term capital gain

Q5. When short selling stocks, your losses are limited to the amount you pay to enter the position . You will be charged interest only on the shares you borrow, and you can short the shares as long as you meet the minimum margin requirement for the security.

True

False

Q6. Two securities can be considered substantially identical to one another if they share characteristics that demonstrate that the risk of loss incurred by holding one security can be mitigated by holding an appropriate position in the other security.

True

False

Q7. Johnny buys 100 shares of ABC stock for $70 per shares on 2/1/2008. He then borrows 100 shares of ABC stock from his broker and sells the stock for $90 per share on 3/1/2008. On 3/18/2008, Johnny buys 100 shares of ABC stock at $75 per share. He pays $7,500 for the stock and returns the stock to the broker. The short sale is closed.

How much did Johnny make from this transaction and when does the holding period of the original shares of ABC stock begin to run?

a. $1,500, 3/18/08

b. $1,500, 3/1/08

c. $500, 3/18/08

d. $1,500, 2/1/08