In 20x2, Norma sold Zinc, Inc., common stock for $100,000 cash and a note receiv
ID: 2445823 • Letter: I
Question
In 20x2, Norma sold Zinc, Inc., common stock for $100,000 cash and a note receivable for $900,000. The note was due in 20x3 with accrued interest at the federal rate. Norma's basis in the stock was $250,000. This was Norma's only installment sale transaction. Which of the following statements is correct?
A. Norma cannot use the installment method to report her gain if the stock is listed on the New York Stock Exchange.
B.Norma must recognize $100,000 gain in 20x2, and she will be liable for interest on taxes deferred under the installment method.
C. Norma must recognize $100,000 gain in 20x2, and she will not be liable for interest on the taxes deferred under the installment method if the stock is not publicly traded.
D.Norma should treat the $100,000 received as a recovery of capital.
E. None of the above
Explanation / Answer
The answer is A
Norma cannot use the istallment method to report her gain if the stock is listed on the New York Stock exchange
Explanation :
Though taking a promissory note qualify for installment method where you are taxed on prorated basis but certain sales does not qualify for the same and selling of stocks of publicly traded companies does not qualify for deferral technique