Question

John (a sole proprietor) and Eagle Corporation (a C corporation)each recognize a long-term capital gain of $10,000 and a short-termcapital loss of $18,000 on the sale of capital assets. Neithertaxpayer had any other property transactions during the year.

a. Regarding John's gains and losses, labeleach of the following as "True" a tax consequence or "False" not atax consequence.

1. John reports the capital transactions on his individual taxreturn and deducts a $18,000 net capital loss in the currentyear.

2. John reports the capital transactions on his individual taxreturn but is limited to a $3,000 net capital loss deduction in thecurrent year.

3. John nets the $10,000 LTCG against the $18,000 STCL.

Regarding Eagle Corporation's gains and losses, label each ofthe following as "True" a tax consequence or "False" not a taxconsequence.

1.

Eagle Corporation nets the $10,000 LTCG against the $18,000STCL, resulting in a $8,000 net capital loss.

2.

Eagle is limited to a $8,000 net capital loss deduction in thecurrent year.

3. All of the $18,000 net capital loss is deductible in thecurrent year.

4. Eagle carries back a $8,000 STCL 3 years and, if necessary,forward 5 years, to be offset against capital gains in suchyears.