Several years ago,

DEF

Co. transferred vacant land with a cost base of

$83,000

to

XYZ

Inc. for its fair market value of

$54,000.

In the current year,

XYZ

Inc. sold the vacant land to an unaffiliated person for its current fair market value of

$45,000.

DEF

Co. is solely owned by Mr.

Michael

and 100% of the voting shares of

XYZ

Inc. are owned by Mr.

Michael's

spouse. What are the tax consequences for both

DEF

Co. and

XYZ

Inc. in the current year?

Choose the correct answer.

A.Both

DEF

Co. and

XYZ

Inc. will recognize losses in the current year related to the land.

B.

DEF

Co. will recognize a

$49,500

loss in the current year. There are no tax consequences for

XYZ

Inc. since it did not legally own the land.

C.

XYZ

Inc. will recognize a

$49,500

loss in the current year. There are no tax consequences for

DEF

Co. since it was not involved in the sale transaction in the current year.

D.

XYZ

Inc. will recognize a

$22,500

loss in the current year. There are no tax consequences for

DEF

Co. since it was not involved in the sale transaction in the current year.