Your supervisor has asked you to research the following situation concerning Owen and Lisa Cordoncillo. Owen and Lisa are brother and sister. In May 2014, Owen and Lisa exchange business pickup trucks. Lisa gives up a blue pickup truck with an adjusted basis of $2,000 and a fair market value of $6,000. In return for this property, Lisa receives from Owen a red pickup truck with a fair market value of $5,500 and cash of $500. Owen’s adjusted basis in the truck he exchanges is $2,500. In March 2015, Owen sells the blue pickup truck to a third party for $5,800.

Required:

Go to the IRS website (www.irs.gov). Locate and review Publication 544, Chapter 1, Non taxable Exchanges. Write a file memorandum stating the amount of Owen and Lisa’s gain recognition for 2014. Also determine the effect, if any, of the subsequent sale in 2015. (An example of a file memorandum is available at the website for this text located at www.cengagebrain.com.)