Final answer:
Taxpayers with involuntary conversion may choose to either recognize or defer the realized gain on their taxes, depending on whether they want to report the gain immediately or postpone it by acquiring similar property.
Step-by-step explanation:
Taxpayers who meet the involuntary conversion requirements, such as when property is destroyed, stolen, or condemned, may elect to either recognize or defer the realized gain on the conversion.
When they choose to recognize the gain, they must report it on their tax return and pay any taxes due. However, if they choose to defer the gain, they can use the proceeds from the conversion to purchase similar property within a specific period, thus delaying the recognition of gain for tax purposes. The intention behind this option is to alleviate financial burden on taxpayers who have no control over the loss of their property.
The correct option in the final answer for taxpayers meeting involuntary conversion requirements is: They may elect to either recognize or defer the realized gain on the conversion.