Final answer:
Gain will be recognized when the cost of replacement property is less than the amount realized on an involuntary conversion, as the excess is typically considered taxable income by the IRS. Yes.
Step-by-step explanation:
When the cost of replacement property is less than the amount realized on an involuntary conversion, gain will be recognized. In other words, if you receive insurance proceeds or other compensation that is more than the cost of the property that replaces the one that was lost, damaged, or stolen (involuntary conversion), you typically must report this difference as gain. This is because the Internal Revenue Service (IRS) views the excess amount as a gain that you have realized, which is generally subject to taxation.