Final answer:
A taxpayer may elect to defer recognition of a loss resulting from an involuntary conversion.
Step-by-step explanation:
A taxpayer may elect to defer recognition of a loss resulting from an involuntary conversion.
The statement is true.
When a taxpayer experiences an involuntary conversion, such as a theft or destruction of property, they may be able to defer recognition of any resulting loss for tax purposes. By electing to defer, the taxpayer can postpone reporting the loss on their tax return, which can provide financial relief.
For example, if a business suffers a fire that destroys its building, the business owner can elect to defer recognizing the loss on their tax return. This means that they will not immediately deduct the loss and reduce their taxable income for the year. Instead, they can potentially claim a deduction in a future tax year when they replace the property or acquire a new one.