Final answer:
The statement is false; Shawn may defer recognition of gain by reinvesting the insurance proceeds from the warehouse fire into a new warehouse under Section 1033 involuntary conversion.
Step-by-step explanation:
In the scenario where Shawn's business warehouse is destroyed by fire, and the insurance proceeds exceed the basis of the property, resulting in a gain, it is not necessarily true that the gain must be recognized just because the proceeds are reinvested in a new warehouse. The tax code offers provisions for deferring recognition of such gains if the proceeds are used to purchase replacement property within a specified period. This concept is known as Section 1033 involuntary conversion, which allows for the deferral of gain if certain conditions are met.
Therefore, the statement provided is False, because reinvestment of proceeds into similar property can potentially defer the recognition of gain, contrary to the wherewithal to pay concept. For example, if Shawn reinvests the insurance proceeds in a new warehouse within 2 years of the fire, he can defer recognition of the gain. However, if Shawn fails to reinvest within the specified timeframe or does not acquire a similar property, then the gain must be recognized.