Problem:
When working as a revenue agent with the IRS we were required to ask the taxpayer to show records on how basis is computed. Many times it would result in an adjustment increasing the amount of gain reported.
The formula to compute the gain or loss on the sale of property is equal to the amount received minus the basis of the property given up. Determining basis is a key step in determining the tax consequences of a transaction. It is also used to compute depreciation. So how is basis computed? What is basis?