Question: 1. Donna purchased Dennis' one-third interest of the DEF LLC (which is taxed as a partnership) for $125,000. In connection with Donna's purchase, the LLC made a § 754 election. The DEF LLC uses the accrual method of accounting with respect to sales of inventory and the cash method with respect to the provision of services. When Donna purchased her one-third interest, the DEF LLC's assets and capital accounts were as follows:
|
Assets
|
Adjusted Basis
|
F.M.V.
|
Capital Accounts
|
Adjusted Basis
|
F.M.V
|
|
Cash
|
$9,000
|
$9,000
|
D
|
$75,000
|
$125,000
|
|
Accounts Receivable
|
$6,000
|
$36,000
|
E
|
$75,000
|
$125,000
|
|
Inventory
|
$60,000
|
$120,000
|
F
|
$75,000
|
$125,000
|
|
Land
|
$45,000
|
$30,000
|
|
|
|
|
Building
|
$105,000
|
$180,000
|
|
|
|
|
$225,000
|
$375,000
|
|
$225,000
|
$375,000
|
The land and building are § 1231 assets. The building has accumulated depreciation of $75,000 taken on a straight-line basis.
a. What are the tax consequences to Dennis (the seller)?
b. Determine the § 743(b) special basis for each of the LLC's assets with respect to Donna (the purchaser).