Part I
A, B, C and D (all individuals) form a general partnership in which they each have an equal interest in capital and profits. All the partners and the partnership are cash method taxpayers. In exchange for their respective partnership interests, each partner transfers the following assets, all of which have been held more than two years:
|
Partner
|
Asset
|
Adjusted Basis
|
Fair Mkt. Value
|
|
A
|
Land
|
$30,000
|
$100,000
|
|
|
|
|
|
|
B
|
Equipment (all §1245 gain)
|
25,000
|
45,000
|
|
|
Installment note from the sale of land
|
20,000
|
25,000
|
|
|
Inventory
|
5,000
|
30,000
|
|
|
|
|
|
|
C
|
Building
|
25,000
|
60,000
|
|
|
Land
|
25,000
|
10,000
|
|
|
Receivables for services rendered to E (a third party)
|
0
|
30,000
|
|
|
|
|
|
|
D
|
Cash
|
100,000
|
100,000
|
A. What are the tax consequences (consider only gain or loss realized and recognized, basis and holding period) to each of the partners?
B. What are the tax consequences (consider only gain recognized, basis and holding period) to the partnership?
C. Construct the Partnership Balance Sheet showing both the adjusted basis and fair market for each account.
D. What is each partner's outside basis in the partnership?
Part II
On January 1, Julie and Kay form a general partnership and receive 35% and 65% partnership interests, respectively. On January 2, they admit Susan. The contributions of the three individuals are listed below. After admission of Susan, Julie has a 30% partnership interest, Kay has a 60% partnership interest, and Susan has a 10% partnership interest. Their partnership interests are both capital and profit interests. They share the economic risk of loss from recourse liabilities according to their partnership interests.
|
Individual
|
Asset
|
Basis to Partner
|
FMV
|
|
Julie
|
Accounts Receivable
|
$0
|
$60,000
|
|
Kay
|
Land
|
$30,000
|
$58,000
|
|
|
Building
|
$45,000
|
$116,000
|
|
Susan
|
Services
|
|
$20,000
|
Kay has claimed $15,000 of straight-line MACRS depreciation on the building. The land and building are subject to a $54,000 mortgage of which $18,000 is allocable to the land and $36,000 is allocable to the building. The partnership assumes the mortgage. Susan is an attorney, and the services she contributes are the drawing-up of all partnership agreements. Assume the cost of drawing-up the partnership agreements constitutes a deductible expense.
A. What are the tax consequences (consider only gain or loss realized and recognized, basis and holding period) to each of the partners?
B. What are the tax consequences (consider only gain recognized, basis and holding period) to the partnership?
C. Construct the Partnership Balance Sheet showing both the adjusted basis and fair market for each account.
D. What is each partner's outside basis in the partnership?