Homework Solutions: Spilker et al. C h. 20
40. Harry and Sally formed the Evergreen partnership by contributing the following assets in exchange for a 50 percent capital and profits interest in the partnership: Harry:
Basis Fair Market Value
Equipment used in a business
a. How much gain or loss will Harry recognize on the contribution? b. How much gain or loss will Sally recognize on the contribution? c. How could the transaction be structured a different way to get a better result for Sally?
d. What is Harry’s tax basis in his partnership interest?
e. What is Sally’s tax basis in her partnership interest?
f. What is Evergreen’s tax basis in its assets?
g. Following the format in Exhibit 20 -2, prepare a tax basis balance sheet for the Evergreen partnership showing th e tax capital accounts for the partners. a. $0.
Generally, partners recognize gain on property contributed to a partnership only when the cash they are deemed to receive from debt relief exceeds their basis in the partnership prior to the deemed distribution . Harry did not have any debt relief.
Partners may never recognize loss when property is contributed to a partnership even when they are relieved of debt.
c. Sally should consider selling the property to the partnership rather than contributing it. By selling the property, she could recognize the $50,000 built in loss on the equipment. d. $130,000.
Harry’s basis in his partnership interest is simply the combined tax basis in the cash and land he contributed to the partnership.
Sally’s basis in her partnership interest equals $200,000 basis in the equipment she contributed.
The partnership’s basis in its assets equals the sum of the partners’ bases in the cash ($30,000), in the land ($100,000), and in the equipment ($200,000). g. The partnership’s tax basis balance sheet would appear as follows: Evergreen Partnership
Tax Basis Balance Sheet
43. Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets:
Basis Fair Market Value
*Nonrecourse debt secured by the land equals $210,000
Each member received a one -third capital and profits interest in the LLC. a. How much gain or loss will Jerry, Dave and Kevan r ecognize on the contributions?
b. What is Kevan’s tax basis in his LLC interest?
c. What tax basis do Jerry and Dave have in their LLC interests? d. What is Albee LLC’s tax basis in its assets?
e. Following the format in Exhibit 20 -2, prepare a ta x basis balance sheet for the Albee LLC showing the tax capital accounts for the members. What is Kevan’s share of the LLC’s inside basis?
f. If the lender holding the nonrecourse debt secured by Kevan’s land required Kevan to guarantee 33.33 percent of the debt and Jerry to guarantee the remaining 66.67 percent of the debt when Albee LLC was formed, how much gain or loss will Kevan recognize?
g. If the lender holding the nonrecourse debt secured by Kevan’s land required Kevan to guarantee 33.33 percent of the debt and Jerry to guarantee the remaining 66.67 percent of the debt when Albee LLC was formed, what are the members’ tax bases in their LLC interests?
None of the members recognize gain because their debt relief was not in excess of their bases in their LLC interest prior to any debt relief. See table below:
(1) Basis in contributed Land
(2) Cash contributed
(3) Nonrecourse mortgage in...
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