Problem
Joe and Sunny intend to enter into a business venture together and decided that a corporation would be a desirable entity choice for federal income tax purposes. The corporation is named JS Inc. "JS"). For newly established JS, Joe intends to contribute Property A with a fair market value "FMV") of $800 and basis of $300, subject to debt of $200. Sunny intends to contribute cash of $800. JS is elected to be treated as an S corporation for federal income tax purposes.
• Part I: Provide Joe's basis in JS upon contribution (i.e., Year 0) of Property A.
• Part I: Provide Sunny's basis in JS upon contribution (i.e., Year 0) of cash.
• Part III: Provide JS's basis in Property A and cash immediately after the contribution.
• Part IV: Assuming Joe's and Sunny's basis in the JS stock remain the same after the contributions for Year 1, determine Joe's and Sunny's basis when JS distributes $400 of cash to Joe and Sunny.
• Part V: Assume the following: (i) there are no AAA, OAA, and AEP; (ii) the debt of $200 is still treated as a loan made by Joe (i.e., recourse loan), and (iii) during Year 1, JS had a loss of $400 with no distributions made to Joe and Sunny. Determine Joe's and Sunny's basis.