PROBLEM #1
Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property with an adjusted basis of $40,000 and a fair market value of $100,000.
A. How much gain. If any, must Emma recognize on the transfer? Must Laine recognize and gain? If so, how much?
B. What is Emma's basis in her partnership interest?
C. What is Laine's basis in her partnership interest?
D. What basis does the partnership take in the property transferred by Laine?
PROBLEM #2
Mike and Melissa form the equal MM Partnership. Mike contributes cash of $40,000 and land (fair market value of $100,000, adjusted basis of $120,000), and Melissa contributes the assets of her sole proprietorship (value of $140,000, adjusted basis of $115,000).
What are the tax consequences of the partnership formation to Mike, Melissa, and MM Partnership?
PROBLEM #3
Sam and Drew are equal partners in SD LLC formed on June 1 of the current year. Sam contributed land that he inherited from his uncle in 2007. Sam's uncle purchased the land in 1882 for $30,000. The land was worth $100,000 when Sam's uncle died. The fair market value of the land was worth $200,000 at the date it was contributed to the partnership. Drew has significant experience developing real estate. After the LLC is formed, he will prepare a plan for developing the property and secure zoning approvals for the LLC. Drew would normally bill a third party $50,000 for these efforts. Drew will also contribute $150,000 cash in exchange for his 50% interest in the LLC. The value of his 50% interest is $200,000.
a. How much gain or income will Sam recognize on his contribution of the land to the LLC? What is the character of any gain or income recognized?
b. What basis will Sam take in his LLC interest?
c. How much gain or income will Drew recognize on the formation of the LLC? What is the character of any gain or income recognized?
d. What basis will drew take in his LLC interest?
PROBLEM #4
Gil's outside basis in his interest in the GO Partnership is $100,000. In a proportionate nonliquidation distribution, the partnership distributes to him cash of $30,000, inventory (fair market value of $40,000, basis to the partnership of $20,000), and land (fair market value of $90,000, basis to the partnership of $40,000). The partnership continues in existence.
a. Does the partnership recognize any gain or loss as a result of the distribution? Explain.
b. Goes Gil's basis any gain or loss as a result of his distribution? Explain.
c. Calculate Gil's basis in the land, in the inventory, and in his partnership interest immediately following the distribution.