Question: Advanced Tax Accounting. Please show all work.
1. In a proportionate liquidating distribution, Green Lantern received cash of $150,000, inventory (basis of $5,000, fair market value of $25,000), and a capital asset (basis and fair market value of $30,000). Immediately before the distribution, Green Lantern's basis in the partnership interest was $100,000.
a. How much gain or loss will Green Lantern recognize on the distribution of cash? What is the character of the gain or loss?
b. What is Green Lantern's basis in the inventory and capital asset?
2. In the current tax year, ME, LLC had gross receipts of $500,000 and had $125,000 in rent and utilities. The partnership made Guaranteed Payments of $100,000 and a $50,000 distribution to Spiderman a 50% member, $25,000 to Iron Man for consulting services, a $25,000 as a distribution to Black Widow. In addition, the LLC earned $5,000 of tax exempt interest income. Spiderman is the managing member of the LLC. Spiderman's outside basis was $125,000 at the beginning of the year, and includes a $30,000 share of liabilities. At the end of the year, his share of partnership liabilities is $50,000.
a. What items are deductible to the partnership?
b. What is the amount and character of Spiderman's income? Show your calculations.
c. What is Spiderman's ending basis? Show your calculations.
3. Naruto is an equal partner in the N&K Partnership. At the beginning of this tax year, Naruto's adjusted basis in N&K was $60,000 (including each partner's $15,000 share of the partnership's $30,000 of liabilities). During the current year, N&K repaid $25,000 of the debt and borrowed $20,000 for which Naruto is equally liable with his partner. In the current year ended December 31, N&K also sustained a net operating loss of $50,000 and earned $2,000 of interest income from investments. How much is Naruto's outside basis in N&K at the beginning of the next tax year?