1. [LO 2] Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest.
a. What is Joseph’s tax basis in his partnership interest?
b. What is Berry Hill’s basis in the equipment?
2. [ LO 2] Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 to its suppliers but has no other debts.
a. What is Lance’s tax basis in his LLC interest?
b. What is Lance’s holding period in his interest?
c. What is Cloud Peak’s basis in the contributed property?
d. What is Cloud Peak’s holding period in the contributed property?
3. [ LO 2] Laurel contributed equipment worth $200,000, purchased 10 months ago for $250,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Laurel agreed to guarantee all $15,000 of Sand Creek’s accounts payable, but she did not guarantee any portion of the $100,000 nonrecourse mortgage securing Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does not owe any debts to other creditors.
a. What is Laurel’s initial tax basis in her LLC interest?
b. What is Laurel’s holding period in her interest?
c. What is Sand Creek’s initial basis in the contributed property?
d. What is Sand Creek’s holding period in the contributed property?
4. [LO 2] {Planning}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
Cash $ 30,000 $ 30,000
Land 100,000 120,000
Totals $ 130,000 $ 150,000
Sally:
Equipment used in a business 200,000 150,000
Totals $ 200,000 $ 150,000
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 the tax capital accounts for the partners.
5. [LO 2] Cosmo contributed land with a fair market value of $400,000 and a tax basis of $90,000 to the Y Mountain partnership in exchange for a 25 percent profits and capital interest in the partnership. The land is secured by $120,000 of nonrecourse debt. Other than this nonrecourse debt, Y Mountain partnership does not have any debt.
a. How much gain will Cosmo recognize from the contribution?
b. What is Cosmo’s tax basis in his partnership interest?
6. [LO2] When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC:
Maude: Basis Fair Market Value
Cash $ 20,000 $ 20,000
Land* 100,000 360,000
Totals $ 120,000 $ 380,000
*Nonrecourse debt secured by the land equals $160,000
James, Harold and Jenny each contributed $220,000 in cash for a 25% profits and capital interest.
a. How much gain or loss will Maude and the other members recognize?
b. What is Maude’s tax basis in her LLC interest?
c. What tax basis do James, Harold, and Jenny have in their LLC interests?
d. What is High Horizon’s tax basis in its assets?
e. Following the format in Exhibit 20-2, prepare a tax basis balance sheet for the High Horizon LLC showing the tax capital accounts for the members.
