Refer to the facts in Comprehensive Problem C:6-54. Now assume the entity is a partnership named Lifecycle Partnership. Additional facts are as follows:
• Except for precontribution gains and losses, the partners agree to share profits and losses in a 60% (Able)-40% (Baker) ratio.
• The partners actively and materially participate in the partnership's business. Thus, the partnership is not a passive activity.
• Partnership debt is recourse debt.
• The salary to Able is a guaranteed payment.
• The refund for the NOL is not relevant to the partnership, nor are the E&P numbers.
• In addition to the numbers provided for the assets on January 2, 2016, the following partnership book values apply:
Equipment ................................... $ 215,000
Building ...................................... 926,000
Land A ....................................... 30,000
Land B ........................................ 20,000
Total .......................................... $1,191,000
• On January 2, 2016, the partnership sells its assets and pays off the $1.87 million debt.
The partnership then makes liquidating distributions of the $490,000 remaining cash to Able and Baker in accordance with their book capital account balances.
Required:
a. Determine the tax consequences of the partnership formation to Able, Baker, and Lifecycle Partnership.
b. For 2013 through 2015, prepare a schedule showing:
(1) Partnership ordinary income and other separately stated items
(2) Able's and Baker's book capital accounts at the end of 2013, 2014, and 2015
(3) Able's and Baker's bases in their partnership interests at the end of 2013, 2014, and 2015
c. For 2016, determine:
(1) The results of the asset sales
(2) Able's and Baker's book capital accounts after the asset sales but before the final liquidating distribution
(3) Able's and Baker's bases in their partnership interests after the asset sales but before the final liquidating distribution
(4) The results of the liquidating distributions, assuming a 15% capital gains tax rate