1.) Individuals A, B, and C form ABC Partnership. A contributes $180,000 in cash in return for a one-half interest in the partnerships capital and a 1/3 interest in the partnerships profits. B contributes $180,000 in cash in return for a one-half interest in the partnerships capital and a 1/3 interest in the partnerships profits. C contributes services in return for no interest in the partnerships capital and a 1/3 interest in the partnerships profits. ABC does not capitalize the services provided by C.

-How much ordinary income does C recognize upon the formation of the partnership?

-Create a balance sheet for ABC reflecting the formation of the LLC

2.) R and J form RJ, LLC, which is treated as a partnership for federal income tax purposes. R and J agree to share profits and losses equally. Upon formation of the LLC, R transfers cash of $10,000. J transfers property with a tax basis of $6,000 and a fair market value of $14,000. The property is encumbered with a $4,000 nonrecourse liability, which the LLC assumes.

- What is Js outside basis immediately after the formation of the LLC?

- What is Js capital account immediately after the formation of the LLC?

- What is Rs outside basis immediately after the formation of the LLC?

- What is Rs capital account immediately after the formation of the LLC?

- What is the LLCs inside basis in the property contributed by J?

3.) Individuals M, N, and O form MNO Partnership. M contributes $180,000 in cash in return for a 1/3 interest in the partnerships capital and a 1/3 interest in the partnerships profits. N contributes $180,000 in cash in return for a 1/3 interest in the partnerships capital and a 1/3 interest in the partnerships profits. O contributes services in return for a 1/3 interest in the partnerships capital and a 1/3 interest in the partnerships profits. MNO does not capitalize the services provided by O.

- How much ordinary income does O recognize upon the formation of the partnership?

- Please construct a balance sheet for MNO reflecting the formation of the LLC.

4.) Allison receives a 10% ownership in the capital and profits of XYZ Partnership in return for services she will provide the partnership. As part of the agreement, however, if she withdraws from the partnership within two years or fails to satisfactorily perform the services required, she must return the partnership interest to the partnership. The interest she received from the partnership is currently worth $40,000.

- What is the general rule for how Allison should treat this transaction according to the internal revenue code? Explain in detail.

- How would this transaction be treated if Allison were to make a Section 83(b) election? Explain in detail.

5.) On December 31 of Year 1, R, J, and M, all individuals, form RJM, LLC. They each transfer assets to the LLC as set forth below in return for LLC membership interests.

6.) R purchased the inventory two months ago. M purchased the land three years ago. The land was a capital asset to M at the time of contribution. The land contributed by M was encumbered by a $2,000 nonrecourse liability at the time of the contribution and the LLC assumed the liability. No other transactions or activities occurred during the year. Please answer the following and provide any necessary calculations:

- What is Rs initial outside basis?

- What is Ms initial outside basis?

- What is Ms initial capital account?

- What is the partnerships inside basis in the land contributed by M?

7.) M and N form MN LLC. M and N share profits and losses equally. Ms initial basis in her LLC interest is $10,000. Ns initial basis is $20,000. The LLC has no liabilities at the beginning or end of the year. During the current year, the LLC experienced the following:

- What is Ms tax basis (outside basis) in her LLC interest at the end of the year?

- What is Ns tax basis (outside basis) in his LLC interest at the end of the year?

8.) R and J form an LLC. They agree to share profits and losses equally. R transfers cash of $500 and J transfers cash of $500. The partnership then acquires a parcel of land for $5,000, using the $1,000 total cash contributed by the partners and by obtaining a $4,000 loan that both R and J personally guarantee.

- What is each partners share of the recourse liability?

- What is each partners outside basis after the partnership incurs the liability?

Assuming the same facts, except R and J agree to share profits 50%/50% and losses 70%/30%. Answer the following:

- What is each partners share of the recourse liability?

- What is each partners outside basis after the partnership incurs the liability?

Assuming the same facts as above (i.e., same profit/loss sharing ratios) except that the liability is a non-recourse liability, answet the following in detail:

- What is each partners share of the non-recourse liability?

- What is each partners outside basis after the partnership incurs the liability?

9.) Please provide a detailed explanation of the differences among an outside basis, an inside basis, and a capital account.

10.) Explain in detailed what a guaranteed payment is.

11.) R owns 60% of RJ partnership. J owns the other 40% of RJ Partnership. R sells property to RJ partnership for $1,000. He used the property as a capital asset. His tax basis in the property was $300. RJ partnership also uses the property as a capital asset.

- What are the income tax consequences to R upon the sale of the property to the partnership?

- Where would you search to obtain credible facts that answer this question?

12.) Provide a detailed explanation about the underlying rationale of why some items of income, gain, expense, etc., are separately stated from a partnerships ordinary business income. List six examples of separately stated items.

13.) Provide a detailed explanation comparing and contrasting the non-tax differences among a "general partnership (GP)", "limited liability partnership (LLP)," "limited partnership (LP)", and "limited liability limited partnership (LLLP)."

14.) R has run a sole proprietorship for two years. He agrees with J to form a partnership. R contributes property (inventory in his hands). The partnership uses the property contributed by R as a capital asset rather than as inventory. Two years after the partnership was formed the partnership sells the property that R contributed for a gain.

-Does the partnership recognize a capital gain on the sale of the property contributed by R, or does the partnership recognize ordinary income? Explain in detail.

-What source of information would support your conclusion?

Basis to Transferor FMV % Profits, Losses, and Capital Transferor Asset R J M Inventory Cash Land $58,000 $30,000 $ 8,000 $60,000 $30,000 $12,000 60% 30% 10% Sales revenue Cost of goods sold Long-term capital gain Tax-exempt interest income Guaranteed payment to M Advertising expenses Rent expense $80,000 $40,000 $20,000 $3,000 $10,000 $7,000 $5,000 Basis to Transferor FMV % Profits, Losses, and Capital Transferor Asset R J M Inventory Cash Land $58,000 $30,000 $ 8,000 $60,000 $30,000 $12,000 60% 30% 10% Sales revenue Cost of goods sold Long-term capital gain Tax-exempt interest income Guaranteed payment to M Advertising expenses Rent expense $80,000 $40,000 $20,000 $3,000 $10,000 $7,000 $5,000