I need an answer and computation about a partnership
Answer the following questions: 1. Steve, Karen, David, and Ellen form a general partnership to acquire a building in Boca Raton, Florida. The partnership plans to renovate the building. The partnership hopes to either sell the building at a profit or lease it. Steve, Karen, David, and Ellen each contribute $10,000 to the partnership. The partnership borrows $960,000 on a recourse basis. Under the applicable state general partnership act, all the partners are jointly and severally liable for all recourse debts; however, their agreement for bearing losses determines which one of them bears the ultimate loss with respect to one another. The partnership uses the capital contributions and the loan proceeds to acquire the building and complete the renovations. a. If the partners agree to share all profits and bear all losses equally, what are their shares of the partnership's $960,000 recourse liability? b. Suppose the partners agree the partners agree that all profits will be allocated equally but losses will be allocated 70% to Steve, 20% to Karen, and 5% each to David and Ellen. What are the partner's shares of the $960,000 recourse debt? c. Assume the same loss-sharing ratios in Question 6b. What are the partners' outside bases if Steve is entitled to seek reimbursement from Ellen or, alternatively, Ellen's wholly owned corporation, which has only nominal assets, to the extent his losses exceed $10,000? What if Ellen holds her partnership interest through a wholly owned LLC, which has no assets other than the partnership interest and the existence of which is dis-regarded for tax purposes, and Steve is entitled to seek reimbursement from the LLC? d. What are the partners' outside bases if Steve lends the partnership $960,000 on a recourse basis? Assume equal sharing of profits and losses. e. Assume the same facts as in Question 6a, except that the partnership borrowed $960,000 nonrecourse basis (the lender's only recourse is to foreclose on the building if the partnership cannot pay; in other words, no partner (or related person) bears the economic risk of loss). What is each partner's outside basis? f.How would the answer to Question 6e change if David guaranteed the entire $960,000 nonrecourse liability? What if the guarantor were David's father, David's sister, or a partnership in which David owns 80% of the capital and profits? 2. The ABC Partnership has the following balance sheets at December 31: Cash Accounts Receivable Inventory Land Basis $45,000 0 66,000 420,000 FMV $45,000 108,000 120,000 285,000 $531,000 Capital, A Capital, B Capital, C $558,000 $177,000 177,000 177,000 $531,000 $186,000 186,000 186,000 $558,000 On that date, C sells his interest in the partnership to unrelated buyer G for $186,000. a. How much gain or loss will O recognize in connection with the sale to G? b. What will be the character of O's gain or loss? 3. Mary and Carol each contribute $50,000 to their newly formed general partnership (each partner is required to restore any deficit in the partner's capital account upon liquidation of the partnership). The partnership borrows $900,000 on a recourse basis and buys a $1,000,000 building. The building generates $100,000 of depreciation a year for ten years, and the partnership has no other items of income or loss. The partners agree to allocate all losses equally until their capital accounts are zero; after that the partnership specially allocates all losses to Mary. Assume that capital accounts are maintained in accordance with the rules in Regulations 1.704-1(b)(2) (iv) and that liquidating distributions are to be made in accordance with positive capital account balances. a. Do the allocations have economic effect? b. Would the answer to Question 8a change if Mary and Carol form a limited partnership with Carol serving as the general partner. Can anything be done to prevent reallocation of the losses? 4. Mark and Jeremy form an LLC. Mark is the manager and contributes $50,000 and Jeremy contributes $50,000. The LLC borrows $900,000 on a nonrecourse basis, and the members agree to share profits and losses equally. The LLC uses its $1,000,000 to buy a building. a. What is the outside basis of each member? b. Assume the LLC specially allocates all the depreciation deductions to Mark once the book value of the building drops below $900,000. Assuming the allocations are valid under the Sec 704(b) regulations, compute the members' shares of liability when the book value of the building has been reduced to $600,000 from depreciation deductions. c. Instead of cash, Jeremy contributes property, with a tax basis of zero and a value of $250,000, subject to a $200,000 nonrecourse liability. Mark contributes $50,000 cash and the LLC borrows $900,000. The LLC uses its $95,000 cash to buy the building. The $900,000 loan is secured by the building. Compute each partner's share of the LLC\"s nonrecourse liabilities. 5. Lydia and Ellen own the LE Partnership. Lydia takes care of daily operations and receives a guaranteed payment for her efforts. What amount and character of income will each partner report in each of the following independent situations? a. The LE Partnership has no ordinary income and reports a $100,000 short-term capital gain. Lydia receives a $40,000 guaranteed payment plus a 40% distributive share of all partnership income after deducting the guaranteed payment. b. The LE Partnership reports $100,000 of ordinary income, before considering any guaranteed payment. They also have a $50,000 long-term capital gain. Lydia receives a $50,000 guaranteed payment plus a 20% distributive share of all partnership income after deducting the guaranteed payment. c. The LE Partnership reports $160,000 of ordinary income before considering any guaranteed payment. Pam receives 60% of partnership income but no less than $110,000
