On May 31, six brothers decided to form the Gale Brothers Partnership to publish and print children's stories The contributions of the brothers and their partnership interests are listed below They share the economic risk of loss from liabilities according to their partnership interests Basis Partnership Individual Asset to Partner FMV Interest Adam Cash $60,000 $60,000 20 Brian Accounts receivable 0 45,000 15 Chance Office equipment 13,000 15,000 5 Dale Land 80,000 30,000 10 Earl Building 30,000 190,000 30 Flash Services 60,000 20 Brian contributes accounts receivable from his proprietorship, which uses the cash method of accounting Chance uses the office equipment in a small business he owns When he joins the partnership, he sells the remaining business assets to an outsider He has claimed $8,000 of MACRS depreciation on the office equipment The partnership assumes a $100,000 mortgage on the building Earl contributes Earl claimed $90,000 of straight line MACRS depreciation on the commercial property Flash, an attorney, drew up all the partnership agreements and filed the necessary paperwork He receives a full 20 capital and profits interest for his services a How much gain, loss, or income must each partner recognize as a result of theformation b How much gain, loss, or income must the partnership recognize as a result of the formation c What is each partner's basis in his partnership interest d What is the partnership's basis in its assets e What is the partnership's initial book value of each asset f What effects do the depreciation recapture provisions have on the propertycontributions g How would your answer to Part a change if Flash received only a profitsinterest h What are the tax consequences to the partners and the partnership when the partnership sells for $21,000 the land contributed by Dale Prior to the sale, the partnership held the land as an investment for two years a How much gain, loss, or income must each partner recognize as a result of theformation b How much gain, loss, or income must the partnership recognize as a result of the formation c What is each partner's basis in his partnership interest d What is the partnership's basis in its assets e What is the partnership's initial book value of each asset f What effects do the depreciation recapture provisions have on the propertycontributions g How would your answer to Part a change if Flash received only a profitsinterest h What are the tax consequences to the partners and the partnership when the partnership sells for $21,000 the land contributed by Dale Prior to the sale, the partnership held the land as an investment for two years

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On May 31, six brothers decided to form the Gale Brothers Partnership to publish and print children's stories. The contributions of the brothers and their

On May 31, six brothers decided to form the Gale Brothers Partnership to publish and print children's stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests.

Basis

Partnership

Individual

Asset

to Partner

FMV

Interest

Adam

Cash

$60,000

20%

Brian

Accounts receivable

45,000

15%

Chance

Office equipment

13,000

15,000

Dale

Land

80,000

30,000

10%

Earl

Building

30,000

190,000

30%

Flash

Services

60,000

20%

	Brian contributes accounts receivable from his proprietorship, which uses the cash method of accounting.
	Chance uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment.
	The partnership assumes a $100,000 mortgage on the building Earl contributes. Earl claimed $90,000 of straight-line MACRS depreciation on the commercial property.
	Flash, an attorney, drew up all the partnership agreements and filed the necessary paperwork. He receives a full 20% capital and profits interest for his services.
a.	How much gain, loss, or income must each partner recognize as a result of theformation?
b.	How much gain, loss, or income must the partnership recognize as a result of the formation?
c.	What is each partner's basis in his partnership interest?
d.	What is the partnership's basis in its assets?
e.	What is the partnership's initial book value of each asset?
f.	What effects do the depreciation recapture provisions have on the propertycontributions?
g.	How would your answer to Part a change if Flash received only a profitsinterest?
h.	What are the tax consequences to the partners and the partnership when the partnership sells for $21,000 the land contributed by Dale? Prior to the sale, the partnership held the land as an investment for two years.
a.	How much gain, loss, or income must each partner recognize as a result of theformation?
b.	How much gain, loss, or income must the partnership recognize as a result of the formation?
c.	What is each partner's basis in his partnership interest?
d.	What is the partnership's basis in its assets?
e.	What is the partnership's initial book value of each asset?
f.	What effects do the depreciation recapture provisions have on the propertycontributions?
g.	How would your answer to Part a change if Flash received only a profitsinterest?
h.	What are the tax consequences to the partners and the partnership when the partnership sells for $21,000 the land contributed by Dale? Prior to the sale, the partnership held the land as an investment for two years.