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Partnership Formation- Acquisition of a Partnership Interest in Exchange for a Contribution of Property Uhtribution of Property Code References: S5 721; 722; 723; 705(a)(2); 731(a)(1);

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Uhtribution of Property Code References: S5 721; 722; 723; 705(a)(2); 731(a)(1); 733; 752(a)-(b); 168(1)(7)(A) and (B); 704(c)(1)(A); 1223(1) and (2); and 1245(b)(3) Regulations: SS 1.721-1; 1.722-1; 1.723-1; 1.453-9(c)(2); 1.752-1(b), (c), and (f); 1.165-9(a) and (b) Reading Assignment: Student Edition (Vol. 2) 114.02; 4.03; and 4.04. FACTS A, B, C, and D are sole proprietors, each individually engaged in the business of free-lance court reporting. All four individuals report their income on the cash method. They decide to form an equal, cash method, general partnership with interests of $30,000 each. 30,000 * 4 = 120,000 A contributes: 2P-1 30.000 *4 = $120.000 30, years. Artiste : CONTRIBUTION OF PROPERTY 2P-2 $20,000 A's personal note for $15,000 with a $10.000 value B contributes: Personal automobile. Value 510,000, adjusted basis 515.000, owned 10 Stock in Speed Reporting, Inc, held two weeks Value $10,000, adjusted basis $10,000 Real property used in B's business valued at $10,000 adjusted basis $7,000, holding period of five years. C contributes: Xerox duplicator-collator held several years Value 530.000, recomputed basis $40,000, adjusted basis $10,000. Three years remaining useful life. D contributes: $25,000 in $ 453 installment obligations acquired three months ago from the sale of property held for three years. Value $20,000, adjusted basis $15,000 Accounts receivable from his sole proprietorship valued at $10,000, QUESTIONS 1. What gain or loss is recognized to each partner as a result of these contribu- tions? 2 What is the tax basis of each partner's interest in the partnership? 3. What is the partnership's basis in each asset? 4. What is each partner's holding period for his partnership interest? b. What is the partnership's holding period for its assets? c. Would it make any difference if C has held the Xerox duplicator for 5 months? 5. What is the tax basis of C's interest in the partnership if the partnership as- sumed a recourse liability on the Xerox machine of (a) 59,0007 (6) $18,000? Assume, in both situations, increases in the gross value of the Xerox machine so that the net value remains a $30,000 contribution. 6. What is the effect of liabilities on the partnership's adjusted basis in the prop- erty contributed by C? 2P-3 PROBLEM 2 1. What method of depreciation can the partnership use with respect to the con- tributed assets? What is the amount and character of any gain resulting to C from the contri- bution of the Xerox duplicator if the partnership assumes C's recourse liabili- ty of (a) $9,000? (6) $18,000? Uhtribution of Property Code References: S5 721; 722; 723; 705(a)(2); 731(a)(1); 733; 752(a)-(b); 168(1)(7)(A) and (B); 704(c)(1)(A); 1223(1) and (2); and 1245(b)(3) Regulations: SS 1.721-1; 1.722-1; 1.723-1; 1.453-9(c)(2); 1.752-1(b), (c), and (f); 1.165-9(a) and (b) Reading Assignment: Student Edition (Vol. 2) 114.02; 4.03; and 4.04. FACTS A, B, C, and D are sole proprietors, each individually engaged in the business of free-lance court reporting. All four individuals report their income on the cash method. They decide to form an equal, cash method, general partnership with interests of $30,000 each. 30,000 * 4 = 120,000 A contributes: 2P-1 30.000 *4 = $120.000 30, years. Artiste : CONTRIBUTION OF PROPERTY 2P-2 $20,000 A's personal note for $15,000 with a $10.000 value B contributes: Personal automobile. Value 510,000, adjusted basis 515.000, owned 10 Stock in Speed Reporting, Inc, held two weeks Value $10,000, adjusted basis $10,000 Real property used in B's business valued at $10,000 adjusted basis $7,000, holding period of five years. C contributes: Xerox duplicator-collator held several years Value 530.000, recomputed basis $40,000, adjusted basis $10,000. Three years remaining useful life. D contributes: $25,000 in $ 453 installment obligations acquired three months ago from the sale of property held for three years. Value $20,000, adjusted basis $15,000 Accounts receivable from his sole proprietorship valued at $10,000, QUESTIONS 1. What gain or loss is recognized to each partner as a result of these contribu- tions? 2 What is the tax basis of each partner's interest in the partnership? 3. What is the partnership's basis in each asset? 4. What is each partner's holding period for his partnership interest? b. What is the partnership's holding period for its assets? c. Would it make any difference if C has held the Xerox duplicator for 5 months? 5. What is the tax basis of C's interest in the partnership if the partnership as- sumed a recourse liability on the Xerox machine of (a) 59,0007 (6) $18,000? Assume, in both situations, increases in the gross value of the Xerox machine so that the net value remains a $30,000 contribution. 6. What is the effect of liabilities on the partnership's adjusted basis in the prop- erty contributed by C? 2P-3 PROBLEM 2 1. What method of depreciation can the partnership use with respect to the con- tributed assets? What is the amount and character of any gain resulting to C from the contri- bution of the Xerox duplicator if the partnership assumes C's recourse liabili- ty of (a) $9,000? (6) $18,000