Problem 1. Partnership Organizations. Al, Bob and Cam form an equal partnership as a limited liability company, ABC, LLC, where they are all entitled to one-third of all income and loss from the operations of the business. Al gives land worth $100,000 that he purchased 10 years ago for $60,000. Bob contributes a $75,000 machine he purchased for $50,000 5 years ago that is a 1231 asset. Bob also contributes $25,000 in cash. Cam contributes stock, a capital asset, worth $100,000, that he purchased six months ago for $200,000.

A. Complete the partnerships opening tax Balance Sheet applying the principles of IRC 721, 722 and 723 and using the following format (please note that the first column (Tax Basis/Tax) represents the basis value and the second column (Book Tax) represents the FMV of assets contributed):

ABC, LLC Partnership Tax Balance Sheet

Assets Liabilities Tax Basis Book Tax

(Inside Basis) (FMV)

Cash $__________ $__________ $0

Machine $__________ $__________

Land $__________ $__________

Stock $__________ $__________

TOTAL $__________ $__________

Capital Accounts/Equity

Tax Book Tax

AL $__________ $__________

Bob $__________ $__________

Cam $__________ $__________

Outside Basis IRC 722 Total $__________ $__________

Al $__________

Bob $__________

Cam $__________

B. If Bob sells his partnership interest for $150,000 six months after the partnership is formed, what will be the tax consequences to Bob (assuming the partnership has no income or loss during that six month period)?

Problem 2. Partnership Debts. Using the same facts as Problem 1 above, how does the partnership tax balance sheet change with the additional facts below (please note that you do not need to fill out the balance sheet again, just describe each line item that is affected).

A. What if on the date of organization the LLC borrowed $60,000 cash from a bank for operating expenses using a loan that is secured by the assets of the LLC (and is a non-recourse loan to the owners)?

B. Does your answer to A above change if Al personally guarantees the loan?