Problem 21-38 (LO. 3, 6, 7, 9, 10) Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership in which both partners are active owners). Anna contributed land and a building valued at $540,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna's property was encumbered by qualified nonrecourse financing of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year: S560,000 360,000 Sales Utilities, salaries, depreciation, and other operating expenses Short-term capital gain Tax-exempt interest income Charitable contributions (cash) Distribution to Suzy Distribution to Anna 10,000 4,000 8,000 10,000 20,000 During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100.000 debt was repaid and replaced with new debt). At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable (recourse to the partnership but not personally guaranteed by either of the partners) and qualified nonrecourse financing of $200,000. a. What is Suzy's basis in Suz-Anna after formation of the partnership? Anna's basis? Suzy's beginning basis in her partnership interest is sl 240,000, and Anna's basis is s 340,000 Feedback Check My Work A partner's adjusted basis is affected by the partner's share of partnership debt. Partnership debt includes any partnership obligation that creates an asset; results in an expense to the partnership; or results in a nondeductible, noncapitalizable item at the partnership level. This definition includes certain contingent liabilities. The definition also includes most debt that is considered a liability under financial accounting rules except for accounts payable of a cash basis partnership. b. Enter the amounts for the following items that will appear on Suzy's Schedule K-1. Item Amount Ordinary income 80,000 Short-term capital gain 4,000 Tax-exempt interest income 1,600 Charitable contributions 3,200 Distribution received by Suzy 10,000 What income, deduction, and taxes does Suzy report on her tax return? C. Assume that all partnership debts are shared proportionately. At the end of the tax year, what are Suzy's basis and amount at risk in her partnership interest? Suzy's year-end basis in her partnership interest is $ 392,400 V, and Suzy's amount at risk is s 392,400 Feedback Check My Work Correct d. Assume that Suz-Anna prepares the capital account rollforward on the partners' Schedules K-1 on a tax basis. What are Suzy's capital account balances at the beginning and end of the tax year? What accounts for the difference between Suzy's ending capital account and her ending tax basis in the partnership interest? Suzy's capital account balance at the beginning of the tax year is 360,000 X and at the end of the tax year is 432,400 X . The capital account does not include the partner's share of liabilities. 392,400 x share of partnership In this situation, Suzy's ending capital account differs from her ending tax basis, because her $ liabilities is not included in her ending capital account. Feedback Check My Work After the partner is admitted to the partnership, the partner's basis is adjusted for numerous items. The partner's basis is not the same as t partner's capital account. Think of the capital account as an accounting calculation of the partner's ownership in the entity. e. What would happen if Suz-Anna was formed as an LLC instead of a general partnership. How would Suz-Anna's ending liabilities be treated? How would Suzy's basis and amount at risk be different? None of the LLC members are personally liable for the accounts payable of the LLC. They are included in the members' bases in their LLC interests and excluded in the amounts at risk. None of the LLC members are personally liable for the nonrecourse debt of the LLC. It is included in the LLC members' bases as a nonrecourse debt and included in the amount at risk. Suzy's ending basis in the LLC interest is $ 392,400, and the amount at risk in her LLC interest is $ o X