READ THE PROBLEMS AND ANSWER THE QUESTIONS. PROBLEM 1 Sarah, Nicole and Chanzz Inc. have formed CCS, a general partnership. Chanzz Inc. contributed equipment with a fair market value of $120,000 and a tax basis of $220,000 to CCS. Sarah contributed $120,000 to CCS in exchange for her partnership interest. Nicole contributed land with a fair market value of $120,000 and an adjusted basis of $20,000. CCS has no liabilities. a) What amount of the gain or loss would Chanzz Inc. recognize on the contribution? b) What is Sarahs outside basis in her partnership interest after the contribution? c) What is Nicoles initial tax basis in CCS? PROBLEM 2 What if Sarah and Chanzz Inc. initially each contributed $120,000 and CCS borrowed $60,000 from a bank when CCS was formed. The bank required Nicole, Sarah, and Chanzz Inc. to personally guarantee the bank loan. The terms were structured so the members would each be responsible for a portion of the debt equal to the percentage of CCS losses allocated to each member (one-third each) and would have no right of reimbursement from either CCS or the other members of CCS. How much of the $60,000 bank debt was allocated to each member? What if the $60,000 bank loan is CCSs only debt, what is Sarahs initial basis in her CCS interest after taking her share of CCSs bank debt into account? PROBLEM 3 Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensation expense. Cirque Capitals balance sheet on the day Dave received his capital interest appears below: Assets: Basis Fair Market Value Cash $150,000 $ 150,000 Investments 200,000 700,000 Land 150,000 250,000 Totals $500,000 $1,100,000 Liabilities and capital: Nonrecourse debt 100,000 100,000 Lance* 200,000 500,000 Robert* 200,000 500,000 Totals $500,000 $1,100,000 *Assume that Lances basis and Roberts basis in their LLC interests equal their tax basis capital accounts plus their respective shares of nonrecourse debt. a) Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital. b) Compute each members tax basis in his LLC interest immediately after Daves receipt of his interest. c) Prepare a balance sheet for Cirque Capital immediately after Daves admission showing the members tax capital accounts and their capital accounts stated at fair market value. d) Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives only a profits interest. PROBLEM 4 Juan Diego began the year with a tax basis in his partnership interest of $50,000. During the year, he was allocated $20,000 of partnership ordinary business income, $70,000 of 1231 losses, $30,000 of short-term capital losses, and received a cash distribution of $50,000. a) What items related to these allocations does Juan Diego actually report on his tax return for the year? [Hint: See Reg. 1.704-1(d)(2) and Rev. Rul. 66-94.] b) If any deductions or losses are limited, what are the carryover amounts and what is their character? [Hint: See Reg. 1.704-1(d).]