Scenario # 1

Bethany, Katherine and Charlie have formed BKC Manufacturing, a general partnership. Charlie contributed equipment with a fair market value of $100,000 and a tax basis of $220,000 to BKC Manufacturing. Bethany contributed $100,000 to BKC Manufacturing in exchange for her partnership interest. Katherine contributed land with a fair market value of $100,000 and an adjusted basis of $20,000. BKC Manufacturing has no liabilities.

a)What amount of the gain or loss would Charlie recognize on the contribution?

b)What is Bethany's outside basis in her partnership interest after the contribution?

c)What is Katherine's initial tax basis in BKC Manufacturing?

d)If Bethany, Katherine and Charlie had formed a regular corporation instead of a general partnership, how would the results differ?

Scenario #2

What if Bethany and Charlie initially each contributed $100,000 and BKC Manufacturing borrowed $45,000 from a bank when BKC Manufacturing was formed. The bank required Katherine, Bethany, and Charlie 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 BKC Manufacturing losses allocated to each member (one-third each) and would have no right of reimbursement from either BKC Manufacturing or the other members of BKC Manufacturing.

a)How much of the $45,000 bank debt was allocated to each member?

b)What if the $45,000 bank loan is BKC Manufacturing's only debt, what is Bethany's initial basis in her BKC Manufacturing interest after taking her share of BKC Manufacturing's bank debt into account?