TAX 311 Problem Set #3

Partnership, Sub-S and E&G Component

2014, Prof. Vincent R. B..a@pace.edu

(212) 618-6479

(732) 330-7910

1. The ABC partnership has the following assets:

I/S Basis FMV

Cash 60,000 60,000

Accounts Receivable 0 30,000

Inventory 60,000 90,000

Land 30,000 90,000

A?s outside basis in the partnership is equal to $40,000, B?s outside basis is equal to $30,000 and C?s outside basis is equal to $20,000. Assume that each partner receives $10,000 of cash, $30,000 of inventory and a one-third undivided interest in the land as a distribution from the partnership. What is the amount of gain or loss each should recognize, and what is their basis in the assets they receive?

2. Assume the same facts as in part 1, above, except that instead of receiving an interest in the land each partner receives one-third of the accounts receivable.

3. A, B, C and D are equal partners in the ABCD partnership. The partnership has the following assets: Cash $20,000; Inventory, I/S Basis $100,000, Book $100,000 and FMV $140,000; Land, I/S Basis $100,000, Book $100,000 and FMV $800,000. Each of the partners contributed $30,000 to the partnership and the partnership has recourse liabilities equal to $100,000. N agrees to purchase A?s interest in the partnership for cash and his agreement to assume A?s share of the partnership liability. What is the amount and character of any gain or loss to be recognized by A as a result of N?s purchase of his partnership interest? What will be N?s outside basis in his partnership interest immediately after his purchase of A?s partnership interest? What will be N?s capital account balance immediately after his purchase of A?s partnership interest?

4. Assuming the facts set forth in 3, above, what will be the partnership?s book and tax gain if it sold the inventory for $160,000 following N?s purchase of A?s partnership interest? How much of the tax gain must N, B, C and D report as a result of the sale of the inventory?

5. Assume the facts set forth in 3, above, except that the FMV or the inventory is $80,000 and the FMV or the land is $860,000.

6. Assume the facts set forth in 3, above, except that instead of N buying A?s interest in the partnership he will make a contribution to the partnership and be admitted as an equal 20 percent partner.

7. Partner D has a 25% interest in the profits/losses of the CDEF partnership. His share of the partnership?s bottom line income/loss is ($40,000) and his share of the partnership?s LTCL is ($20,000). At the start of the year his outside basis was $27,000. During the year he received a cash distribution in the amount of $15,000. What is the amount of the gain/loss he must recognize as a result of the cash distribution, and how much of the ordinary loss and LTCL should he report on his individual income tax return for the year in question?

8. Assume the facts set forth in 7, above, except assume that instead of a LTCL the partnership has a LTCG and D?s share of that gain is $20,000.

9. The AB partnership has the following assets:

I/S Basis FMV

Cash 40,000 40,000

Accounts Receivable 0 20,000

Inventory 20,000 20,000

Land 80,000 40,000

A?s outside basis in the partnership is equal to $70,000 and B?s outside basis is equal to $40,000. Assume that in liquidation of the partnership A receives the land, B receives the cash and they divide the accounts receivable and the inventory equally. What is the amount of gain or loss each should recognize, and what is their basis in the assets they receive?

10. Assume the facts set forth in 9, above, except assume that A receives the cash and B receives the land.

11. Assume the facts set forth in 9, above, except assume that A receives the cash and the accounts receivable and B receives the inventory and the land.

12. The ABC partnership has the following assets:

I/S Basis Book FMV

Cash 30,000 30,000 30,000

Accounts Receivable 0 0 60,000

Land #1 30,000 30,000 60,000

Land #2 30,000 30,000 30,000

Each of the partners, A, B and C, contributed $30,000 of cash to the partnership. Assume the partners agree that A will receive Land #1 in complete liquidation of his interest in the partnership. What is the amount of gain, loss, income to be recognized by A, B & C as the result of this transaction? What is A?s basis in Land#1 and what is the partnership?s basis in the other assets?

13. A, B & C agree to the formation of a general partnership (ABC). Partners A and C each will have the same 25% interest in the partnership?s capital and profits/losses. B will have a 50% interest in the partnership?s capital and profits/losses. A will contribute Property #1 with a FMV of $400,000 and an AB of $160,000. B contributes $800,000 of cash and C contributes Land with a FMV of $400,000 and an AB of $400,000. Three years after the formation of the partnership, the partnership distributes the Land to B in exchange for a portion of his interest in the partnership. At the time of the distribution the Land had a FMV of $400,000. Following the distribution, A, B and C are equal one-third partners.

14. Assume the facts set forth in 13, above, except assume that B receives Property #1 instead of the Land and that Property #1 has a FMV at the time of the distribution equal to $400,000.

TAX 311 Problem Set #3 Partnership, Sub-S and E&G Component 2014, Prof. Vincent R. Barrella vbarrella@pace.edu (212) 618-6479 (732) 330-7910 1. The ABC partnership has the following assets: I/S Basis Cash Accounts Receivable Inventory Land FMV 60,000 0 60,000 30,000 60,000 30,000 90,000 90,000 A's outside basis in the partnership is equal to $40,000, B's outside basis is equal to $30,000 and C's outside basis is equal to $20,000. Assume that each partner receives $10,000 of cash, $30,000 of inventory and a one-third undivided interest in the land as a distribution from the partnership. What is the amount of gain or loss each should recognize, and what is their basis in the assets they receive? 2. Assume the same facts as in part 1, above, except that instead of receiving an interest in the land each partner receives one-third of the accounts receivable. 3. A, B, C and D are equal partners in the ABCD partnership. The partnership has the following assets: Cash $20,000; Inventory, I/S Basis $100,000, Book $100,000 and FMV $140,000; Land, I/S Basis $100,000, Book $100,000 and FMV $800,000. Each of the partners contributed $30,000 to the partnership and the partnership has recourse liabilities equal to $100,000. N agrees to purchase A's interest in the partnership for cash and his agreement to assume A's share of the partnership liability. What is the amount and character of any gain or loss to be recognized by A as a result of N's purchase of his partnership interest? What will be N's outside basis in his partnership interest immediately after his purchase of A's partnership interest? What will be N's capital account balance immediately after his purchase of A's partnership interest? 4. Assuming the facts set forth in 3, above, what will be the partnership's book and tax gain if it sold the inventory for $160,000 following N's purchase of A's partnership interest? How much of the tax gain must N, B, C and D report as a result of the sale of the inventory? 5. Assume the facts set forth in 3, above, except that the FMV or the inventory is $80,000 and the FMV or the land is $860,000. 6. Assume the facts set forth in 3, above, except that instead of N buying A's interest in the partnership he will make a contribution to the partnership and be admitted as an equal 20 percent partner. 7. Partner D has a 25% interest in the profits/losses of the CDEF partnership. His share of the partnership's bottom line income/loss is ($40,000) and his share of the partnership's LTCL is ($20,000). At the start of the year his outside basis was $27,000. During the year he received a cash distribution in the amount of $15,000. What is the amount of the gain/loss he must recognize as a result of the cash distribution, and how much of the ordinary loss and LTCL should he report on his individual income tax return for the year in question? 8. Assume the facts set forth in 7, above, except assume that instead of a LTCL the partnership has a LTCG and D's share of that gain is $20,000. 9. The AB partnership has the following assets: I/S Basis Cash Accounts Receivable Inventory Land FMV 40,000 0 20,000 80,000 40,000 20,000 20,000 40,000 A's outside basis in the partnership is equal to $70,000 and B's outside basis is equal to $40,000. Assume that in liquidation of the partnership A receives the land, B receives the cash and they divide the accounts receivable and the inventory equally. What is the amount of gain or loss each should recognize, and what is their basis in the assets they receive? 10. land. Assume the facts set forth in 9, above, except assume that A receives the cash and B receives the 11. Assume the facts set forth in 9, above, except assume that A receives the cash and the accounts receivable and B receives the inventory and the land. 12. The ABC partnership has the following assets: I/S Basis Cash Accounts Receivable Land #1 Land #2 Book FMV 30,000 0 30,000 30,000 30,000 0 30,000 30,000 30,000 60,000 60,000 30,000 Each of the partners, A, B and C, contributed $30,000 of cash to the partnership. Assume the partners agree that A will receive Land #1 in complete liquidation of his interest in the partnership. What is the amount of gain, loss, income to be recognized by A, B & C as the result of this transaction? What is A's basis in Land#1 and what is the partnership's basis in the other assets? 13. A, B & C agree to the formation of a general partnership (ABC). Partners A and C each will have the same 25% interest in the partnership's capital and profits/losses. B will have a 50% interest in the partnership's capital and profits/losses. A will contribute Property #1 with a FMV of $400,000 and an AB of $160,000. B contributes $800,000 of cash and C contributes Land with a FMV of $400,000 and an AB of $400,000. Three years after the formation of the partnership, the partnership distributes the Land to B in exchange for a portion of his interest in the partnership. At the time of the distribution the Land had a FMV of $400,000. Following the distribution, A, B and C are equal one-third partners. 14. Assume the facts set forth in 13, above, except assume that B receives Property #1 instead of the Land and that Property #1 has a FMV at the time of the distribution equal to $400,000