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The XYZ partnership has the following balance sheet: Assets Tax Basis FMV Real estate $120,000 $180,000 Liabilities $0 $0 Capital X $40,000 $60,000 Y $40,000

The XYZ partnership has the following balance sheet:

Assets

Tax Basis

FMV

Real estate

$120,000

$180,000

Liabilities

$0

$0

Capital

X

$40,000

$60,000

Y

$40,000

$60,000

Z

$40,000

$60,000

$120,000

$180,000

If Q provides $45,000 of services in exchange for a $25% interest in the partnership, what is the tax effect to Q, X, Y, Z, and XYZ? Assume all of the partners are individuals. How much income does Q recognize? How much gain do X, Y, and Z recognize? How much of a deduction do they get? What basis will XYZ have in the real estate? What is the balance sheet afterward?

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