1. Three individuals want to start a catering company and to operate it as an LLC, which will receive partnership tax treatment as the default for tax purposes. Chen contributes a van for transporting the food with a fair market value of $32,000 and an adjusted tax basis of $29,000 for a 25 percent profits and capital interest. Bo contributes a bakery shop with a fair market value of $230,000 and an adjusted tax basis of $175,000 for a 50 percent profits and capital interest. Jing contributes $60,000 in cash for a 25 percent profits and capital interest. The LLC does not have any debt (either from the partners or that it takes on directly from a bank).
   1. (4 points for each partners full answer) Do any of the partners have to recognize a taxable gain (or loss) on the transactions above? If so, how much gain (loss) for each partner?
   2. (4 points for each partner) What is each partners initial outside tax basis in his or her LLC interest?
   3. (4 points for each asset) What is the LLCs tax basis in the property received (the van, shop, and cash)?
   4. (4 points) Prepare a balance sheet using the tax basis method (as opposed to FMV method) from the above transactions.
   5. Say the scenario is the same as the set-up for this question except that the van Chen owned and contributed had a $10,000 car loan on it that used the van as collateral (where the creditor could not come after Chen or any of the other partners beyond the collateral or profits in the business).
      1. (4 points) What kind of debt is this, recourse or non-recourse debt?
      2. (4 points for each partner) What are Chen, Bo, and Jings outside tax basis in the LLC in this updated setting?