LO.5 Buddy and Bobby form a business entity with each contributing the following DE C I S ION MAKING property.

Buddy Bobby Cash $150,000 Land $150,000*

*Fair market value. Bobby’s adjusted basis is $90,000.

Four months later, the land is sold for $165,000 because of unexpected zoning problems.
The proceeds are to be applied toward the purchase of another parcel of land to be used for real estate development. Determine the tax consequences to the entity and to the owners upon formation and the later sale of the land if the entity is:

a. A partnership.

b. An S corporation.

c. A C corporation.

d. Describe how the parties could structure the transaction so as to defer any recognized tax gain.