TAX 311 Problem Set #2 Fall 2014

TAX 311 Problem Set #2Partnership, Sub-S and E& G ComponentFall 2014RECAP #1. A, B & C agree to the formation of a general partnership (ABC) in which each will have the same one-third interest in the partnerships capital and profits/losses. A will contribute Property #1 with a FMV of $535,000 and an AB of $160,000. Property #1 is also encumbered by a $235,000 liability. B contributes $300,000 of cash and C contributes $200,000 of cash. What is the partnerships basis in the assets it receives (inside basis), what is the partnerships capital account balances for each of the assets, what is each partners capital account balance and what is each partners basis in their partnership interest (outside basis).1. A, B & C agree to the formation of a general partnership (ABC) in which each will have the same one-third interest in the partnerships capital and profits/losses. A will contribute Property #1 which is depreciable personal property with a FMV of $400,000 and an AB of $160,000. At the time of its contribution to the partnership Property #1 had 4 years left on its original recovery period; however, it was anticipated that it remaining useful life is 10 years. B contributes $400,000 of cash and C contributes Land with a FMV of $400,000 and an AB of $500,000. What is the built-in gain or loss attributable to each partner and each asset at the time of the partnerships formation?2. Assuming the facts set forth in 2, above, assume the partnership subsequently sells the Land for $370,000. What is each partners share of the book and tax gain or loss upon the sale?3. Assuming the facts set forth in 2, above, assume the partnership subsequently sells the Land for $445,000. What is each partners share of the book and tax gain or loss upon the sale?4. Assuming the facts set forth in 2, above, what amount of book and tax depreciation for Property #1 would be allocated to each of the partners under the traditional method? 5. Assuming the facts set forth in 2, above, what amount of book and tax depreciation for Property #1 would be allocated to each of the partners under the remedial allocation method?6. A, B & C agree to the formation of a general partnership (ABC) in which each will have the same one-third interest in the partnerships capital and profits/losses. A will contributeProperty #1 with a FMV of $500,000 and an AB of $350,000. B and C each contribute $300,000of cash to the partnership. At the time of the formation of the partnership A receives a $200,000check from the partnership.7.Assume the same facts set forth in 6, above, except that A borrows $200,000 from abank 3 months before contributing Property #1 to the partnership and he does not receive anycash from the partnership. Assume the liability had been incurred 4 years before he contributedProperty #1 to the partnership.8. A, B & C agree to the formation of a general partnership (ABC) in which each will have the same one-third interest in the partnerships capital and profits/losses. A will contribute Property #1 with a FMV of $600,000 and an AB of $360,000. At the time of the contribution, Property #1 was encumbered by a $200,000 liability that had been placed on the property at the time A acquired it. B and C each contribute $300,000 of cash to the partnership. At the time of the formation of the partnership, A receives a $100,000 check from the partnership.9. A, B & C agree to the formation of a general partnership (ABC) in which each will have the same one-third interest in the partnerships capital and profits/losses. In addition, A and B agree that C will receive a guaranteed payment in the amount of $30,000 in addition to his share of the partnerships profits/losses. For its current year ABC had $24,000 of operating income (not separately stated) before considering the guaranteed payment and long-term capital gains (separately stated) of $54,000.10. Assume the same facts set forth in 9, above, except that instead of the partnership agreement providing that C was to receive a guaranteed payment of $30,000, it provided that C would receive 1/3 of the partnerships profits/losses but no less than $30,000.11. The ABC partnership is newly formed venture in which the partners expect the first few years to produce losses. The partnership agreement provides that all losses of the partnership will first be allocated to partner A. At the time of the partnerships formation, A contributed $250,000 to the partnership while B and C contributed only $25,000 each. The partnership agreement also provides that any profits shall first be allocated to partner A up to the amount of previously allocated losses, and thereafter any profits/losses are to be divided equally amongst the partners.