Joe and Sunny intend to enter into a business venture together and decided that a corporation would be a desirable entity choice for federal income tax purposes. The corporation is named JS Inc. (“JS”). For newly established JS, Joe intends to contribute Property A with a fair market value (“FMV”) of $800 and basis of $300, subject to debt of $200. Sunny intends to contribute cash of $800. JS is elected to be treated as an S corporation for federal income tax purposes. 1. Provide Joe’s basis in JS upon contribution (i.e., Year 0) of Property A. 2. Provide Sunny’s basis in JS upon contribution (i.e., Year 0) of cash. 3. Provide JS’s basis in Property A and cash immediately after the contribution. 4. Assuming Joe’s and Sunny’s basis in the JS stock remain the same after the contributions for Year 1, determine Joe’s and Sunny’s basis when JS distributes $400 of cash to Joe and Sunny. 5. Assume the following: 1) there are no AAA, OAA, and AEP; 2) the debt of $200 is still treated as a loan made by Joe (i.e., recourse loan), and 3) during Year 1, JS had a loss of $400 with no distributions made to Joe and Sunny. Determine Joe’s and Sunny’s basis.
Joe and Sunny intend to enter into a business venture together and decided that a corporation would be a desirable entity choice for federal income tax purposes. The corporation is named JS Inc. (“JS”). For newly established JS, Joe intends to contribute Property A with a fair market value (“FMV”) of $800 and basis of $300, subject to debt of $200. Sunny intends to contribute cash of $800. JS is elected to be treated as an S corporation for federal income tax purposes.
1. Provide Joe’s basis in JS upon contribution (i.e., Year 0) of Property A.
2. Provide Sunny’s basis in JS upon contribution (i.e., Year 0) of cash.
3. Provide JS’s basis in Property A and cash immediately after the contribution.
4. Assuming Joe’s and Sunny’s basis in the JS stock remain the same after the contributions for Year 1, determine Joe’s and Sunny’s basis when JS distributes $400 of cash to Joe and Sunny.
5. Assume the following: 1) there are no AAA, OAA, and AEP; 2) the debt of $200 is still treated as a loan made by Joe (i.e., recourse loan), and 3) during Year 1, JS had a loss of $400 with no distributions made to Joe and Sunny. Determine Joe’s and Sunny’s basis.
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