Leslie and Jake are partners in the LJ partnership, which sells golf equipment. Leslie contributed $50,000 cash and Blackacre (FMV $50,000; basis $25,000). Jake contributed $100,000 cash. The LJ partnership subsequently purchased Whiteacre for $100,000 and two inventory items (golf balls and golf clubs). One year after formation, Leslie sells her partnership interest to Tony for $120,000. Leslie’s basis in her partnership interest (and tax capital account) is $75,000 at the time of the sale and she recognizes $45,000 of gain on the sale. What is Tony’s section 743(b) adjustment? How is it allocated among the partnership’s assets? Assets FMV Book Tax Debt Book Tax Golf Balls 2,500 10,000 10,000 Golf Clubs 45,000 40,000 40,000 Blackacre 75,000 50,000 25,000 Capital Whiteacre 117,500 100,000 100,000 Leslie 100,000 75,000 Jake 100,000 100,000

Leslie and Jake are partners in the LJ partnership, which sells golf equipment. Leslie contributed $50,000 cash and Blackacre (FMV $50,000; basis $25,000). Jake contributed $100,000 cash. The LJ partnership subsequently purchased Whiteacre for $100,000 and two inventory items (golf balls and golf clubs). One year after formation, Leslie sells her partnership interest to Tony for $120,000. Leslie’s basis in her partnership interest (and tax capital account) is $75,000 at the time of the sale and she recognizes $45,000 of gain on the sale. What is Tony’s section 743(b) adjustment? How is it allocated among the partnership’s assets? Assets FMV Book Tax Debt Book Tax Golf Balls 2,500 10,000 10,000 Golf Clubs 45,000 40,000 40,000 Blackacre 75,000 50,000 25,000 Capital Whiteacre 117,500 100,000 100,000 Leslie 100,000 75,000 Jake 100,000 100,000

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter5: Gross Income: Exclusions

Section: Chapter Questions

Problem 32P

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Mario and Luigi are brothers and they are equal partners in Pipes of Your Dreams Plumbing. Mario sells his fancy sports car to the business for $40,000. Mario’s basis in the car is $45,000. What is the amount of Mario’s recognized gain or loss on this transaction, and what is the nature of the gain or loss? If the partnership later sells the sports car for $55,000, how much of the gain is recognized?
Ivana, Eric, and Jerry form a partnership to develop land into commercial offices and rent them for a profit. Ivana contributes land with a fair market value of $1,200,000 and a $600,000 basis. Eric and Jerry each contribute $600,000 of cash. (a) Assume that Ivana is a 50% partner and that Eric and Jerry each are 25% partners. If the partnership earns $400,000 from operations in its first year and distributes the cash proportionately, does Ivana recognize any gain? (b) Pursuant to the written partnership agreement, the partnership pays Ivana $100,000 a year for six years, regardless of its income, as a guaranteed payment for capital. Alternatively, pursuant to the partnership agreement, the partnership allocates and distributes the first $100,000 of income exclusively to Ivana for six years. Assume that the highest applicable federal rate for all years equals 8%. Does Ivana recognize any gain?
G and L form a limited partnership. L contributes $2,000, and G, who does not contribute cash, will use her immense brainpower to earn money for the partnership. The business deal is that L receives all cash distributions until L has received back the amount of her capital investment. Subsequent distributions will be split 80% to L and 20% to G. In Year 1, the partnership buys two parcels of land, Blackacre and Whiteacre, each for $1000. At year end, the partnership sells Blackacre for $1100 and distributes the entire proceeds of $100 to L.How should the $100 gain on Blackacre be allocated between L and G to be consistent with the business deal.
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Assets	FMV	Book	Tax	Debt	Book	Tax
Golf Balls	2,500	10,000	10,000
Golf Clubs	45,000	40,000	40,000
Blackacre	75,000	50,000	25,000	Capital
Whiteacre	117,500	100,000	100,000	Leslie	100,000	75,000
				Jake	100,000	100,000