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Complete the following Ch. 20 Problems:

Discussion Question 20-1

Discussion Question 20-2

Problems 20-37

Problems 20-38

Problems 20-73

Problems 20-74

Complete the following Ch. 21 Problems:

Problems 21-34

Problems 21-35

Problems 21-55

Problems 21-56

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Joseph contributed $25,750 in cash and equipment with a tax basis of $14,800 and a fair market value of $19,500 to Berry Hill Partnership in exchange for a partnership interest.

1.

a. What is Joseph’s tax basis in his partnership interest?

2.

b. What is Berry Hill’s basis in the equipment?

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Lance contributed investment property worth $660,000, purchased Three years ago for $337,500 cash, to Cloud Peak LLC in exchange for an 90 percent profits and capital interest in the LLC. Cloud Peak owes $452,500 to its suppliers but has no other debts.

3.

a. What is Lance’s tax basis in his LLC interest?

4.

b. What is Lance’s holding period in his interest?

5.

c. What is Cloud Peak’s basis in the contributed property?

6.

d. What is Cloud Peak’s holding period in the contributed property?

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Alfonso began the year with a tax basis in his partnership interest of $30,000. His share of partnership debt at the beginning and end of the year consists of $4,000 of recourse debt and $6,000 of nonrecourse debt. During the year, he was allocated $40,000 of partnership ordinary business loss. Alfonso does not materially participate in this partnership and he has $1,000 of passive income from other sources.

7.

a. How much of Alfonso’s loss limited by his tax basis?

8.

b. How much of Alfonso’s loss is limited by his at-risk amount?

9.

c. How much of Alfonso’s loss is limited by the passive activity loss rules?

[The following information applies to the questions displayed below.]

Jenna began the year with a tax basis of $45,000 in her partnership interest. Her share of partnership debt consists of $6,000 of recourse debt and $10,000 of nonrecourse debt at the beginning of the year and $6,000 of recourse debt and $13,000 of nonrecourse debt at the end of the year. During the year, she was allocated $65,000 of partnership ordinary business loss. Jenna does not materially participate in this partnership and she has $4,000 of passive income from other sources.

10

a. How much of Jenna’s loss is limited by her tax basis?

11.

b. How much of Jenna’s loss is limited by her at-risk amount?

12.

c. How much of Jenna’s loss is limited by the passive activity loss rules?

13.

What is a flow-through entity, and what effect does this designation have on how business entities and their owners are taxed?

14.

What types of business entities are taxed as flow-through entities?

Chapter 21

[The following information applies to the questions displayed below.]

At the end of last year, Lisa, a 35 percent partner in the five-person LAMEC Partnership, has an outside basis of $60,000, including her $30,000 share of LAMEC debt. On January 1 of the current year, Lisa sells her partnership interest to MaryLynn for a cash payment of $45,000 and the assumption of her share of LAMEC’s debt.

1.

a. What is the amount and character of Lisa’s recognized gain or loss on the sale?

2.

b. If LAMEC has $100,000 of unrealized receivables as of the sale date, what is the amount and character of Lisa’s recognized gain or loss?

3.

c. What is MaryLynn’s initial basis in the partnership interest?

[The following information applies to the questions displayed below.]

Marco, Jaclyn, and Carrie formed Daxing Partnership (a calendar-year-end entity) by contributing cash 10 years ago. Each partner owns an equal interest in the partnership. Marco, Jaclyn, and Carrie each have an outside basis in his/her partnership interest of $104,000. On January 1 of the current year, Marco sells his partnership interest to Ryan for a cash payment of $137,000. The partnership has the following assets and no liabilities as of the sale date:

Tax Basis                   FMV

Cash   $          18,000            $          18,000

Accounts receivable             0                                 12,000

Inventory                  69,000                        81,000

Equipment                180,000                                  225,000

Stock investment                  45,000                        75,000

Totals  $          312,000                      $          411,000

The equipment was purchased for $240,000, and the partnership has taken $60,000 of depreciation. The stock was purchased seven years ago.

4.

a. What are the hot assets [§751(a)] for this sale?

5.

b. What is Marco’s gain or loss on the sale of his partnership interest?

6.

c. What is the character of Marco’s gain or loss?

7.

d. What are Ryan’s inside and outside bases in the partnership on the date of the sale?

[The following information applies to the questions displayed below.]

Michelle pays $120,000 cash for Brittany’s one-third interest in the Westlake Partnership. Just prior to the sale, Brittany’s basis in Westlake is $96,000. Westlake reports the following balance sheet:

Tax Basis                   FMV

Assets:

Cash   $          96,000            $          96,000

Land              192,000                                  264,000

Totals  $          288,000                      $          360,000

Liabilities and capital:

Capital            – Amy            96,000

– Brittany                  96,000

– Ben             96,000

Totals  $          288,000

(Do not round intermediate calculations. Leave no answer blank. Enter zero if applicable.)

8.

a. What is the amount and character of Brittany’s recognized gain or loss on the sale?

9.

b. What is Michelle’s basis in her partnership interest? What is Michelle’s inside basis?

10

c. If Westlake were to sell the land for $264,000 shortly after the sale of Brittany’s partnership interest, how much gain or loss would the partnership recognize?

11.

d. How much gain or loss would Michelle recognize?

12

e-1. Suppose Westlake has a §754 election in place. What is Michelle’s special basis adjustment?

e-2. Suppose Westlake has a §754 election in place. How much gain or loss would Michelle recognize on a subsequent sale of the land in this situation?

[The following information applies to the questions displayed below.]

Cliff’s basis in his Aero Partnership interest is $11,000. Cliff receives a distribution of $22,000 cash from Aero in complete liquidation of his interest. Aero is an equal partnership with the following balance sheet:

Tax Basis                   FMV

Assets:

Cash   $          22,000            $          22,000

Investment                8,800                          8,800

Land              2,200                          35,200

Totals  $          33,000            $          66,000

Liabilities and capital:

Capital            – Chris                       11,000

– Cliff            11,000

– Cooper                   11,000

Totals  $          33,000

13.

a-1. What is the amount and character of Cliff’s recognized gain or loss?

a-2. Will the distribution have any effect on the partnership assets?

14.

b. If Aero has a §754 election in place, what is the amount of the special basis adjustment?