Tax Research Chapter 9 and 10

Tax Research Chapter 9 and 10 - Tax Research Chapter 9 and...

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Tax Research Chapter 9 and 10 Homework Problems C:9-26. A. How much gain, loss, or income must each partner recognize as a result of the formation? According to Rev. Procedure 93-27, a partner who receives a partnership interest in exchange for services has been compensated as if he or she receives cash and thus must recognize ordinary income, therefore, Fred must recognize ordinary income in the amount of $15,000. The general rule of Sec. 721(a) provides that neither the partnership nor any partner recognizes gain or loss when partners contribute property in exchange for a partnership interest, accordingly, Al, Dave, Bob, and Clay will not recognize income or a gain. However, it also states that there are three exceptions to this rule that require a partner to recognize a gain upon contributing property to a partnership in exchange for a partnership interest. One of those exceptions which affects Ed is when a contribution of property to a partnership along with the partnership’s assumption of the partner’s liabilities if, as a result, the partner’s share of partnership liabilities exceeds his or her basis in the partnership. Because of this exception, Ed should recognize a gain of $89,000. B. How much gain, loss, or income must the partnership recognize as a result of the formation? As stated in Sec. 721(a) the partnership should not recognize a gain, loss, or income at the time of formation. C. What is each partner’s basis in his partnership interest? 1. Al Cash $15,000 Mortgage allotment (15% of 130,000) $19,500 Al’s basis $34,500 2. Bob Accounts Receivable -0- Mortgage allotment (20% of 130,000) ___$26,000 ___ Bob’s basis $26,000 3. Clay Office Equipment $13,000 Mortgage allotment (15% of 130,000) ___$19,500____ Clay’s basis $32,500 4. Dave Land $50,000 Mortgage allotment (15% of 13,000) _____$19,500 ___ Dave’s basis $69,500 5. Ed Building $15,000 Assumed Mortgage ($130,000) Mortgage allotment (20% of 130000) $26,000 _____ Ed’s basis before recognized gain $89,000 Gain recognized ($89,000) _____
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Ed’s basis -0- 6. Fred Service $15,000 Mortgage allotment (15% of 130,000) $19,500 ___ Fred’s basis $34,500 D. What is the partnership’s basis in its assets? The partnership’s basis in its assets is as follows: Cash $15,000 Accts. Rec. -0- Office Equipment $13,000 Land $50,000 Building $15,000 Services (Professional Fees) $15,000 E. What is the partnership’s initial book value of each asset? The book value of partnership’s assets is as follows:
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Tax Research Chapter 9 and 10 - Tax Research Chapter 9 and...

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