2 Debt for Equity Exchanges a FMV of interest is deemed as the liquidation

2 debt for equity exchanges a fmv of interest is

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2. Debt-for-Equity Exchanges a. FMV of interest is deemed as the liquidation value of the interest (for COD [§108], and maybe bad debt purposes §166]). b. §721 doesn’t apply in debt-for-equity exchanges when indebtedness is for unpaid rent, royalties, or interest on indebtedness. b. Partnership Accounting i. A contributes $60,000 securities, B contributes $30,000 land, C contributes $10,000 cash Assets $100,000 Liabilities $0 Cash $10,000 Capital $100,000 Securities $60,000 A $60,000 Land $30,000 B $30,000 C $10,000
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Downloaded From OutlineDepot.com ii. Basis of B’s land is $30,000; basis of A’s securities is $40,000 Assets Basis Bk. Value Basis Bk. Val. Cash $10,000 $10,000 Liabilities $0 Securitie s $40,000 $60,000 Capital $80,000 $100,00 0 Land $30,000 $30,000 A $40,000 $60,000 B $30,000 $30,000 Total $80,000 $100,000 C $10,000 $10,000 iii. During Y1, ABC has net profit of $10,000 and sells the land for $40,000; profits allocated according to capital account balance Assets Basis Bk. Value Basis Bk. Val. Cash $60,000 $60,000 Liabilities $0 Securitie s $40,000 $60,000 Capital $100,000 $120,00 0 A $52,000 $72,000 B $36,000 $36,000 Total $100,000 $120,000 C $12,000 $12,000 iv. During Y2, ABC borrows $30,000 Assets Basis Bk. Value Basis Bk. Val. Cash $90,000 $90,000 Liabilities $30,000 Securitie s $40,000 $60,000 Capital $130,000 $120,00 0 A $70,000 $72,000 B $45,000 $36,000 Total $130,000 $150,000 C $15,000 $12,000 v. ABC distributes $60,000 Assets Basis Bk. Value Basis Bk. Val. Cash $30,000 $30,000 Liabilities $30,000 Securitie s $40,000 $60,000 Capital $70,000 $60,000 A $34,000 $36,000 B $27,000 $18,000 Total $70,000 $90,000 C $9,000 $6,000 vi. ABC sells securities $160,000 (NOTE: Basis recovery of $20 against A, but not reflected in value because it was already reflected in A’s partnership account) Assets Basis Bk. Value Basis Bk. Val. Cash $190,00 0 $190,000 Liabilities $30,000 Capital $190,000 $160,00
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Downloaded From OutlineDepot.com 0 A $114,000 $96,000 B $57,000 $48,000 Total $100,00 0 $120,000 C $19,000 $16,000 vii. Assume Part VI has not occurred. Securities have appreciated to $160,000 and D wishes to join partnership. Step 1, adjust capital accounts: Assets Basis Bk. Value Basis Bk. Val. Cash $30,000 $30,000 Liabilities $30,000 Securitie s $40,000 $160,000 Capital $70,000 $160,00 0 A $34,000 $96,000 B $27,000 $48,000 Total $70,000 $190,000 C $9,000 $16,000 viii. Back to Part VI, ABC wishes to dissolve after selling the securities. Assets Basis Bk. Value Basis Bk. Val. Cash $160,00 0 $160,000 Liabilities $0 Capital $160,000 $160,00 0 A $96,000 $96,000 B $48,000 $48,000 Total $160,00 0 $160,000 C $16,000 $16,000 B. Treatment of Liabilities a. Impact of Liabilities of Partner’s Outside Basis i.
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