Question

Problem 21-43 (LO. 7, 8, 11)

Phoebe and Parker are equal members in Phoenix Investors, LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions. Phoenix then purchased a parcel of land. Phoenix holds all land for investment.

On January 1 of the current year, to acquire a one-third interest in the entity, Reece contributed to the LLC some land she had held for investment. Reece purchased the land five years ago for $120,000; its fair market value at the contribution date was $90,000. No special allocation agreements were in effect before or after Reece was admitted to the LLC. A few years later, Phoenix sold the land contributed by Reece for $84,000.

Immediately before Reece's property contribution, the balance sheet of Phoenix Investors, LLC, was as follows:

Problem 21-51 (LO. 3, 7, 9, 10) Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership in which both partners are active owners). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna's property was encumbered by qualified nonrecourse financing of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year: Sales $560,000 Utilities, salaries, depreciation, and other operating expenses 360,000 Short-term capital gain 10,000 Tax-exempt interest income 4,000 Charitable contributions (cash) 8,000 Distribution to Suzy 10,000 Distribution to Anna 20,000 During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100,000 debt was repaid and replaced with new debt). At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable (recourse to the partnership but not personally guaranteed by either of the partners) and qualified nonrecourse financing of $200,000. a. Suzy's beginning basis in her partnership interest is $, and Anna's basis is $. b. Enter the amounts and line number for the following items that will appear on Suzy's Schedule K-1. Item Amount Line on Sch. K-1 Ordinary income $ Short-term capital gain $ Tax-exempt interest income $ Charitable contributions $ 13 Distribution received by Suzy $ What income, deduction, and taxes does Suzy report on her tax return? On her tax return, Suzy reports the ordinary income on Schedule A . She reports the short-term capital gain on Schedule A . She reports the charitable contributions Schedule A  with her personal charitable contributions. Suzy might also be eligible for the qualified business income deduction; the partnership needs to provide additional information regarding W-2 wages and distributions  so Suzy can calculate the deduction. Suzy is  subject to self-employment taxes. c. Assume all partnership debts are shared proportionately. Suzy's year-end basis in her partnership interest is $, and Suzy's amount at risk is $.

a. Regarding the land sale, how much is recognized and how is it allocated?

On the land sale, under § 704(c), $ of unrealized gain or loss at the contribution date on property contributed for an LLC interest is allocated to  .

b. Complete the balance sheet reflecting basis and fair market value for the LLC immediately after the land sale.

Assets Basis FMV Partners' Capital Basis FMV Cash $ $ Interest, Phoebe $ $ Land $ $ Interest, Parker $ $ Interest, Reece $ $ $ $ $ $

c. Prepare schedules that roll the partners' capital accounts forward from before to immediately after the sale. Prepare two schedules: tax basis and fair market value.

If an amount is none, enter "0".

Total Phoebe Parker Reece Balance before sale $ $ $ $ Less: Built-in loss on land $ $ $ $ Less: Loss on land after contribution date $ $ $ $ Balance after sale $ $ $ $

Prepare the schedule that shows the computation of the fair market value of each LLC member's capital account.

Total Phoebe Parker Reece Before sale $ $ $ $ Less: Loss on land after contribution date $ $ $ $ Balance after sale $ $ $ $

Answer 1

a.
On the land sale, under § 704(c), $ __________of unrealized gain or loss at the contribution date on property contributed for an LLC interest is allocated to __________________
Loss on sale =$120,000(FMV) - $84,000(Selling Price)	$36,000
Allocated to Reece under § 704(c) (Reece’s basis of $120,000 in the land at the contribution date minus the land’s FMV of $90,000 at that date).	$30,000
Loss Remianing is allocated equally	$6,000
Phoebe	$2,000
Parker	$2,000
Reece	$2,000
b)
	Total	Phoebe	Parker	Reece
Balance before sale	$150,000	$15,000	$15,000	$120,000
Less: Built-in loss on land	$30,000			$30,000
Less: Loss on land after contribution date	$6,000	$2,000	$2,000	$2,000
Balance after sale	$114,000	$13,000	$13,000	$88,000
Prepare the schedule that shows the computation of the fair market value of each LLC member's capital account.
	Total	Phoebe	Parker	Reece
Before sale	$150,000	$15,000	$15,000	$120,000
Less: Loss on land after contribution date	$6,000	$2,000	$2,000	$2,000
Balance after sale	$144,000	$13,000	$13,000	$118,000
c. Complete the balance sheet reflecting basis and fair market value for the LLC immediately after the land sale.
	Basis	FMV		Basis	FMV
Cash	$84,000	$84,000	Interest, Phoebe	$13,000	$88,000
Land	$30,000	$180,000	Interest, Parker	$13,000	$88,000
			Interest, Reece	$88,000	$88,000
	$30,000	$264,000		$114,000	$264,000