Question

Bethany, Katherine and Charlie have formed BKC Manufacturing, a general partnership. Charlie contributed equipment with a fair market value of $100,000 and a tax basis of $220,000 to BKC Manufacturing. Bethany contributed $100,000 to BKC Manufacturing in exchange for her partnership interest. Katherine contributed land with a fair market value of $100,000 and an adjusted basis of $20,000. BKC Manufacturing has no liabilities.

a) What amount of the gain or loss would Charlie recognize on the contribution?

b) What is Bethany’s outside basis in her partnership interest after the contribution?

c) What is Katherine’s initial tax basis in BKC Manufacturing?

d) If Bethany, Katherine and Charlie had formed a regular corporation instead of a general partnership, how would the results differ?

Answer 1

As per the Partnership Agreement

a) Intial Loss or gain Recognied by the charlie in the partnership firm

Intial contribution of amount by the Charlie 100000$

Initial Contrivution by the bethany 100000$

Intial contribution by Katherine 120000$

   Total contribution by the BKC partners 320,000$

Less : Tax Basis Alos intoduced by Charlie as

contribution (2,20,000$)

Intial Gain to be recognied at the contribution 1,00,000$

b Bethany Outside Basis in the Partnership after the contribution

Bethany Outside basis after the contribution will be 1/3 share of the profit or loss in the firma apart from that any otside income will be clubbed in her personnal tax statement will be taxed at the individual level or sas per slab rate.

c. Katherene Intial Tax Basis at the time of Contribution in BKC

Total Tax basis arrived in the BKC 220000/3

76,666$

d. If BKC instead of Partnership had made the Corporation they need to pay the Goss tax at the marginal rate at the corporate level level and after that their income is not taxable however here in the partnership they paid tax at the firm level and also at thier individual level.