Question

Tax Research Assignment 1

Howard purchased raw (undeveloped) land three years ago for $1,500,000 to develop into lots and sell to individuals planning to build their dream homes. Howard intended to treat this property as inventory, like his other development properties. Before completing the development of the property, however, he decided to contribute it to Counterpart Investors LLC when it was worth $2,500,000, in exchange for a 10 percent capital and profits interest. Counterpart's strategy is to hold land for investment purposes only and then sell it later at a gain.

Issue 1. If Counterpart sells the property for $3,000,000 four years after Howard's contribution, how much gain or loss is recognized and what is its character? [Hint: See IRC §724.]

Issue 2. If Counterpart sells the property for $3,000,000 five and one-half years after Howard's contribution, how much gain or loss is recognized and what is its character?

Your memo should be in the format demonstrated in the Tax Research Instruction section. Do not deviate from that format. The memo should be no more than three pages long, and should include an EMBEDDED excel spreadsheet showing the comparison of tax treatment under the two scenarios above. Importantly, be sure to attach the authorities (documents you referred to) to your file and be sure to cite/reference your authorities in the memo.

Explain the facts, Issue, conclusion, discussion, in very detail.

Excel Spreadsheet should show the calculations presented in the memo in a clear, easy-to-follow manner.Relevant tax authority should be provided in the following priority: IRC Code and Regs, other primary authority, secondary authority

Answer 1

To solve this question just input those variables which are to be used in logistic regression, as the question talks about using two variables only that is total loans and leases to total assets & total expenses/ total assets, so we will not input total cap/assets as an input variable in our excel, here we go

As one can see, we have taken only two variables , total exp/assets and total lns & leases/ assets in calculation, follwing steps have been followed to construct the above table

1. Assume logit= b0+ b1* independent variable1+ b2* independent variable 2 , take values of b0=0.1, b1=0.1, b2=0.1, note that these values of b0, b1 and b2 are just taken for calculation, one could assume any values here for bo , b1 and b2

2. Calculate exponential of logit in the next column by using exp (value in previous column)

3. Calculate probability by using formula, probability= exp (logit)/ { 1+ exp(logit)} in the next column

4. In next column, calculate log likelihood by using formula : financial condition value (i.e. 1 or 0) * LN( probability calculated in previous column) + (1- financial condition value)* LN( 1- probability calculated in previous column)

5. take the total of the column values of log likelihood

6. use solver function in excel to change this total by putting max value of 0 and changing the variable cells containing assumed values of b0, b1 and b2 , by clicking on solve, you will get actual values of b0, b1 and b2

which comes out to be b0=-14.72, b1=89.83, b2= 8.37

therefore you will get logit as

-14.72+ 89.83* Total exp/assets+8.37*Total lns & lsses/ assets

With values given in the question as total exp/ assets= 0.11 and total loans & leases/ assets= 0.6 , we get

logit as -14.72+ 89.83* 0.11+ 8.37*0.6= 0.1833

exp (logit) = 1.20

Probability= 0.546

Loglikelihood= 1*LN(0.546)+0*LN(1-0.546)= LN(0.546)= -0.605