Question

1. Anna contributes four wind turbines with $100,000 fair market value (FMV) for a 50% interest in JSC Partnership. The turbines have an adjusted basis of $45,000 and a $12,000 note against them; Anna also renders legal services valued at $13,000.

a.What is Anna's basis in the partnership interest?

b. Does she recognize any taxable gain on this transaction?

2. Leisle contributes raw land with a FMV of $2,000,000 for 60% interest in Fuel Cell Tech LLP. The land has a basis of $450,000 and a mortgage of $1,200,000.

a. What is Leisle's basis in the partnership interest and does she have any taxable gain on this transaction?

3. Partner Melissa has a Pieces of $10,000 in a partnership at the beginning of the year she receives $6000 in cash distributions are distributed share of income is $5000 and she receives the land distribution with the bases of $8000 (FMV $20,000).

a. What is Melindas basis at the end of the year?

Answer 1

Partnership can be formed by way of a verbal agreement or by a written document. They are legal entities where in partners agree to share the losses and profits of the partnership. Also they have a legal liability on the actions of the partnership. In order to limit some of the extent of risk involved in the partnership, it can be formed as a Limited Liability Partnerships(LLPs) or Limited Liability Companies (LLCs). They are required to be registered under the state and must have a written agreement document stating its formation.
When forming partnership, partners might bring in cash or an asset in exchange of the share of partnership interest.
No gain or loss is recognised on this transaction except:
1. When any service is performed in exchange for the partnership Interest
2. When the asset or property contributed has liabilities in excess of basis

In such case,
Recognised Gain = Liabilities Allocable to other partners - Adjusted basis of Property contributed

Partner's Basis in the Partnership Interest
Cash contributed by partner
+ Basis of the property transfered to the partnership
+ Any recognised gain of the partner
- Liabilities allocable to other partners
= Partner's initial basis in the partnership

Ans 1a)

Anna's Basis in the partnership Interest:
				$
Cash contributed by partner	=	-
+ Basis of property transferred	=	45,000
+Recognised Gain of the partner	=	13,000
(for the legal services performed)
- Liabilities allocable to other partners	=	(6,000)
50% of $12,000
Anna's Basis in the partnership Interest:	52,000

Ans 1b)

There will be no recognizable taxable gain for the transaction since the liabilitiy allocable to other partners(i.e., $6,000) is less than the adjusted basis of the property contributed by Anna to the partnership.Anna will only recognised $13,000 as ordinary income for the legal services performed.

Ans 2a)

Leslie's Basis in the partnership Interest:
				$
Cash contributed by partner	=	-
+ Basis of property transferred	=	450,000
+Recognised Gain of the partner	=	30,000
(*Calculated below-Note 1)
- Liabilities allocable to other partners	=	(480,000)
40% of $1,200,000
Leslie's Basis in the partnership Interest:	-

Note 1

Recognised Gain of Leslie= Liabilities Allocable to other partners - Adjusted basis of Property contributed

Recognised Gain of Leslie= ($1,200,000 *40%) - $450,000

Recognised Gain of Leslie= $480,000 - $450,000

Recognised Gain of Leslie= $30,000

There will be recognizable taxable gain of $30,000 for the transaction since the liabilitiy allocable to other Partners(i.e., $480,000) is in excess than the basis of the property contributed by Leslie to the partnership.

Ans 3a)

Changes in Partner's Basis can be calculated as per below
				$
Beginning of the year basis	=	10,000
+Additional Contributions during the year	=	-
+Share of net ordinary taxable income	=	5,000
+Share of capital gains/Other Income	=	-
- Distributions of Property or Cash	=	(14,000)
($8,000 + $6,000) = $14,000
- Share of Net Loss from Operations	=	-
- Share of Capital Losses/Other Deductions	=	-
+/- Increase/Decrease in Liabilities	=	-
Melinda's Basis in the partnership Interest at end of year:	1,000