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Tax Research Assignment 1 Howard purchased raw (undeveloped) land three years ago for $1,500,000 to develop...

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.

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Expert Solution

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.

The below imeage shows you the relevant answer to the both of the given issues.

I wish you can understand what you need to know

All the best

ekkarill92 answered 1 year ago
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