Question

Homer is a 10% partner and Burns is a 90% partner in a partnership that owns a piece of land outside of Springfield with a tax basis of $50,000 and a value of $750,000. Homer and Burns formed the partnership years ago. The land is encumbered by a $200,000 nonrecourse mortgage.

If Homer sells his entire interest to Moe for $55,000 how much gain is recognized by Homer? What is the character of the gain? What are the tax consequences to Moe?

If Homer transfers his partnership interest to his wholly owned corporation in exchange for additional common stock in the corporation, does Homer recognize any gain?

Steve and Andrew are equal partners in a partnership that operates a sporting goods store. The partnership has two assets: (a) inventory with a tax basis of $500,000 and a value of $900,000 and (b) goodwill with a tax basis of zero and a value of $3,100,000. Andrew and Steve each have an outside basis of $250,000. Steve sells a 25% interest in the partnership to Robin for $1,000,000. How much gain is recognized by Steve? What is the character of the gain?

Answer 1

a. If Homer sells his entire interest to Moe for $55,000 how much gain is recognized by Homer? What is the character of the gain? What are the tax consequences to Moe?

Gain will be sales price - basis in the stock. Accordingly, capital gain would be $ 55000 - $ 5000 = $ 50000 taxable in hands of Homer

If Homer transfers his partnership interest to his wholly owned corporation in exchange for additional common stock in the corporation, does Homer recognize any gain?

No Homer does not recognize any gain. Homer gets 351 nonrecognition treatment. His ownership (from 100% to 100%) does not exchange any additional value.

Steve and Andrew are equal partners in a partnership that operates a sporting goods store. The partnership has two assets:

(a) inventory with a tax basis of $500,000 and a value of $900,000 and (b) goodwill with a tax basis of zero and a value of $3,100,000. Andrew and Steve each have an outside basis of $250,000. Steve sells a 25% interest in the partnership to Robin for $1,000,000. How much gain is recognized by Steve? What is the character of the gain?

Gain would be $ 1,000,000 - $ 125,000 = $ 875,000

Out of $ 875,000; $ 100,000 related to inventory appreciation under 751 would be normal ordinary income while the rest would be capital gain