Q1. BDD partnership is a service-oriented partnership that has three equal general partners. One of them, Barry, sells his interest to another partner, Dale, for $90,000 cash and the assumption of Barry's share of partnership liabilities.(Liabilities are shared equally by the partners.) Immediately before the sale, the partnership's cash basis balance sheet is as shown below. Assume that the capital accounts before the sale reflect the partners' basis in their partnership interest, excluding liabilities. The payment exceeds the stated fair market value of the assets because of goodwill that is not recorded on the books.
|
Basis
|
FMV
|
|
Basis
|
FMV
|
|
Cash
|
$120,000
|
$120,000
|
Note Payable
|
$30,000
|
$30,000
|
|
Accounts Receivable
|
-0-
|
90,000
|
Capital Accounts
|
|
|
|
Capital Assets
|
30,000
|
75,000
|
Barry
|
40,000
|
85,000
|
|
|
|
David
|
40,000
|
85,000
|
|
|
|
Dale
|
40,000
|
85,000
|
|
Total
|
$150,000
|
$285,000
|
Total
|
$150,000
|
$285,000
|
a) What is the total amount realized by Barry on the sale?
b) How much, if any, ordinary income must Barry recognize on the sale?
c) How much capital gain must Barry report?
d) What is Dale's Basis in the partnership interest acquired?
Q2. Assume in Problem 47 that Barry's partnership interest is not sold to another partner. Instead, the partnership makes a liquidating distribution of $90,000 cash to Barry, and the remaining partners assume his share of the liabilities. How much gain or loss must Barry recognize? How is it characterized? Assume that Barry is a general partner, there is no provision for the payment for goodwill in the partnership agreement, and capital is not a material income-producing factor to the partnership.
Q3. Diana, a partner in the cash basis HDA Partnership, has a one-third interest in the partnership profits and losses. The partnership's balance sheet at the end of the current year is as follows:
|
Basis
|
FMV
|
|
Basis
|
FMV
|
|
Cash
|
$120,000
|
$120,000
|
Hannah, capital
|
$90,000
|
$250,000
|
|
Receivables
|
-0-
|
240,000
|
Diana, capital
|
90,000
|
250,000
|
|
Land
|
150,000
|
390,000
|
Alexis, capital
|
90,000
|
250,000
|
|
Total
|
$270,000
|
$750,000
|
Total
|
$270,000
|
$750,000
|
Diana sells her interest in the HDA Partnership to Kenneth at the end of the current year for cash of $250,000.
a) How much income must Diana report on her tax return for the current year from the sale? What is its nature?
b) If the partnership does not make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth must report in the next year when the receivables are collected?
c) If the partnership did make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth must report in the next tax year when the receivables are collected? When the land (which is used in the HAD Partnership's business) is sold for $420,000? Assume that no other transactions occurred that year.
Q4. Download a copy of the California state legislation with which they began to allow the formation of limited liability companies. What types of business activities can a LLC conduct in California?