Question 1 - The Mark and Richard Partnership owns the following assets on October 1 of the current year:
|
Assets
|
Partnership's Basis
|
FMV
|
|
Cash
|
$67,200
|
$67,200
|
|
Receivables
|
16,800
|
16,800
|
|
Inventory
|
25,200
|
31,800
|
|
Machinery*
|
246,000
|
356,000
|
|
Land
|
48,100
|
100,400
|
|
Total
|
$403,300
|
$572,200
|
*Sale of machinery for its FMV would result in $70,000 of §1245 depreciation recapture. Thus, the machinery's FMV and original cost are the same numerical value $356,000.
a. Which partnership items are unrealized receivables?
b. Is the partnership's inventory substantially appreciated?
c. Assume the Mark and Richard Partnership has no liabilities and Mark's basis in his partnership interest is $107,625. On October 1 of the current year, Mark receives a $ 35,000 current distribution in cash, which reduces his partnership interest from one- fourth to one-fifth. What are the tax results of the distribution (i. e., the amount and character of any gain, loss, or income recognized and Mark's basis in his partnership interest)?
Question 2 - Melinda is a shareholder in a calendar year S corporation. At the beginning of the year, her stock basis is $20,000, her share of AAA (accumulated adjustment account) is $4,000, and her share of corporate AEP (accumulated earnings & profit) is $10,000. She receives a $12,000 distribution, and her share of S corporation items includes a $4,000 long-term capital gain and $18,000 ordinary loss. Determine the effects of these events on AAA, stock basis, and AEP
Davis is a 50% shareholder in Babylon Corporation which is an S corporation. The S corporation had a $30,000 ordinary loss last year and $10,000 of ordinary income this year. Before accounting for last year's losses, Davis' basis in his Babylon stock is $20,000 and Babylon owed Davis $2,000 (an unsecured note having a basis of $2,000) at the end of last year. In addition, Babylon had $50,000 of other liabilities owed to creditors other than Davis at the end of last year. What income and loss must Davis report on his current return as a result of owning the Babylon stock (ignoring the at-risk and passive activity limitations)?
Question 3 - The LMN Partnership has the following balance sheets at December 31:
|
|
Basis
|
FMV
|
|
Cash
|
$46,000
|
$46,000
|
|
Accounts Receivable
|
0
|
125,000
|
|
Inventory
|
46,000
|
104,000
|
|
Land
|
400,000
|
265,000
|
|
|
$492,000
|
$540,000
|
|
|
|
|
|
Capital, L
|
$164,000
|
$180,000
|
|
Capital, M
|
164,000
|
180,000
|
|
Capital, N
|
164,000
|
180,000
|
|
|
$492,000
|
$540,000
|
|
|
|
On that date, N sells his interest in the partnership to unrelated buyer Y for $180,000.
a. How much gain or loss will N recognize in connection with the sale to Y?
b. What will be the character of N's gain or loss?