Question 1: A law firm has recently been hired to form VENTURE 3 LLC for three individuals and two LLP members. The LLC will elect Tax Corp. and then elect S status.
The LLC uses Section 351 to transfer the individuals' contributions to the newly formed company. Below, the outside accountancy firm has
collected the following information. The tax parter at the accountancy firm has asked you to complete the information below.
| Individuals |
Contribution Type |
FMV |
Debt |
Net FMV |
Tax Basis |
| |
|
Contribution |
Contributed |
Contributed |
Assets |
| Mary S |
Cash |
$5,000,000 |
|
$5,000,000 |
$5,000,000 |
| Tom M |
Building |
$6,000,000 |
$2,500,000 |
$3,500,000 |
$2,000,000 |
| Ted D |
Intangible Patents |
$25,000,000 |
|
$25,000,000 |
$500,000 |
| Accountancy LLP |
Services |
$25,000 |
|
$25,000 |
$0 |
| Law LLP |
Services |
$25,000 |
|
$25,000 |
$0 |
| Total |
|
$36,050,000 |
|
$33,550,000 |
|
| |
|
|
|
|
|
| |
|
|
|
Total Shares Issued |
| Individual Computations |
|
LLC Computation |
| Shares |
Gain |
Gain Recognized |
Tax Basis |
|
LLC Tax Basis |
| Received |
Realized |
(IF ANY) |
in Shares |
|
in Assets |
| 14,903 |
$0 |
$0 |
$5,000,000 |
|
$5,000,000 |
| 10,432 |
$1,500,000 |
$500,000 |
$1,500,000 |
|
$3,500,000 |
| 74,516 |
$24,500,000 |
$0 |
$500,000 |
|
$25,000,000 |
| 75 |
$0 |
$0 |
$25,000 |
|
$25,000 |
| 75 |
$0 |
$0 |
$25,000 |
|
$25,000 |
| 100,000 |
$26,000,000 |
$500,000 |
$7,050,000 |
|
$33,550,000 |
| |
|
|
|
|
|
| 100,000 |
|
|
|
|
|
Question 2: Tim Matthew's attorney set up a new LLC for him called 360 LLC. Tim plans on transferring $2 Million Land ($1.4 Million Basis) and $8 Million FMV Intangible Asset ($50,000 Tax Basis).
The attorney has issued full membership ownership to Tim in the form of shares of the LLC.
Tim will also receive a $500,000 Note that the LLC is to pay off in one year. The tax accountancy partner has given this information to you and has asked you to compute the realized gain and the recognized gain for this transaction (you can use the C:2-25 Example in the text for the allocation). The LLC will elect Tax Corporate and use Section 351.
You been asked to compute as follows:
| |
Land |
Intangibles |
Total |
| Assets FMV |
$2,000,000 |
$8,000,000 |
$10,000,000 |
| Percent of Total FMV |
20% |
80% |
100% |
| Consideration Received in exchange for Asset |
$2,000,000 |
$8,000,000 |
$10,000,000 |
| LLC Ownership |
20% |
80% |
100% |
| Note |
($100,000) |
($400,000) |
($500,000) |
| Total Proceeds |
$1,900,000 |
$7,600,000 |
$9,500,000 |
| Less: Adjust Basis |
($1,400,000) |
($50,000) |
($1,450,000) |
| Realized Gain |
$500,000 |
$7,550,000 |
$8,050,000 |
| Boot Received |
$100,000 |
$400,000 |
$500,000 |
| Recognized Gain |
$100,000 |
$400,000 |
$500,000 |