# MATHEMATICS

59. LO.13 Burgundy, Inc., and Violet are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed payment of $100,000 for use of capital contributed by

Burgundy. BV’s taxable income (after deducting the payment to Burgundy, Inc.) is $80,000 for 2013 and $90,000 for 2014.

a. What is the amount of income from the LLC that Burgundy must report for its tax year ending April 30, 2014?

b. What is the amount of income from the LLC that Violet must report for her tax year ending December 31, 2014?

60. LO.13 Assume the same facts as in Problem 59. Assume that Burgundy, Inc.’s annual guaranteed payment is increased to $120,000 starting on January 1, 2014, and the LLC’s taxable income for 2013 and 2014 (after deducting Burgundy’s guaranteed payment) is the same (i.e., $80,000 and $90,000, respectively). What is the amount of income from the LLC that

Burgundy, Inc., must report for its tax year ending April 30, 2014?

61. LO.13 Four GRRLs Partnership is owned by four girlfriends. Lacy holds a 40% interest; each of the others owns 20%. Lacy sells investment property to the partnership for its fair market value of $200,000 (Lacy’s basis is $250,000).

a. How much loss, if any, may Lacy recognize?

b. If the partnership later sells the property for $260,000, how much gain must it recognize?

c. How would your answers in (a) and (b) change if Lacy owned a 60% interest in the partnership?

d. If Lacy owned a 60% interest and her basis in the investment property was $120,000 instead of $250,000, how much, if any, gain would she recognize on the sale? How would the gain be characterized?

62. LO.14 Gil’s outside basis in his interest in the GO Partnership is $100,000. In a proportionate nonliquidating distribution, the partnership distributes to him cash of $30,000, inventory (fair market value of $40,000, basis to the partnership of $20,000), and land (fair market value of $90,000, basis to the partnership of $50,000). The partnership continues in existence.

a. Does the partnership recognize any gain or loss as a result of this distribution? Explain.

b. Does Gil recognize any gain or loss as a result of this distribution? Explain.

c. Calculate Gil’s basis in the land, in the inventory, and in his partnership interest immediately following the distribution.

63. LO.14 When Teri’s outside basis in the TMF Partnership is $80,000, the partnership distributes to her $30,000 of cash, an account receivable (fair market value of $60,000, inside basis to the partnership of $0), and a parcel of land (fair market value of $60,000, inside basis to the partnership of $80,000). Teri remains a partner in the partnership, and the distribution is proportionate to the partners.

a. Determine the recognized gain or loss to the partnership as a result of this distribution.

b. Determine the recognized gain or loss to Teri as a result of the distribution.

c. Determine Teri’s basis in the land, account receivable, and TMF Partnership after the distribution.

64. LO.14 In each of the following independent cases in which the partnership owns no hot assets, indicate:

• Whether the partner recognizes gain or loss.

• Whether the partnership recognizes gain or loss.

• The partner’s adjusted basis for the property distributed.

• The partner’s outside basis in the partnership after the distribution.

All partners receive proportionate distributions.

a. Kim receives $20,000 of cash in partial liquidation of her interest in the partnership.

Kim’s outside basis for her partnership interest immediately before the distribution is $3,000.

b. Kourtni receives $40,000 of cash and land with an inside basis to the partnership of $30,000 (value of $50,000) in partial liquidation of her interest. Kourtni’s outside basis for her partnership interest immediately before the distribution is $80,000.

c. Assume the same facts as in (b), except that Kourtni’s outside basis for her partnership interest immediately before the distribution is $60,000.

d. Klois receives $50,000 of cash and inventory with a basis of $30,000 and a fair market value of $50,000 in partial liquidation of her partnership interest. Her basis was $90,000 before the distribution.

65. LO.14 Sam’s basis in his partnership interest is $46,000. In a proportionate nonliquidating distribution, Sam receives $6,000 of cash and two parcels of land, each with a basis of $30,000 to the partnership. The values of the land parcels are $40,000 and $20,000.

a. How much gain or loss, if any, must Sam recognize on the distribution?

b. What basis will Sam take in each parcel of land?

66. LO.14 At the beginning of the tax year, Melodie’s basis in the MIP LLC was $60,000, including her $40,000 share of the LLC’s liabilities. At the end of the year, MIP distributed to Melodie cash of $10,000 and inventory (basis of $6,000, fair market value of $10,000). In addition, MIP repaid all of its liabilities by the end of the year.

a. If this is a proportionate nonliquidating distribution, what is the tax effect of the distribution to Melodie and MIP? After the distribution, what is Melodie’s basis in the inventory and in her MIP interest?

b. Would your answers to (a) change if this had been a proportionate liquidating distribution?

Explain.

67. LO.14 In each of the following independent liquidating distributions in which the partnership also liquidates, determine the amount and character of any gain or loss to be recognized by each partner and the basis of each asset (other than cash) received. In each case, assume that distributions of hot assets are proportionate to the partners.

a. Landon has a partnership basis of $40,000 and receives a distribution of $50,000 in cash.

b. Mark has a partnership basis of $50,000 and receives $20,000 of cash and a capital asset with a basis to the partnership of $25,000 and a fair market value of $40,000.

c. Neil has a partnership basis of $100,000 and receives $40,000 of cash, inventory with a basis to the partnership of $30,000, and a capital asset with a partnership basis of $20,000. The inventory and capital asset have fair market values of $20,000 and $30,000, respectively.

d. Oscar has a partnership basis of $40,000 and receives a distribution of $10,000 of cash and an account receivable with a basis of $0 to the partnership (value is $15,000).

68. LO.15 RBP 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 of cash and the assumption of Barry’s share of partnership liabilities. On the sale date, the partnership’s cash basis balance sheet is as follows. Assume that the capital accounts before the sale reflect the partners’ bases in their partnership interests, 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?

See Appendix E for Comprehensive Tax Return Problem—Form 1065