Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general part- nership in which both partners are active owners). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna’s property was encumbered by qualified nonrecourse financing of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year: Sales $560,000 Utilities, salaries, depreciation, and other operating expenses 360,000 Short-term capital gain 10,000 Tax-exempt interest income 4,000 Charitable contributions (cash) 8,000 Distribution to Suzy 10,000 Distribution to Anna 20,000 During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100,000 debt was repaid and replaced with new debt). At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable (recourse to the partnership but not personally guaranteed by either of the partners) and qualified nonrecourse financing of $200,000. d. Assume that Suz-Anna prepares the capital account rollforward on the partners’ Schedules K–1 on a tax basis. What are Suzy’s capital account balances at the beginning and end of the tax year? What accounts for the difference between Suzy’s ending capital account and her ending tax basis in the partnership interest? e. Now think about what would happen if Suz-Anna was formed as an LLC instead of a general partnership. How would Suz-Anna’s ending liabilities be treated? How would Suzy’s basis and amount at risk be different?
Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general part- nership in which both partners are active owners). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna’s property was encumbered by qualified nonrecourse financing of $100,000, which was assumed by the
Sales $560,000
Utilities, salaries,
Short-term
Tax-exempt interest income 4,000
Charitable contributions (cash) 8,000
Distribution to Suzy 10,000
Distribution to Anna 20,000
During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100,000 debt was repaid and replaced with new debt). At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable (recourse to the partnership but not personally guaranteed by either of the partners) and qualified nonrecourse financing of $200,000.
d. Assume that Suz-Anna prepares the capital account rollforward on the partners’ Schedules K–1 on a tax basis. What are Suzy’s capital account balances at the beginning and end of the tax year? What accounts for the difference between Suzy’s ending capital account and her ending tax basis in the partnership interest?
e. Now think about what would happen if Suz-Anna was formed as an LLC instead of a general partnership. How would Suz-Anna’s ending liabilities be treated? How would Suzy’s basis and amount at risk be different?
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