09 Nov Federal taxation of Partnerships
Please see attachment for complete questions!
Calculation questions:
8.2 MillennialHomes LLC is a limited liability company taxed as a partnership. Its balancesheet (with values added) is as follows:
In exchange for a 20% interest in Millennial, Alvincontributes undeveloped land with a tax basis of $225,000 and a value of$725,000, which is subject to a $400,000 mortgage debt incurred three yearsago. The bank releases Alvin from the mortgage debt and, following thiscontribution, no partner (including Alvin) gives any credit support (throughguarantee or otherwise) for Millennials debt. The partnership agreement adoptsthe traditional method under section 704( c) and allocated excess nonrecourseliabilities in accordance with the partners percentage interests. How muchgain, if any, does Alvin recognize on his contribution?
8.3 Individuals A, B and C form a limited partnershipwith cash contributions of $10,000, $10,000 and $30,000, respectively. A and Bare the general partners and C is the sole limited partner. The partnershipagreement provides for the maintenance of proper capital accounts, which willgovern liquidating distributions. Each general partner has an unconditionalobligation to restore any deficit balance in her capital account uponliquidation, but the limited partner has no obligation beyond her initialcapital contribution. The partnership borrows $400,000 on a recourse basis andacquires an apartment building for $400,000, keeping its $50,000 of equitycapital as a cash reserve. For the nextthree years, the partnership operates the apartment building at an annual lossof $15,000, not including depreciation which is an additional $10,000 per year(ignoring depreciation conventions). The partnership agreement provides thatall items of income, gain, loss, deduction and credit will be allocated 20% toeach of the general partners and 60% to the limited partner, except fordepreciation, which will be allocated entirely to the limited partner. Thepartnership agreement contains a qualified income offset and provides that anyallocation that is not allowable under applicable law will be reallocated asrequired. At the end of three years, what are the cumulative amounts ofoperating loss and depreciation properly allocated to the three partners?
