Please answer the six following problems:
Aldo and Ben each own an undivided one-half interest in a tract of raw land. They construct a driving range on the land, which they lease to Clyde for $3,000 a month, the profit from which Aldo and Ben share equally. Clyde operates the golf range business on the site. What is the tax classification of Aldo and Ben’s relationship? Would your answer change if Aldo and Ben later constructed an commercial building on their land, which they then leased to tenants through an agent, who also provided customary services such as security and parking to the tenants? How about if Aldo and Ben then built a swimming pool and “corporate” gym in their building and then charged the tenants an extra fee to use those facilities? What if no extra fee was charged?
Al has a fiscal year ending in October. Beau has a fiscal year ending in June. Carina has a calendar year. They form the ABC partnership with the following interests in capital and profits: Al and Beau each have 44 percent, and Carina has 12 percent. What is the partnership’s taxable year? The partnership desires to adopt a fiscal year ending March 31. What is the result?
Angie and Carmen form the AC partnership, with each owning a 50% interest. Angie contributes $20,000 and a personal automobile worth $10,000, with an adjusted basis of $15,000, owned 10 years. Carmen contributes a Minolta copier, held several years, with a gross value of $69,000, subject to a $9,000 recourse liability (thus, the net value of the copier is $60,000); the copier’s adjusted basis is $10,000. Determine whether Angie and Carmen have any gain or loss on formation of the AC partnership, the tax basis and holding period of each partner’s partnership interest, and the tax basis and holding period to the partnership with respect to each asset.
Nora transfers real property with a basis of $1,000,000 and a fair market value of $5,000,000 to an existing partnership for an interest therein. Shortly thereafter, the partnership distributes $2,000,000 to Nora. Describe the tax consequences to Nora. Would your answer differ if the distribution to Nora occurred three years after the contribution? Does it matter if Nora incurred $2,000,000 in capital improvements to the contributed property within 2 years of the contribution?
Abby and Bob are partners in an equal general partnership. Abby has a basis of $70,000 in her partnership interest, and Bob has a basis of $30,000 in his partnership interest. Describe the effect of each of the following events on the basis of each partner’s partnership interest:
a) The partnership itself makes a charitable contribution of $8,000;
b) Each partner’s distributive share of partnership taxable income is $10,000;
c) The partnership has $18,000 in interest income from tax exempt municipal bonds; and
d) The partnership makes a cash distribution of $10,000 to each partner.
On 1/1/12, Sam and Ronny form the SR partnership, with Sam contributing property (“Property S”) with a fair market value of $800 and an adjusted tax basis of $400, and Ronny contributing $800 cash. The SR partnership agreement includes provisions calling for capital accounting in accordance with section 704(b), liquidating distributions in accordance with capital account balances, a qualified income offset provision, and a minimum gain chargeback provision, but no deficit restoration provision. The SR partnership, on 1/2/12, purchases Property X, a depreciable building, for $4,000, using $400 of cash contributed by Ronny, and incurring a nonrecourse note (secured by Property X) in the amount of $3,600. The SR partnership will depreciate the building, using the straight line method, over a 10 year period ($400 per year, including year 1). The SR partnership wishes to allocate the annual $400 depreciation deduction to Ronny for tax purposes. Describe whether the allocation will be respected for the tax years ending 12/31/12 and 12/31/13.
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