Bob contributed to the AlphaBeta Partnership, a general partnership, a building
ID: 2393666 • Letter: B
Question
Bob contributed to the AlphaBeta Partnership, a general partnership, a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 that was subject to a mortgage of $120,000 in exchange for a 50 percent interest in the AlphaBeta Partnership. The AlphaBeta Partnership will assume the mortgage on the building. At the same time, Al contributed to AlphaBeta Partnership cash of $30,000 in exchange for the other 50 percent interest in the AlphaBeta Partnership. In addition to the section or sections that are relevant under question 5, above, which of the following Code Sections is or are also relevant to the determination of whether or not Bob recognizes any gain or loss on this transaction?
a. Only Code Section 751(b).
b. Only Code Sections 751(b), 733, and 705(a).
c. Code Sections 751(b), 733, 705(a) and 731(a).
d. None of the above
Bob contributed to the AlphaBeta Partnership, a general partnership, a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 that was subject to a mortgage of $120,000 in exchange for a 50 percent interest in the Alpha Partnership. Alpha will assume the mortgage on the building. At the same time, Al contributed to AlphaBeta Partnership cash of $30,000 in exchange for the other 50 percent interest in the AlphaBeta Partnership. Which of the following Code Sections is or are relevant to the determination of Bob’s basis in his partnership interest upon completion of this transaction?
a. Only Code Section 722.
b. Only Code Section 1012(a).
c. Only Code Sections 1012(a) and 722.
d. Code Sections 1012(a), 722, and 705(a).
Explanation / Answer
Question 1:
Anwser: None of the above
Reason:
a)
To determine whether or not Bob should recognized gain or loss, the relevant section is 351. Per section 351, there would be no gain or loss recognized when a property is transferred in exchange for control of a company. Control is when the transferor acquired more than or equal to 80% of voting rights. In this case, since Bob acquired 50% voting rights, he will have to recognize gain or loss on the transfer. Further, per section 357(c), when section 351 applies and there is also assumption of liability, if the liability assumed is in excess of the adjusted basis , the excess should be recognized as a gain by the transferor.
Question 2:
Which of the following Code Sections is or are relevant to the determination of Bob’s basis in his AlphaBeta Corporation stock as the result of this transaction?
Answer: (a): Only Code Section 722