On January 1, Julie, Kay, and Susan form a partnership. The contributions of the
ID: 2466619 • Letter: O
Question
On January 1, Julie, Kay, and Susan form a partnership. The contributions of the three individuals are listed below. Julie received a 30% partnership interest, Kay received a 60% partnership interest, and Susan received a 10% partnership interest. They share the economic risk of loss from recourse liabilities according to their partnership interests.
Individual Asset Basis to Partner FMV
Julie Accounts receivable $ –0– $ 60,000
Kay Land 30,000 58,000
Building 45,000 116,000
Susan Services ? 20,000
Kay has claimed $15,000 of straight-line MACRS depreciation on the building. The land and building are subject to a $54,000 mortgage, of which $18,000 is allocable to the land and $36,000 is allocable to the building. The partnership assumes the mortgage. Susan is an attorney, and the services she contributes are the drawing-up of all partnership agreements.
a. What amount and character of gain, loss, or income must each partner recognize on the formation of the partnership?
b. What is each partner’s basis in her partnership interest?
c. What is the partnership’s basis in each of its assets?
d. What is the partnership’s initial book value of each asset?
Explanation / Answer
Answer a
Julie and Kay recognize no income on the formation of the partnership. However Susan, because her contribution was services, recognizes ordinary income equal to the value of the partnership interest received ie $20,000.
Asnwer b
Answer c
Accounts Receivable => 0
Land => $ 30000
Building => $ 45000
Organisational Expenditure => $20000
Answer d
The partnership’s initial book value of each asset is the FMV at the time of contribution
Account Receivable => $6000
Land => $ 58000
Building => $ 116000
PARTICULARS JULIE ($) KAY($) SUSAN($) Basis of property contributed 0 75000 0 Plus: share of liabilities 16200 32400 5400 Minus: liabilities assumed by partnership - 54000 - Plus: income recognized 0 0 20000 Basis in partnership interest 16200 53400 25400