Question 1
Jonathan owns property (basis of $200,000, value of
$300,000). He plans to contribute the property to the JJG Partnership in
exchange for a 25% interest.
What issues arise if the partnership distributes
$150,000 of cash to Jonathan three months after the property contribution?How can the risk of adverse tax consequences be
minimized?
Question 2
At the beginning of the tax year, Melody’s basis in the MIP
LLC was $60,000, including her $40,000 share of the LLC’s liabilities. At the
end of the year, MIP distributed to Melody a cash amount of $10,000 and
inventory (basis of $6,000, fair market value of $10,000). In addition, MIP
repaid all of its liabilities by the end of the year.
If this is a proportionate non-liquidating
distribution, what is the tax effect of the distribution to Melody and
MIP? After the distribution, what is Melody’s basis in the
inventory and in her MIP interest?Would your answers to (a) change if this had been a
proportionate liquidating distribution? Explain.
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