Continue with the facts presented in Problem 32. At the end of the first year, the LLC distributes $100,000 of cash to Sam. No distribution is made to Drew.

a. Under general tax rules, how would the payment to Sam be treated?

b. Under general tax rules, how much income or gain would Sam recognize as a result of the contribution and distribution?

c. Under general tax rules, what basis would the LLC take in the land Sam contributed?

d. What alternative treatment might the IRS try to impose?

e. Under the alternative treatment, how much income or gain would Sam recognize?

f. Under the alternative treatment, what basis would the LLC take in the land contributed by Sam?

Problem 32.

Sam and Drew are equal members of the SD LLC, formed on June 1 of the current year. Sam contributed land that he inherited from his uncle Garza in 2009. Garza had purchased the land in 1984 for $30,000. The land was worth $100,000 when Garza died. The fair market value of the land was $200,000 at the date it was contributed to SD. Drew has significant experience developing real estate. After SD is formed, he will prepare a plan for developing the property and secure zoning approvals for the LLC. Drew usually would bill a third party $50,000 for these efforts. Drew also will contribute $150,000 of cash in exchange for his 50% interest in SD. The value of Drew’s 50% interest is $200,000.