7.5 Fischer owns a piece of unimproved property (value $500,000, basis $150,000) that is ripe for...

 

  

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7.5 Fischer owns a piece of unimproved property (value $500,000, basis $150,000) that is ripe for development. He hires a lawyer to set up a limited partnership and to draft a private placement memorandum for offering limited. partnership units to prospective investors. For these services, he pays the lawyer $50,000. The offering is successful and the partnership is organized with total capital of $4.5 million, $500,000 property received from Fischer as sole general partner and $4 million cash received from the investors as limited partners. Under the terms of the partnership agreement, profits and losses are allocated proportionately to the partners' capital accounts until all partners have received cash distributions equal to the amount of their initial investments plus a preferred return of 8%. Thereafter, profits and losses are allocated 50% to Fischer and 50% to the limited partners. Shortly after collecting the first capital call from the limited partners, the partnership reimburses Fischer for his $50,000 of expenses. All these transactions occur within the same tax year. What income or gain does Fischer recognize? 7.5 Fischer owns a piece of unimproved property (value $500,000, basis $150,000) that is ripe for development. He hires a lawyer to set up a limited partnership and to draft a private placement memorandum for offering limited. partnership units to prospective investors. For these services, he pays the lawyer $50,000. The offering is successful and the partnership is organized with total capital of $4.5 million, $500,000 property received from Fischer as sole general partner and $4 million cash received from the investors as limited partners. Under the terms of the partnership agreement, profits and losses are allocated proportionately to the partners' capital accounts until all partners have received cash distributions equal to the amount of their initial investments plus a preferred return of 8%. Thereafter, profits and losses are allocated 50% to Fischer and 50% to the limited partners. Shortly after collecting the first capital call from the limited partners, the partnership reimburses Fischer for his $50,000 of expenses. All these transactions occur within the same tax year. What income or gain does Fischer recognize?

Answer rating: 100% (QA)

In this scenario Fischer contributed unimproved property with a fair market value of 500000 and a basis of 150000 to the limited partnership Therefore ... View the full answer