Amy, Shannon, and Cameron are equal partners in the ASC Partnership. On January 1 st of the
Question:
Amy, Shannon, and Cameron are equal partners in the ASC Partnership. On January 1st of the tax year, Amy and Shannon have an outside basis of $330,000 and Cameron has an outside basis of $250,000. The company’s balance sheet (including FMVs) is as follows (please note that the tax basis and book amounts are equivalent):
ABC Partnership Balance Sheet – January 1st
Assets : Liabilities:
Tax Basis/Book FMV
Cash $340,000 $340,000 $150,000
Acct. Receivable $75,000 $60,000
Inventory $90,000 $150,000
Machinery $55,000 $100,000
Land $340,000 $400,000
Stock $90,000 $300,000
Goodwill $0 $300,000
Total $990,000 $1,650,000
Capital Accounts/Equity
Tax/Book FMV
Amy $280,000 $500,000
Shannon $280,000 $500,000
Cameron $280,000 $500,000
Total $840,000 $1,500,000
Assume that the Company purchased the machine three years ago for $120K and that the land ten years ago and it is being held for investment purposes and that the Company has never previously made an election under IRC sec. 754.
If Amy sells her interest to Laura for $500K on January 1st, what are the tax consequences to Amy? What are the tax consequences to Laura?
South Western Federal Taxation 2016 Corporations Partnerships Estates and Trusts
ISBN: 9781305399884
39th edition
Authors: James Boyd, William Hoffman, Raabe, David Maloney, Young