Jane and Kennedy started the JK partnership in June 2 0 1 8 . Each member contributed
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Question:
Jane and Kennedy started the JK partnership in June Each member contributed $ Million cash
and the partnership used the funds to purchase $ Million of land. The partners have been receiving
offers to purchase the land. They have never signed a purchase agreement but the offers range between
$ Million and $ Million.
One offer came from Martha, a local commercial real estate developer. Recognizing Jane and Kennedys
reluctance to sell, Martha instead offers to perform development services in exchange for a interest
in any development profits. The cost of development will be funded with a bank loan.
Kennedy and Jane are willing to admit Martha as a profitsonly partner. The three parties have
reached an agreement that the land is currently worth $ Million. Marthas development profit will be
for gains realized above this $ Million figure.
QUESTIONS:
Will the receipt of a interest in development profits be taxable to Martha? You must
explain why or why not, using primary tax authorities.
How do you suggest the partners memorialize the understanding that the development profit
share is based on gains above $ Million. If you can locate any primary tax authorities to
support your answer you should cite them.
Related Book For
Financial accounting
ISBN: 978-0136108863
8th Edition
Authors: Walter T. Harrison, Charles T. Horngren, William Bill Thomas
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