Joe and Sunny intend to enter into a business venture together and decided that a partnership would

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Question:

Joe and Sunny intend to enter into a business venture together and decided that a partnership would be a desirable entity choice for federal income tax purposes. The partnership is named Michigan Partnership (“MIP”). For newly established MIP, Joe intends to contribute Property A with fair market value (“FMV”) of $800 and basis of $300. Sunny intends to contribute cash of $800. For purposes of this question, Joe and Sunny are equal partners with no special tax allocations.

1. Provide Joe’s basis in MIP upon contribution (i.e., Year 0) of Property A.

2. Provide Sunny’s basis in MIP upon contribution (i.e., Year 0) of cash.

3. Provide MIP’s basis in Property A and cash immediately after contribution.

4. At the end of Year 1, MIP had an operating loss of $500. What would be Joe’s and Sunny’s outside basis at the end of Year 1. Note that the loss is all active.

5. Assume that at the end of Year 1, MIP had an operating loss of $100 instead of $500. Also, MIP made cash distribution of $800 at the end of Year 1. Provide Joe’s and Sunny’s outside basis at the end of Year 1 and also provide any additional tax consequence(s) for Joe and Sunny if any.

6. Assume that at the end of Year 1, MIP had an operating loss of $100. Also, MIP made distribution of Property A only to Joe at the end of Year 1. For purposes of this question, assume no depreciation was taken for Property A for Year 1 and FMV remained the same from the date of contribution. Provide Joe’s and Sunny’s outside basis at the end of Year 1 and Joe’s basis in Property A upon distribution to him.

7. Assume that at the end of Year 2, Joe’s and Sunny’s basis in MIP are $500 and $700, respectively. For purposes of this question, Property A was not distributed to Joe as noted above. Rather, Property A was disposed at the end of Year 2. At the time of disposition, FMV and basis of Property A were $900 and $100, respectively. What would be Joe’s and Sunny’s outside basis at the end of Year 2.