On June 30, 2023, Lori and Gabriel formed the LG Associates, a general partnership, with the...

Transcribed Image Text:

On June 30, 2023, Lori and Gabriel formed the LG Associates, a general partnership, with the following contributions: Contributions at Formation Partner Lori Book Tax land L inventory nonrecourse debt land L 600,000 80,000 175,000 175,000 Partner Gabriel land G capital asset 1,225,000 225,000 recourse debt land G 650,000 650,000 Land L was held as inventory by Lori and will be held as an investment by the partnership (capital asset). Land G was held as a capital asset by Gabriel and will be held as inventory by the partnership. Land L and Land G were each purchased 5 years prior to the contribution to the partnership. (see case 721-6 for an example in addition to materials from class). Part A - Create excel worksheets to hand in addressing the following questions: 1. What is the partner's interest in the partnership and why (citation from Regulations)? 2. Create the initial partnership balance sheet (book and tax). 3. Calculate each partner's share of partnership debt (show work in excel table) 4. Calculate each partner's outside basis at the time of formation (show work in excel table). 5. Calculate the amount of 704(c) precontribution gain or loss for each partner. 6. Other relevant IRC section describing the property contributed and related to the 704(c) precontribution gain or loss. 7. Include discussion with the citations in textboxes as part of the worksheets. On December 1, 2023 LG Associates general partnership admitted Ning to the partnership. Ning contributed Land N with a FMV of $270,000, recourse debt of $120,000 and a tax basis of $180,000. Land N was a capital asset held 4 years by Ning and is being held as investment property by the partnership. On December 1, 2023, Land L now has a FMV of $800,000 and Land G now has a FMV of $875,000. There have been no principal payments made on the debts. At the time of Ning's admission, the partnership follows Reg. 1.704-1(b)(2)(iv)(f) and uses Reg. $1.704- 1(b)(3) Partner's interest in the Partnership to determine the new ownership interests. You will need to calculate the revised ownership percentages (capital, profit, and loss to be used for the balance of the year after Ning's admission). On December 10, 2023, Land L is sold for $1,250,000. The buyer pays $1,075,000 in cash and takes the property subject to the NR debt of $175,000. On December 31, 2023, the partnership pays down part of the recourse debt on Land G using $175,000 of the cash received from the sale of Land L. On December 31, 2023, the partnership made the following cash distributions to the partners: Cash Distributed Lori Gabriel Ning 200,000 275,000 125,000 600,000 LG Associates is a calendar year cash basis general partnership. No additional payments were made nor were there any other receipts received during 2023. Part B - Update the worksheets created in part A above to address the activities during 2021 after formation. Include proper citations and descriptions of what you are doing. The worksheets should be able to answer the following questions. 1. How should the gain from the sale of Land L be allocated? Show the calculations of this on the worksheet reconciling the activity in the partners' book and tax capital accounts. 2. What is the character of the gain from the sale of Land L and support why? The updated 12/31 worksheets should include: 3. A worksheet reconciling the activity in the partners' book and tax capital accounts from the beginning of the year to the end of the year. 4. Construct the ending balance sheet (book and tax). 5. Calculate the ending outside basis for each of the partners, showing how it is calculated and providing citations of the IRC/Regulations supporting the adjustments. 6. Construct the debt allocation tables at the end of the year and use this information to update the outside basis calculations. On June 30, 2023, Lori and Gabriel formed the LG Associates, a general partnership, with the following contributions: Contributions at Formation Partner Lori Book Tax land L inventory nonrecourse debt land L 600,000 80,000 175,000 175,000 Partner Gabriel land G capital asset 1,225,000 225,000 recourse debt land G 650,000 650,000 Land L was held as inventory by Lori and will be held as an investment by the partnership (capital asset). Land G was held as a capital asset by Gabriel and will be held as inventory by the partnership. Land L and Land G were each purchased 5 years prior to the contribution to the partnership. (see case 721-6 for an example in addition to materials from class). Part A - Create excel worksheets to hand in addressing the following questions: 1. What is the partner's interest in the partnership and why (citation from Regulations)? 2. Create the initial partnership balance sheet (book and tax). 3. Calculate each partner's share of partnership debt (show work in excel table) 4. Calculate each partner's outside basis at the time of formation (show work in excel table). 5. Calculate the amount of 704(c) precontribution gain or loss for each partner. 6. Other relevant IRC section describing the property contributed and related to the 704(c) precontribution gain or loss. 7. Include discussion with the citations in textboxes as part of the worksheets. On December 1, 2023 LG Associates general partnership admitted Ning to the partnership. Ning contributed Land N with a FMV of $270,000, recourse debt of $120,000 and a tax basis of $180,000. Land N was a capital asset held 4 years by Ning and is being held as investment property by the partnership. On December 1, 2023, Land L now has a FMV of $800,000 and Land G now has a FMV of $875,000. There have been no principal payments made on the debts. At the time of Ning's admission, the partnership follows Reg. 1.704-1(b)(2)(iv)(f) and uses Reg. $1.704- 1(b)(3) Partner's interest in the Partnership to determine the new ownership interests. You will need to calculate the revised ownership percentages (capital, profit, and loss to be used for the balance of the year after Ning's admission). On December 10, 2023, Land L is sold for $1,250,000. The buyer pays $1,075,000 in cash and takes the property subject to the NR debt of $175,000. On December 31, 2023, the partnership pays down part of the recourse debt on Land G using $175,000 of the cash received from the sale of Land L. On December 31, 2023, the partnership made the following cash distributions to the partners: Cash Distributed Lori Gabriel Ning 200,000 275,000 125,000 600,000 LG Associates is a calendar year cash basis general partnership. No additional payments were made nor were there any other receipts received during 2023. Part B - Update the worksheets created in part A above to address the activities during 2021 after formation. Include proper citations and descriptions of what you are doing. The worksheets should be able to answer the following questions. 1. How should the gain from the sale of Land L be allocated? Show the calculations of this on the worksheet reconciling the activity in the partners' book and tax capital accounts. 2. What is the character of the gain from the sale of Land L and support why? The updated 12/31 worksheets should include: 3. A worksheet reconciling the activity in the partners' book and tax capital accounts from the beginning of the year to the end of the year. 4. Construct the ending balance sheet (book and tax). 5. Calculate the ending outside basis for each of the partners, showing how it is calculated and providing citations of the IRC/Regulations supporting the adjustments. 6. Construct the debt allocation tables at the end of the year and use this information to update the outside basis calculations.