Problem $10-40($LO$.3,6,7,9,10,11)$

Suzy contributed assets valued at $$360,000($basis of $$200,000)$ in exchange for her $40\%$ interest in Suz$-$Anna GP $($a general partnership in which both partners are active owners$).$ Anna contributed land and a building valued at $$640,000($basis of $$380,000)$ in exchange for the

remaining $60\%$ interest. Anna's property was encumbered by qualified nonrecourse financing of $$100,000,$ which was assumed by the

partnership. The partnership reports the following income and expenses for the current tax year.

The partnership reports the following income and expenses for the current tax year.

Sales: $$560,000$

Utilities, salaries, depreciation, and other operating expenses: $360,000$

Short$-$term capital gain: $10,000$

Tax$-$exempt interest income: $4,000$

Charitable contributions $($cash$)$: $8,000$

Distribution to Suzy: $10,000$

Distribution to Anna: $20,000$

During the current tax year, Suz$-$Anna refinanced the land and building. In doing so$,$ they took out new qualified nonrecourse financing of $$200,000$ and used $$100,000$ of the proceeds to repay the original $$100,000$ debt $($with $$100,000$ of cash left over for business use$).$ At the end of the year, Suz$-$Anna held recourse debt of $$100,000$ for partnership accounts payable $($recourse to the partnership but not personally guaranteed by either of the partners$)$ and the new $$200,000$ debt.

d$.$ Assume that Suz$-$Anna prepares the capital account rollforward on the partners' Schedules K$1$ on a tax basis. What are Suzy's capital account balances at the beginning and end of the tax year? What accounts for the difference between Suzy's ending capital account and her ending tax basis in the partnership interest?

Suzy's capital account balance at the beginning of the tax year is $$200,000$ and at the end of the tax year is $$($fill in the blank$).$

The capital account does not include the partner's share of liabilities. In this situation, Suzy's ending capital account differs from her ending tax basis, because her $$($fill in the blank$)$

share of partnership liabilities is not included in her ending capital account.

e$.$ What would happen if Suz$-$Anna was formed as an LLC instead of a general partnership. How would Suz$-$Anna's ending liabilities be treated? How would Suzy's basis and amount at risk be different?

None of the LLC members are personally liable for the accounts payable of the LLC$.$ They are included in the members' bases in their LLC interests and excluded in the amounts at risk.

None of the LLC members are personally liable for the nonrecourse debt of the LLC$.$ It is included in the LLC members' bases as a nonrecourse debt and included in the amount at risk.

Suzy's ending basis in the LLC interest is $$($fill in the blank$),$ and the amount at risk in her LLC interest is $$($fill in the blank$).$