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7. Suzy contributed business-related assets valued at $360,000 (basis of $200,000)

Suzy contributed business-related assets valued at $360,000 (basis of $200,000)

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Suzy contributed business-related assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in the Suz-Anna Partnership. 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 a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year.
Sales............................................................................................ $560,000
Utilities, salaries, and other operating expenses...........360,000
Short-term capital gain............................................................ 10,000
Tax-exempt interest income...................................................... 4,000
Charitable contributions............................................................. 8,000
Distribution to Suzy................................................................... 10,000
Distribution to Anna.................................................................. 20,000

During the current tax year, Suz-Anna refinanced the land and building (i.e., the original $100,000 debt was repaid and replaced with new debt). 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 qualified nonrecourse financing of $200,000. 

a. What is Suzy’s basis in Suz-Anna after formation of the partnership? Anna’s basis? 

b. What income and separately stated items does the partnership report on Suzy’s Schedule K–1? What income, deduction, and taxes does Suzy report on her tax return? What additional information is needed? 

c. Assume that all partnership debts are shared proportionately. At the end of the tax year, what are Suzy’s basis and amount at risk in her partnership interest? 

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? 

e. Now think about 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? 

Schedule K–1

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651118 O Amended K-1 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items Final K-1 OMB No. 1545-0123 Schedule K-1 2018 (Form 1065) Department of the Treasury Internal Revenue Service 1 Ordinary business income (loss) 15 Credits For calendar year 2018, or tax year I 2018 ending 90,000 Net rental real estate income (loss) 2 beginning Partner's Share of Income, Deductions, Credits, etc. 120,000 Other net rental income (loss) 3 16 Foreign transactions See back of form and separate instructions. Part I Information About the Partnership 4 Guaranteed payments A Partnership's employer identification number 120,000 11-111IIII 5 Interest income Partnership's name, address, city, state, and ZIP code 6a Ordinary dividends Beachside Properties LLC 1600 Ocean Vista Way Surfside 1,600 6b Qualified dividends 1,600 IRS Center where partnership filed retum 6c Dividend equivalents P.O. Box 409101, Ogden, UT 84409 D O Check if this is a publicly traded partnership (PTP) 7 Royalties Part II Information About the Partner Net short-term capital gain (loss) 8. 17 Alternative minimum tax (AMT) items 7,290 4,800 Net long-term capital gain (loss) E Partner's identifying number 111-11-111I 9a F Partner's name, address, city, state, and ZIP code 9b Collectibles (28%) gain (loss) Maria LeClere 1600 Ocean Vista Way Unrecaptured section 1250 gain Tax-exempt income and nondeductible expenses 18 Surfside