Accounting Questions

1. Compare the provision for the nonrecognition of gain or loss on contributions to a partnership (i.e., § 721) with the similar provision related to corporate formation (i.e., § 351). What are the major differences and similarities?

2. When Teri’s outside basis in the TMF Partnership is $80,000, the partnership distributes to her $30,000 cash, an account receivable (fair market value of $60,000, inside basis to the partnership of $0), and a parcel of land (fair market value of $60,000, inside basis to the partnership of $80,000). Teri remains a partner in the partnership, and the distribution is proportionate to the partners.

a. Use the format of Concept Summary 11.1 to create a spreadsheet to calculate the effects of the distribution. Set up an Input area for the amounts on lines 1, 2, 5, and 8. Code the formulas shown in the Calculations section of the concept summary to calculate the amounts in the remaining lines. You will use “sum,” “min,” and “max” formulas. Enter Teri’s relevant facts in the input section of your spreadsheet.

b. Based on the information in your spreadsheet, how much gain or loss will Teri recognize as a result of the distribution? Explain your answer.

c. How much is Teri’s basis in the land, account receivable, and TMF Partnership after the distribution? What can you conclude regarding Teri’s basis in the assets and the fair market value she received?

d. How would your answer to part (c) change if, instead, the partnership’s basis in the land was $10,000 and its fair market value was $30,000 (and the cash and unrealized receivable distributions do not change)? Adjust the input section of your spreadsheet, and explain your findings.                                          3. Consider each of the following independent situations, and answer the following questions.

a. For each fact pattern, indicate:

• Whether the partner recognizes gain or loss.

• Whether the partnership recognizes gain or loss.

• The partner’s adjusted basis for the property distributed.

• The partner’s outside basis in the partnership after the distribution.

In each case, assume that the partnership owns no hot assets. Show your calculations in Microsoft Excel using a template similar to the format shown in Concept Summary 11.1. You will use “sum,” “min,” and “max” formulas.

(1) Kim receives $20,000 cash in partial liquidation of her interest in the partnership. Kim’s outside basis for her partnership interest immediately before the distribution is $3,000.

(2) Kourtni receives $40,000 cash and land with an inside basis to the partnership of $30,000 (value of $50,000) in partial liquidation of her interest. Kourtni’s outside basis for her partnership interest immediately before the distribution is $80,000.

(3) Assume the same facts as in part (2), except that Kourtni’s outside basis for her partnership interest immediately before the distribution is $60,000.

(4) Klois receives $50,000 cash and inventory with a basis of $30,000 and a fair market value of $50,000 in partial liquidation of her partnership interest. Her basis was $90,000 before the distribution. All partners received proportionate distributions.

b. For fact patterns (1) to (4) in part (a) above, are additional planning opportunities available to the partnership to maximize its inside basis in its assets? If so, by how much can the basis be increased? What is the effect of any basis increase to the distributee partner or the other partners?