Question

Connie recently provided legal services to the Winterhaven LLC and received a 5 percent interest in the LLC as compensation. Winterhaven currently has $35,000 of accounts payable and no other debt. The current fair market value of Winterhaven’s capital is $300,000. (Leave no answer blank. Enter zero if applicable.)

a. If Connie receives a 5 percent capital interest only, how much income must she report and what is her tax basis in the LLC interest?

Income Tax basis

b. If Connie receives a 5 percent profits interest only, how much income must she report and what is her tax basis in the LLC interest?

c. If Connie receives a 5 percent capital and profits interest, how much income must she report and what is her tax basis in the LLC interest?

Answer 1

Hi

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Answers are highlighted in yellow: Solution: In case 5% capital interest: Income (300000*5%) = $ 15,000 Tax Basis $ 15,000 b) In case 5% profit interest: Income $0 Tax Basis (35000*5%) $ 1,750 c) In case 5% capital and profit interest: Income (300000*5%) $ 15,000 Tax Basis (15000)+(35000*5%) $ 16,750