Question

LeBron, Dennis, and Susan formed the Bar T LLC at the beginning of the current year. LeBron and Dennis each contributed $200,000 and Susan transferred several acres of agricultural land she had purchased two years earlier to the LLC. The land had a tax basis of $50,000 and was appraised at $300,000. The land was also encumbered with a $100,000 nonrecourse mortgage (i.e., qualified nonrecourse financing) for which no one was personally liable. The members plan to use the land and cash to begin a cattle-feeding operation. Susan will work full time operating the business, but LeBron and Dennis will devote less than two days per year to the operation. All three members agree to split profits and losses equally. At the end of the first year, Bar Thad accumulated $40,000 of accounts payable jointly guaranteed by LeBron and Dennis and had made a $9,000 principal payment on the mortgage None of the members have passive income from other sources or business income from other sources. LeBron and Dennis are married, while Susan is single. For the first year of operations, the partnership records disclosed the following information: Sales Revenue COGS Operating Expenses Dividends Municipal Bond Int Salary pd as a guarentee to Susan Cash Dist split equally at year-end $620,000 $380,000 $670,000 $1,200 $300 $10,000 not inlcuded in expenses $3,000 1. What are the members' at-risk amounts in their LLC interests at the end of the first year of operations?

Answer 1

What are the members' at-risk amount in their LLC interest at the end of the first year of its operating

Lebrun Dennis Explanation Susan 50,000 200,000 200,000 Description 1 Basis in contributed land 2 cash contributed 3 Debt allocated to Susan only 4 Debt allocated to partners Relief from nonrecourse mortgage 50,000 16,667 16,667 16,667 [100,000-50,000]*1/3 - 100,000 6 Gain recognized o 0 16,667 400 216,667 400 100 1,000 20,000 216,667 400 100 1,000 20,000 5-1+2+3+4. if negative value is $0 (1+2+3+4+5] 1200*1/3 300*1/3 -3000 100 1,000 -9,000 7 Partner initial tax basis 8 Dividend 9 Municipal bond interest 10 Cash distribution 11 cash contribution i Cash distribution to substance for mortgage payment 13 Tax basis before loss 14 Sales revenue 15 Cost of goods sold 16 Operating expense 17 Guaranteed payments 18 Business loss 19 Self employment loss 20 Ending tax 236,567 236,567 na [7-8-9+11+12] Na na Na Na Na -146,667 -146,667 89,500 na na -146,667 -146,667 89,500 7,167 na na na na -146,667 -136,667 0 440,000*1/3