Question

Al contributed to the AlphaBeta Partnership, a general partnership, cash of $30,000 in exchange for a 50 percent interest in the Alpha Partnership. At the same time, Bob contributed to the AlphaBeta Partnership a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 that was subject to a mortgage of $120,000 in exchange for a 50 percent interest in the AlphaBeta Partnership. The AlphaBeta Partnership will assume the mortgage on the building. Which of the following Code Sections is or are relevant to the determination of whether or not Al recognizes gain or loss on this transaction?
a. Only Code Section 722.
b. Only Code Section 1001(c).
c. Code Section 723 and Code Section 1001(a).
d. Code Section 1001(c) and Code Section 721(a).
9. Al contributed to the AlphaBeta Partnership, a general partnership, cash of $30,000 in exchange for a 50 percent interest in the AlphaBeta Partnership. At the same time, Bob contributed to the AlphaBeta Partnership a building with an adjusted basis to Bob of $50,000 and a fair market value of $150,000 that was subject to a mortgage of $120,000 in exchange for a 50 percent interest in the AlphaBeta Partnership. The AlphaBeta Partnership will assume the mortgage on the building. Which of the following Code Sections is or are relevant to the determination of Bob’s basis in his partnership interest upon completion of this transaction?  
a. Only Code Section 722.
b. Only Code Section 1012(a).
c. Only Code Sections 1012(a) and 722.
d. Code Sections 1012(a), 722, and 752(a).
10. A taxpayer is considered to be at risk under the at risk rules for which of the following and under what section of the Code?

a. money borrowed by another for which payment is guaranteed by the taxpayer; Code Section 469(a).
b. money borrowed by the taxpayer from another who has an equity interest in the taxpayer’s business; Code Section 61.
c. qualified nonrecourse financing; Code Section 469.
d. qualified nonrecourse financing; Code Section _____(if you conclude none of a, b, or c is correct, write in the citation for the correct section of the Internal Revenue Code, including the subsection and paragraph, if applicable).
11. Taxpayer owns a parcel of undeveloped real estate that has a basis to taxpayer of $200,000. Taxpayer purchased the real estate in 2003 for investment. Taxpayer sold the property to his nephew on January 10, 2017 for $80,000. Is the loss deductible by the taxpayer, and what Code sections are applicable to the transaction? Assume taxpayer has no other capital gains or losses for the year.
a. No amount of the loss is not deductible because the sale is to a related party; Code Section 1001(a) and Code Section 267(a) and (d).
b. The loss is deductible; Code Section 469(c)(7).
c. $3,000 of the loss is deductible in the current year; Code Sections 1001(a) and 1211(b).
d. None of the above answers is correct.  

Answer 1

Answer 1: Code Section 1001(c) and 721(a) are relevant to the determination of whether or not Al recognises gain/ loss in case of contribtuion of property to partnership in exchange of an interest in partnership. Code Section 721(a) states that generally no gain/ loss shall arise to a partnership/ any of the partners in case of conrtibution of property to partnership in exchange of interest in partnership. Code Section 1001(c) provides that except for in certain cases, gain/ loss arising from sale or exchange of property shall be recognized. Thus these two sections would be relevant for determination of gain/ loss.

Answer 2: Only Code Section 722 is relevant in determining Bob’s basis in his partnership interest upon completion of the transaction mentioned above. Code Section 722 stipulates that basis of interest in a partenrship acquired by contribution of property shall be the adjusted basis of such property to the contributing partner at the tome of contribution increased by the amount of gain recognized under Section 721(b)

Answer 3: Option d is the answer. Section 465 of the Internal Revenue Code contains "at risk rules" which states that a taxpayer investor cannot write off losses more than the amount invested by him by way of loss in any tax year and pay lower taxes by way of tax deduction due to loss. Thus, Code Section 465 ensures that losses claimed on investments are valid. So, a taxpayer is considered to be at risk under the at risk rules under Code Section 465.

Answer 4: Option c is the correct option. $3000 of the loss is deductible in current year. The total loss is $200000 - $80000 = $120000 and thus Section 1211(b) comes into picture which stipulates that in the case of taxpayer oter than a corporation loss to the extent of lower of the following amounts shall be allowed:

$3000 or excess of loss over gains.

Thus, in the present case there is no excess of loss over gain and thus, only loss of $3000 shall be allowed.