Question

When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC:

		Basis		Fair Market Value
Maude:
Cash	$	25,000		$	25,000
Land*		115,000			385,750
Totals	$	140,000		$	410,750

*Nonrecourse debt secured by the land equals $162,000

James, Harold, and Jenny each contributed $248,750 in cash for a 25 percent profits and capital interest.

b. What is Maude’s tax basis in her LLC interest?

c. What tax basis do James, Harold, and Jenny have in their LLC interests?

d. What is High Horizon’s tax basis in its assets?

e. Prepare a tax basis balance sheet for the High Horizon LLC showing the tax capital accounts for the members.

Answer 1

Part b)

Particular	maude	other
Basis in land	$115000
Cash	$25000	$248750
Nonrecourse debt secured by the land excess of basis ($162000-$115000)	$47000
Balance recourse debt ($162000-$47000)×25%	$28750	$28750
Relief	-$162000
Initial tax basis in the LLC	$53750	$277500

Maude's tax basis in her LLC = $53750

Part c)

tax basis do James, Harold, and Jenny have = $277500

Part d)

= $140000 + ($248750) × 3 = $886250

Part e)

Balance sheet

ASSETS
Cash ($25000 + ($248750×3))	$771250
Land	$115000
Total assets	$886250
LIABILITIES AND STOCKHOLDERS EQUITY
Debt	$162000
Maude - capital ($140000-$162000)	-$22000
James - capital	$248750
Harold - capital	$248750
Jenny - capital	$248750
total liability and stockholders equity	$886250

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