Question

1. R and J form an LLC, which is treated as a partnership for income tax purposes. R transfers cash of $500 to the LLC in return for a 50% ownership interest in the LLC. J transfers land with an adjusted basis of $380 and a fair market value of $500 in return for a 50% ownership interest in the LLC. a. What is R's amount realized? b. What is J's amount realized? c. What is R's gain/loss realized? d. What is J's gain/loss realized? e. What is R's gain/loss recognized? f. What is J's gain/loss recognized? g. What is the LLC's gain/loss recognized? h. What is R's initial basis (i.e., "outside basis") in his LLC interest? i. What is J's initial outside (i.e., "outside basis") in her LLC interest? j. What is R's holding period in his LLC interest? k. What is J's holding period in her LLC interest? I. What is the LLC's basis (i.e., "inside basis") in the land? m. What is the LLC's holding period in the land? n. Construct the LLC's initial balance sheet for both book and tax purposes.

Answer 1

A.	R's Amount Realised	$                500
	Since R contributed $ 500 in Cash, the shoule be considered.
B.	R's Amount Realised	$                500
	Since J contributed a Land having fair market value of $ 500, the same should be considered.
C.	R's Gain/Loss realised	NIL
	Since R contributed $ 500 in Cash, there is no gain/loss
D.	J's Gain realised	$                120
	J Contributed a land of $380 and the same has fair market value of $ 500
	Hence J's relaised gain will be - (500-380) = 120
E.	R's Gain/Loss recognised	NIL
F.	J's Gain/Loss recognised	$                120
G.	LLC's Gain/Loss recognised	NIL
H.	R's Initial basis in his LLC Interest	50%
I.	J's Initial basis in his LLC Interest	50%
J.	R's Holding period in his LLC Interest
	Holding period will be calculated from the date of contribution to Capital
K.	J's Holding period in his LLC Interest
	Holding period will be calculated from the date of transfer of Land
L.	LLC basis in the Land	$                500
M.	LLC Holding period in the land
	Holding period will be calculated from the date of transfer of Land
N.	Initial Balance of LLC for Tax and Books purpose
	Balance Sheet of the LLC
	Assets	Amount	Liabilities	Amount
	Cash Account	$                500	Capital	$       1,000
	Land	$                500
	Total	$            1,000	Total	$      1,000