Solution-Compute the realized gain and the recognized gain

Compute the realized gain and the recognized gain

Assignment Help Taxation

Reference no: EM13698351

Question 1: A law firm has recently been hired to form VENTURE 3 LLC for three individuals and two LLP members. The LLC will elect Tax Corp. and then elect S status.

The LLC uses Section 351 to transfer the individuals' contributions to the newly formed company. Below, the outside accountancy firm has
collected the following information. The tax parter at the accountancy firm has asked you to complete the information below.

Individuals	Contribution Type	FMV	Debt	Net FMV	Tax Basis
		Contribution	Contributed	Contributed	Assets
Mary S	Cash	$5,000,000		$5,000,000	$5,000,000
Tom M	Building	$6,000,000	$2,500,000	$3,500,000	$2,000,000
Ted D	Intangible Patents	$25,000,000		$25,000,000	$500,000
Accountancy LLP	Services	$25,000		$25,000	$0
Law LLP	Services	$25,000		$25,000	$0
Total		$36,050,000		$33,550,000

				Total Shares Issued

Individual Computations				LLC Computation
Shares	Gain	Gain Recognized	Tax Basis	LLC Tax Basis
Received	Realized	(IF ANY)	in Shares	in Assets
14,903	$0	$0	$5,000,000	$5,000,000
10,432	$1,500,000	$500,000	$1,500,000	$3,500,000
74,516	$24,500,000	$0	$500,000	$25,000,000
75	$0	$0	$25,000	$25,000
75	$0	$0	$25,000	$25,000
100,000	$26,000,000	$500,000	$7,050,000	$33,550,000

100,000

Question 2: Tim Matthew's attorney set up a new LLC for him called 360 LLC. Tim plans on transferring $2 Million Land ($1.4 Million Basis) and $8 Million FMV Intangible Asset ($50,000 Tax Basis).

The attorney has issued full membership ownership to Tim in the form of shares of the LLC.

Tim will also receive a $500,000 Note that the LLC is to pay off in one year. The tax accountancy partner has given this information to you and has asked you to compute the realized gain and the recognized gain for this transaction (you can use the C:2-25 Example in the text for the allocation). The LLC will elect Tax Corporate and use Section 351.

You been asked to compute as follows:

	Land	Intangibles	Total
Assets FMV	$2,000,000	$8,000,000	$10,000,000
Percent of Total FMV	20%	80%	100%
Consideration Received in exchange for Asset	$2,000,000	$8,000,000	$10,000,000
LLC Ownership	20%	80%	100%
Note	($100,000)	($400,000)	($500,000)
Total Proceeds	$1,900,000	$7,600,000	$9,500,000
Less: Adjust Basis	($1,400,000)	($50,000)	($1,450,000)
Realized Gain	$500,000	$7,550,000	$8,050,000
Boot Received	$100,000	$400,000	$500,000
Recognized Gain	$100,000	$400,000	$500,000

Reference no: EM13698351

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Compute the realized gain and the recognized gain

Reference no: EM13698351

Reference no: EM13698351

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