Reference no: EM132668926

Assume that Clark, Eric and Emily form another entity, DNA Solutions Inc. that will operate as a partnership. Emily contributes $50,000 in cash for her 10% interest in the entity, Eric contributes land with an adjusted basis of $50,000 and a FMV of $200,000 and cash of $25,000 for his 45% interest and Clark contributes equipment with an adjusted basis of $100,000 and a FMV of $200,000 and cash of $25,000 for his 45% interest. DNA Solutions also borrowed a $200,000 of recourse loan from a bank to finance their initial operations.

Problem 1: Assuming that each partner's interest represents the partner's interest in profits and losses, what are Emily, Eric and Clark's basis in DNA Solutions Inc.?

Problem 2: How would your answer change if Clark is entitled to seek reimbursement from Eric to the extent his losses exceed $5,000? How would your answer to the previous question change if Eric holds his interest through his

(a) wholly owned corporation that has only nominal assets; or

(b) through a wholly owned LLC that also has only nominal assets?