User Account

All Pages

Difficult problem, Taxation

Assignment Help:
Ben Grimm is a 40% partner in We Four, LLC a super-heroing organization. (He
does most of the heavy lifting. Reed has 40%, he is the brains. Sue has
10%--they never see her doing anything. Her brother Johnny has the other 10%--he
gets too hot under the collar to deal with the customers.)

On 1January 2013, his outside basis in his LLC interest was $125,000. This
included his share of liabilities--$75,000. (Reed is always repairing and
inventing gadgets?saving the world is expensive.)

In addition to the operating costs, the insurance premiums alone were six
figures---you try paying for the cost of cleaning up after a visit from Dr.
Doom?they still made a profit. The Company?s a net profit of $300,000 before any
payments to partners.

Reed gets a guaranteed payment of $75,000 (a bit of a stretch, but he does
invent the impossible) and Ben gets a guaranteed payment of $20,000 as a return
on his investment (he used an inheritance form his Aunt Petunia to buy their
headquarters). He gets another $30,000 for his services hitting things?this is a
labor intensive business. Johnny and Sue each get $10,000.

The partnership made distributions during the year to all of the partners. Ben
received:
a. cash of $65,000;
b. inventory with a FMV of $55,000 and a basis of $35,000; and
c. Unrealized receivables with a face value of $25,000 and a basis of $0. These
were all of the outstanding receivables as of year-end.
d. An old Fantasti-car worth $45,000 with an inside basis of $25,000.

The distribution of cash and inventory was pro rata amongst all partners.
However, only Ben received any receivables, the others received additional cash.

Cash flow was good so the company paid off all of its debt at year end.

Ben has come to you to explain what happened?tax wise. Specifically, he asks:

1. What is he supposed to report on his 2013 return? Income, loss, gain???
(Remember, Ben is strong but doesn?t understand a Thing about taxes).
2. What does he do about the inventory? Reed supplemented their income by
selling gadgets to other superheroes (Tony Stark?s equipment is way overpriced).
Ben is thinking about using the equipment in a new side business on Yancey
Street to be called ?Clobber This? where it would be used to help heroes
de-stress. (Already he has had inquiries from Frank Castle, Wolverine and Bruce
Banner). If the business proves less than fantastic, he plans to sell the
equipment.
3. What does he do about the receivables? How will he be taxed and when? How
much? He was told he has no tax until he collects.
4. What is his basis in the car? He plans to use it in his business and wants to
depreciate it. The company had been depreciating it over 5 years using MACRS.
Ben thinks straight line is better; he remembers that from an old accounting
course. What can he do?
5. What is his 31 December 2013 basis in the LLC?
6. Ben would like to transfer a 5% interest to his girlfriend, Alicia as a
gift?although she can?t see why. However, his last accountant, Debbie T. Credit,
said he?ll still get clobbered with the income?what does she mean? Only consider
the income tax consequences, not gift tax.

Related Discussions:- Difficult problem

Explain the effects of taxation on the equilibrium of a firm, Q. Explain th...

Q. Explain the effects of taxation on the equilibrium of a firm? Suppose a tax is imposed on the producers of a commodity, the tax is on each unit for they produce. Naturally,

Flow throw entity, For purposes of this problem, ignore the possibility tha...

For purposes of this problem, ignore the possibility that there might be a disguised sale, assume that DEF uses the traditional method for making § 704(c) allocations, and finally

Accoutant, what is taxation

what is taxation

Evaluate total income effect for equity-method investment, Given the below ...

Given the below facts, what is the total income effect for the year for an investor for its equity-method investment? T y pe of Investment: Equity Method

Cumulative catch-up method, Mann Limited purchased machinery  on 1 January ...

Mann Limited purchased machinery  on 1 January 20.9, on which date it was estimated to have a useful life of 5 years and a nil residual value. The carrying amount on 31 December 20

Deadweight loss, Suppose there is a negative externality associated with th...

Suppose there is a negative externality associated with the production of aluminum due to the pollution it creates. Is the market quantity of aluminum efficient? Is there a deadwe

.calculate the semi annual interest payments, 1. a company issues $10,000, ...

1. a company issues $10,000, 10%, 5 year bonds with semi annual payments principal amount, face value matuity value or par value: $10,000 stated or contract interest rate: 10% (per

Tax, Home Cable TV Company, an accrual basis taxpayer, allows its customers...

Home Cable TV Company, an accrual basis taxpayer, allows its customers to pay by the month ($25 each month), by the year ($280 per year), or two years in advance ($540). In Decemb

Capital gains tax, Critically evaluate overseas experiences with this form....

Critically evaluate overseas experiences with this form.

Authority and reasoning responses, Please explain all of your responses; in...

Please explain all of your responses; include authority and reasoning.  Do not just answer a question "yes" or "no."  Do not just provide a numerical answer without explaining how

Write Your Message!

Captcha
Order Assignment

Featured Services

Order Now

Popular Subjects

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +91-977-207-8620

Phone: +91-977-207-8620

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd