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Partnership Formations Problem

Mary and Todd form the MT Corporation, with a transfer of the following properties:

Mary $500,000 cash Todd $500,000 FMV property $300,000 tax basis

Both Mary and Todd receive a 50% interest in the partnership.

Complete the following in dollars

Mary Todd

Realized gain _______ _______ Recognized gain _______ _______ Basis of Stock _______ _______

MT basis in contributed asset _______ _______

VARIATION 1: In addition to Mary and Todd, Karla joins the corporation at its inception. Karla will provide services to the corporation in exchange for a 25% profits interest in the partnership. That is, she receives 25% of the profits but no share of the capital. What happens to Karla? Does anything change for Mary or Todd? Why or why not? CHECK THE BOOK AS A SOURCE

VARIATION 2: return to original facts (no Karla). Todd's property is valued at $700,000 but is contributed subject to a $200,000 liability. Under partnership debt sharing rules, both Mary and Todd will have a 50% share of the debt.

Complete the following

Mary Todd

Realized gain _______ _______ Recognized gain _______ _______ Basis of Stock _______ _______

MT basis in contributed asset _______ _______

VARIATION 3: return to original facts (no Karla). Todd's property is valued at $1,500,000 but is contributed subject to a $1,000,000 liability. Under partnership debt sharing rules, both Mary and Todd will have a 50% share of the liability.

Complete the following

Mary Todd

Realized gain _______ _______ Recognized gain _______ _______ Basis of Stock _______ _______

MT basis in contributed asset _______ _______

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