Problem 21-39 (LO. 5)
Browne and Red, both C corporations, formed the BR Partnership on January 1, 2018. Neither Browne nor Red is a personal service corporation, and BR is not a tax shelter. BR's gross receipts were $22 million, $25 million, $31 million, and $32 million, respectively, for the four tax years ending in 2018, 2019, 2020, and 2021.
Indicate the methods of accounting available to BR in each tax year.
Problem 21-43 (LO. 7, 8, 11)
Phoebe and Parker are equal members in Phoenix Investors, LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions. Phoenix then purchased a parcel of land. Phoenix holds all land for investment.
On January 1 of the current year, to acquire a one-third interest in the entity, Reece contributed to the LLC some land she had held for investment. Reece purchased the land five years ago for $120,000; its fair market value at the contribution date was $90,000. No special allocation agreements were in effect before or after Reece was admitted to the LLC. A few years later, Phoenix sold the land contributed by Reece for $84,000.
Immediately before Reece's property contribution, the balance sheet of Phoenix Investors, LLC, was as follows:
a. Regarding the land sale, how much is recognized and how is it allocated?
On the land sale, under § 704(c), $ of unrealized gain or loss at the contribution date on property contributed for an LLC interest is allocated to .
b. Complete the balance sheet reflecting basis and fair market value for the LLC immediately after the land sale.
c. Prepare schedules that roll the partners' capital accounts forward from before to immediately after the sale. Prepare two schedules: tax basis and fair market value.
If an amount is none, enter “0”.
Prepare the schedule that shows the computation of the fair market value of each LLC member's capital account.