Accounting

Mike and Melissa form the equal MM Partnership. Mike contributes cash of $40,000 and land (fair market value of $100,000, adjusted basis of $120,000), and Melissa contributes the assets of her sole proprietorship (value of $140,000, adjusted basis of $115,000). What are the tax consequences of the partnership formation to Mike,
Melissa, and MM Partnership?

34. LO.3 Assume the same facts as in Problem 33, except that Mike sells his land to a third party for $100,000 and then contributes that cash to the partnership. The partnership locates equivalent land that it purchases for $110,000. How do these changes affect the tax result for Mike and the partnership? How does the economic result differ?

35. LO.3, 9, 17 Sam and Drew are equal partners in SD LLC formed on June 1 of the current year. Sam contributed land that he inherited from his uncle in 2006. Sam’s uncle purchased the land in 1981 for $30,000. The land was worth $100,000 when Sam’s uncle died. The fair market value of the land was $200,000 at the date it was contributed to the
LLC.
Drew has significant experience developing real estate. After the LLC is formed, he will prepare a plan for developing the property and secure zoning approvals for the
LLC. Drew would normally bill a third party $50,000 for these efforts. Drew will also contribute $150,000 of cash in exchange for his 50% interest in the LLC. The value of his

50% interest is $200,000.
a. How much gain or income will Sam recognize on his contribution of the land to the
LLC? What is the character of any gain or income recognized?

b. What basis will Sam take in his LLC interest?
c. How much gain or income will Drew recognize on the formation of the LLC? What is the character of any gain or income recognized?
d. What basis will Drew take in his LLC interest?

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