Reference no: EM131335009
Incorporation of Plummet Company
Plummet Company is created with the following asset contributions. John and Jill are equal owners in this new business venture.
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Shareholder
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Assets
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Basis
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Fair Market Value
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John
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Cash
Services
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$100,000
50,000
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$100,000
50,000
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Jill
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Land
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40,000
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200,000*
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*The land is subject to a liability in the amount of $50,000 that the Company assumes.
Plummet Company
Assume that John and Jill choose to operate their business as a partnership for tax purposes. How will the change in entity for tax purposes affect your answers in Module 2?
Address the specific questions below for this module:
• Does the above transaction qualify for a tax-free exchange similar to Sec. 351 for corporations? If so, what code section contains the rule for tax-free exchanges for partnerships?
• Compute the partners' basis in the units received in the exchange.
• Prepare a tax balance sheet for Plummet Company (assuming it is a partnership).
• Comment on the tax issues facing John and Jill in connection with withdrawing money from the partnership? Discuss the same options as in Module and show the associated tax consequences.
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Financial accounting and analysis
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: Compute the partners' basis in the units received in the exchange. Prepare a tax balance sheet for Plummet Company (assuming it is a partnership).
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