PROBLEM 2 What if Sarah and Chanzz Inc. initially each contributed $120,000 and

Question

PROBLEM 2 What if Sarah and Chanzz Inc. initially each contributed $120,000 and CCS borrowed $60,000 from a bank when CCS was formed. The bank required Nicole, Sarah, and Chanzz Inc. to personally guarantee the bank loan. The terms were structured so the members would each be responsible for a portion of the debt equal to the percentage of CCS losses allocated to each member (one-third each) and would have no right of reimbursement from either CCS or the other members of CCS. How much of the $60,000 bank debt was allocated to each member? What if the $60,000 bank loan is CCS’s only debt, what is Sarah’s initial basis in her CCS interest after taking her share of CCS’s bank debt into account?

Explanation / Answer

ANS;

RULES RELATING TO RECOGNITION OF GAIN OR LOSS:

(a)CHANZZ INC. WILL NOT RECOGNISE ANY GAIN OR LOSS ON THE CONTRIBUTION

(b)SARAH'S OUTSIDE BASIS IN PARTNERSHIP INTEREST AFTER CONTRIBUTION=$1,20,000

(c)NICOLE'S INITIAL TAX BASIS IN CCS=$20,000

PART OF $60,000 BANK DEBT ALLOCATED TO EACH MEMBER=$60,000/3=$20,000

SARAH'S INITIAL BASIS IN HER CCS INTEREST AFTER TAKING HER SHARE OF CCS'S BANK DEBT INTO ACCOUNT=$1,20,000-$20,000=$1,00,000

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.