Question

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 piece of land.

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 $75,000; 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. Phoenix holds all land for investment.

Immediately before Reece's property contribution, the balance sheet of Phoenix Investors LLC was as follows:

	Basis			FMV			Basis			FMV
Land	$30,000			$180,000		Phoebe, capital	$15,000			$90,000
						Parker, capital	15,000			90,000
	$30,000			$180,000			$30,000			$180,000

a. At the contribution date, Reece's basis is $_________ in her interest in the LLC.

b. The LLC's holding period for the contributed asset began (Five years ago/ on January 1 of the current year/ based on the election they must take) .

c. On June 30 of the current year, the LLC sold the land contributed by Reece for $90,000.

The recognized gain is $____________, and this gain is allocated (entirely/ partially) to (Parker/ LLC member/ the contributing LLC member (Reece)) .

d. On June 30 of the current year, the LLC sold the land contributed by Reece for $90,000. Complete the balance sheet reflecting the basis and fair market value for the LLC immediately after the land sale. No other transactions occurred during the year.

Assets	Basis			FMV		Partners' Capital	Basis			FMV
Cash	$			$		Interest, Phoebe	$			$
Land	$			$		Interest, Parker	$			$
						Interest, Reece	$			$
Total	$			$			$			$

Answer 1

a)	At the contribution date, Reece's basis is $75,000 in her interest in the LLC.
	As per Section 722, the basic interest of an LLC member is equal to the contributed property at the time of the contribution which was $75,000 five years ago.
b)	The LLC's holding period for the contributed asset began 5 years ago since Reece and contributed it to the Pheonix Investor's LLC, then the holding period would be the time of purchased and contribution land.
c)	The recognized gain is $ 15,000 (75,000-90,000) and this gain is allocated entirely to the contributed LLC member Reece as per Section 704
d)	Balance Sheet
	Particulars	Basis	FMV	Particulars	Basis	FMV
	Cash	90000	90000	Phobe Capital	15000	90000
	Land	30000	180000	Parker Capital	15000	90000
				Reece Capital	90000	90000
		120000	270000		120000	270000