Question

Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets:

	Basis			Fair Market
				Value
Kevan:
Cash	$	15,000		$	15,000
Land*		120,000			440,000
Totals	$	135,000		$	455,000

*Nonrecourse debt secured by the land equals $210,000

Each member received a 33.33 percent capital and profits interest in the LLC. (Leave no answer blank. Enter zero if applicable. Do not round intermediate calculations.)

g. If the lender holding the nonrecourse debt secured by Kevan’s land required Kevan to guarantee 33.33 percent of the debt and Jerry to guarantee the remaining 66.67 percent of the debt when Albee LLC was formed, what are the members’ tax bases in their LLC interests?

Answer 1

f.   

scription	Kevan	Jerry	Dave	Explanation
(1) Basis in contributed Land	$120,000
(2) Cash contributed	$15,000	$245,000	$245,000
(3) Mortgage Guarantee	$70,000	$140,000	$0	33.33% x $210,000 for Kevan and 66.67% x $210,000 for Jerry
(4) Basis immediately prior to debt relief	$205,000	$385,000	$245,000	1+2+3
(5) Relief from mortgage debt	($210,000)	$0	$0
(6) Gain Recognized	$5,000 (4)-(5)	$0	$0	(4)+(5)
Each member’s initial tax basis in the LLC	$0	$385,000	$245,000	( (4) + (5) + (6)

g.         Kevan’s basis is $0, Jerry’s basis is $385,000, and Dave’s basis is $245,000. See the table in part f. above.