1. A, B and C decide to form a partnership for the purpose of developing real pr
ID: 2543335 • Letter: 1
Question
1. A, B and C decide to form a partnership for the purpose of developing real property. A and B are wealthy individuals, with no particular real estate experience. C is an experienced developer. The parties agree that A and B will each contribute $1,000,000 to the venture, and that C will contribute his expertise. What tax consequences will result from formation of the venture under each of the following alternatives?
(a) In exchange for cash contributions of $1,000,000 apiece, A and B each receive a forty percent interest in the profits, losses and capital of the venture. In exchange for his future services C receives the remaining 20% interest in profits, losses and capital.
(b) In exchange for their cash contributions A and B each receive a 50% interest in capital and losses. Profits of the venture are divided 40% to A, 40% to B, and 20% to C.
Explanation / Answer
Interest = $500,000
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