In 2016, Phil and Greg formed ABC, LLC, a car dealership in Kansas City. In 2017

Question

In 2016, Phil and Greg formed ABC, LLC, a car dealership in Kansas City. In 2017, Phil and Greg realized they needed an advertising expert to assist in their business. Thus, the two members offered Grant, a marketing expert, a 1/3 capital interest in their partnership for contributing his expert services. Grant agreed to this arrangement and received his capital interest in 2017. If the value of the LLC's capital equals $180,000 when Grant receives his 1/3 capital interest, which of the following tax consequences does not occur in 2017?

Phil, Greg and Grant receive an ordinary deduction of $20,000 in 2017.

Grant reports $60,000 of ordinary income in 2017.

Phil and Greg receive an ordinary deduction of $30,000 in 2017.

Grant reports $60,000 of ordinary income in 2017, and Phil and Greg receive an ordinary deduction of $30,000 in 2017.

Phil, Greg and Grant receive an ordinary deduction of $20,000 in 2017.

Grant reports $60,000 of ordinary income in 2017.

Phil and Greg receive an ordinary deduction of $30,000 in 2017.

Grant reports $60,000 of ordinary income in 2017, and Phil and Greg receive an ordinary deduction of $30,000 in 2017.

Explanation / Answer

Phil, Greg and Grant receive an ordinary deduction of $20,000 in 2017 Tax Consequense does not occure in 2017 Working Where     share of phil & greg in ABC LLC before admissin of market expert is $180000/2 = $90000 each share Working Where     share of phil & greg in ABC LLC after admissin of market expert is $ 180000/3 =   $ 60000 hence phil & greg receive an ordinary deduction $30000( $90000-$60000) Grant received ordinary income $ 60000/-

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