Problem 9-61
ACCT 420-D1
TAX REASERCH PROBLEM
9-61
From Prentice Hall federal taxation
Caitlin and Wally formed the C&W Partnership on September 20, 2012. Caitlin contributed cash of $195,000, and Wally contributed office furniture with a FMV of $66,000. He bought the furniture for $60,000 on January 5, 2012, and placed it in service on that date. Wally will not elect Sec. 179 expensing on the furniture and elected out of bonus depreciation. He also contributed and office building and land with a combined FMV of $129,000. The land’s FMV is $9,000. Wally bought the land in 2005 for $8,000 and had the building constructed for $100,000. The building was placed in service in June 2008.
Required: Your tax manager has asked you to prepare a schedule for the file indicating the basis of property at the time of contribution that Wally contributed, the depreciation for each piece of property that the partnership can claim, and the allocation of the depreciation to the two partners. Also indicate the amount and type of any recapture to which the contributed property may be subject at the time of the contribution and at a later time when the partnership sells the property. Your tax manager knows that, under Reg. Sec. 1.704-3, several alternatives exist for allocating depreciation relating to contributed property. He remembers that the Treasury Regulations describe a traditional method and a couple of others, but he’s not sure what methods applies in this situation. He wants you to check the alternatives and indicate which methods should be used. Be certain to clearly label your schedule so that anyone who looks at the file later can determine where your numbers came from and the authority for your calculations. The manager has suggested that, at a minimum, you consult the following authorities:
• IRC Secs. 1(h), 168, 704, 1231, 1245.
• Prop. Reg. Sec. 1.168-5(b)
• Reg. Sec. 1.704-1(b) (2) (iv) (g) (3)
• Reg. Sec. 1.704-3
The
TAX REASERCH PROBLEM
9-61
From Prentice Hall federal taxation
Caitlin and Wally formed the C&W Partnership on September 20, 2012. Caitlin contributed cash of $195,000, and Wally contributed office furniture with a FMV of $66,000. He bought the furniture for $60,000 on January 5, 2012, and placed it in service on that date. Wally will not elect Sec. 179 expensing on the furniture and elected out of bonus depreciation. He also contributed and office building and land with a combined FMV of $129,000. The land’s FMV is $9,000. Wally bought the land in 2005 for $8,000 and had the building constructed for $100,000. The building was placed in service in June 2008.
Required: Your tax manager has asked you to prepare a schedule for the file indicating the basis of property at the time of contribution that Wally contributed, the depreciation for each piece of property that the partnership can claim, and the allocation of the depreciation to the two partners. Also indicate the amount and type of any recapture to which the contributed property may be subject at the time of the contribution and at a later time when the partnership sells the property. Your tax manager knows that, under Reg. Sec. 1.704-3, several alternatives exist for allocating depreciation relating to contributed property. He remembers that the Treasury Regulations describe a traditional method and a couple of others, but he’s not sure what methods applies in this situation. He wants you to check the alternatives and indicate which methods should be used. Be certain to clearly label your schedule so that anyone who looks at the file later can determine where your numbers came from and the authority for your calculations. The manager has suggested that, at a minimum, you consult the following authorities:
• IRC Secs. 1(h), 168, 704, 1231, 1245.
• Prop. Reg. Sec. 1.168-5(b)
• Reg. Sec. 1.704-1(b) (2) (iv) (g) (3)
• Reg. Sec. 1.704-3
The