J&J, LLC, Was in Its Third Year of Operations When $\quad$

question 42

Essay

J&J, LLC, was in its third year of operations when J&J decided to expand the number of members from two, A and B, with equal profits and capital interests, to three members, A, B, and C.The third member, C, will contribute her financial expertise to the LLC in exchange for a one-third capital interest in J&J.Given the balance sheet below reflecting the financial position of J&J on the date member C is admitted, what are the tax consequences to members A, B, and C, and to J&J, when C receives her capital interest? If, instead, member C receives a one-third profits interest, what would be the tax consequences to members A, B, and C, and to J&J?
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ J&J Lumrited Luability Compary
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Balance Sheet
$\begin{array}{lrrlrr} &{\text { Basis }} & \text { FMV } & &\text { Basis } & \text { FMV } \\\text { Cash } & \$ 20,000 & \$ 20,000& \text { Account Payable } & \$ 7,000 & \$ 7,000 \\\text { Inventory } & 5,000 & 5,000 & \text { Mortgage Payable } & 20,000 & 20,000 \\\text { Equipment } & 10,000 & 17,000 & & & \\\text { Building } &\underline{ 30,000 }& \underline{45,000 }& \text { A-Capital } & 22,000 & 30,000 \\& & & \text { B-Capital } & \underline{16,000} & \underline{30,000 }\\\text { Total Assets } & \$ 65,00 0 & \$ 87,000 & \text { Total Liab. and OE } & \$ 65,000 & \$ 87,000\end{array}$

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Definitions:

Potential Problems

Refers to issues or challenges that could occur in the future, impacting the success or efficiency of plans, projects, or operations.

Task Interdependence

The extent to which the work performed by one individual or group affects and is affected by the work of other individuals or groups.

Performance Contributions

The efforts or input by individuals or groups that significantly impact the success or outcomes of a project or organization.

Self-managing Work Team

A group of employees tasked with managing their own workflows, responsibilities, and schedules without direct supervision.