In X1, Adam and Jason Formed ABC, LLC, a Car

question 54

Multiple Choice

In X1, Adam and Jason formed ABC, LLC, a car dealership in Kansas City. In X2, Adam and Jason realized they needed an advertising expert to assist in their business. Thus, the two members offered Cory, a marketing expert, a one-third capital interest in their partnership for contributing his expert services. Cory agreed to this arrangement and received his capital interest in X2. If the value of the LLC's capital equals $180,000 when Cory receives his one-third capital interest, which of the following tax consequences does not occur in X2?

• A)Cory reports $60,000 of ordinary income in X2.
• B)Adam, Jason, and Cory receive an ordinary deduction of $20,000 in X2.
• C)Adam and Jason receive an ordinary deduction of $30,000 in X2.
• D)Cory reports $60,000 of ordinary income in X2, and Adam and Jason receive an ordinary deduction of $30,000 in X2.

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Definitions:

Unconscionable

A term used to describe actions or conditions that are grossly unfair or ethically wrong, often leading to a contract being declared void.

Sales Contract

A legally binding agreement between a buyer and a seller detailing the terms of a sale of goods or services.

Bargaining Power

The relative capacity of parties in a situation to exert influence over each other, usually in negotiations.

Commercial Contractors

are businesses or individuals that are contracted to perform work or provide services as part of commercial or business activities.