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

question 38

Essay

J&J, LLC was in its third year of operations when J&J decided to expand the number of members from two, A & B, with equal profits and capital interests to three members, A, B, andC. The third member, C, will contribute her financial expertise to the LLC in exchange for a 1/3 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 1/3 profit interest, what would be the tax consequences to members A, B, and C, and to J&J?
$\begin{array}{|c|}\hline\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\text{JEJ Limited Liability Company}\quad\quad\quad\quad\quad\quad\quad\\\hline\text{Balance Sheet}\\\end{array}$
$\begin{array}{|l|r|r|l|r|r|}\hline & {\text { Basis }} & {\text { FMV }} & & {\text { Basis }} & {F M V} \\\hline \text { Cash } & 20,000 & 20,000 & \text { Accounts Payable } & 7,000 & 7,000 \\\hline \text { Inventory } & 5,000 & 5,000 & \text { Mortgage Payable } & 20,000 & 20,000 \\\hline \text { Equipment } & 10,000 & 17,000 & & & \\\hline \text { Building } & 30,000 & 45,000 & \text { A - Capital } & 22,000 & 30,000 \\\hline & & & \text { B - Capital } & 16,000 & 30,000 \\\hline\\\hline \text{Total Assets} & \text{65,000} & \text{87,000} & \text {Total Liab. \& OE} & \text{65,000}& \text{87,000} \\\hline\end{array}$

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