Last Year, Darby Contributed Land (Basis of $60,000, Fair Market

question 52

Multiple Choice

Last year, Darby contributed land (basis of $60,000, fair market value of $80,000) to the Seagull LLC in exchange for a 25% interest in the LLC. In the current year, the LLC distributes the land (now worth $82,000) to Shelby, who is also a 25% owner. Immediately prior to the distribution, Darby's basis in the LLC was $70,000, while Shelby's basis in the LLC was $110,000. How much gain or loss must be recognized and by whom? What is Shelby's basis in the property she receives and Darby's basis in her partnership interest following the distribution?

• A)No gain or loss; Shelby's basis in the property is $80,000; Darby's basis in interest is $70,000.
• B)$20,000 gain recognized by Darby; Shelby's basis in the property is $80,000; Darby's basis in interest is $90,000.
• C)$22,000 gain recognized by Darby; Shelby's basis in the property is $82,000; Darby's basis in interest is $92,000.
• D)$20,000 gain recognized by Shelby; Shelby's basis in the property is $80,000; Darby's basis in interest is $90,000.
• E)$22,000 gain recognized by Shelby; Shelby's basis in the property is $82,000; Darby's basis in interest is $92,000.

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Definitions:

Promise

A declaration or assurance that one will do something or that a particular thing will happen, often forming the basis of a contract.

Requirements Contract

A contract in which one party agrees to supply as much of a product or service as the other party needs.

Composition Agreement

An arrangement where creditors agree to accept less than the full amount owed to them as full satisfaction of their claims.

Debtor

A person or entity that owes money to another party, usually as a result of borrowing.