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

question 87

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, and C. 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?
$$\begin{array}{l}\text { Presidential Suites Partnership }\\\begin{array} { | l | c | c | c | } \hline & \text { Year-End } & \text { Profits } & \text { Capital } \\\hline \text { Lincoln, Inc. } & 3 / 31 & 35 \% & 30 \% \\\hline \text { Washington, Inc. } & 7 / 31 & 30 \% & 40 \% \\\hline \text { Blaster, Inc } & 11 / 30 & 35 \% & 30 \% \\\hline\end{array}\end{array}$$

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Definitions:

General Adaptation Syndrome

A model outlining how stress impacts the body, initially activating the fight-or-flight response followed by adaptation if exposure is prolonged, and ultimately, potential exhaustion or disease.

Exhaustion Stage

The final stage of the general adaptation syndrome, where the body’s resources are depleted leading to decreased resistance to stress and potential health issues.

General Adaptation Syndrome

A three-stage response (alarm, resistance, exhaustion) that describes the physiological changes the body goes through when under stress.

Selye

Hans Selye, a scientist known for his research on the effects of stress on the human body, defining the General Adaptation Syndrome.