Discussion:Contributing Assets & Liabilities
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Discussion Forum Index --> Tax Questions --> Contributing Assets & Liabilities
| 19 March 2008 | |
| My brain hurts right now so i want to verfiy my thought process.
single member llc as of 12/31/06 forms a partnership with anouther individual on 1/1/07 and contributes all asset and debt of llc into partnership. 1. For bookkeeping purposes, I am just keeping the llc books as is and reclassing retained earnings as contributed capital from llc member - all assets and liabilities will remain same...is this correct? 2. The retained earnings (cash basis) number is a negative (i.e. liabilities greater that assets), however when outside basis in calcualted with his portion of liabilites as of 1/1/07, he has a positive basis. I assume there is not a capital gain that needs to be reported on his 1040....is this correct? 3. He did contribute A/R and A/P, which has not been taken into consideration with figuring basis because llc was cash basis....is this correct? 4. Am I missing anything? Elections? Attachments to original return? Thanks! | |
| March 21, 2008 | |
| 1. This sounds reasonable if the partnership agreed to assume the liabilities.
2. ?? Are you referring to the transfer? In other words, the liabilities being transferred to the partnership are greater than the assets? Why would someone even agree to do this? 3. Do you mean A/R and A/P are included in the assets to transfer in #1 above? So books are kept on an accrual basis and tax is cash basis? What does the partnership agreement say with respect to what is to be contributed? | |
PostingFromWork (talk|edits) said: | 21 March 2008 |
| Unless you are keeping the books on a income tax basis, I don't think 1 is even close to the correct approach.
Also, LLC's don't have R/E. | |
| March 21, 2008 | |
| Well, PFW, if the partnership agreed to assume the assets and liabilities as they were on the LLC's books, why wouldn't that work? As far as the retained earnings, I assumed he meant the balance in the capital account. It sounds like there are some other issues here, however. | |
PostingFromWork (talk|edits) said: | 21 March 2008 |
| Correct me if I'm wrong; Assuming that they aren't using tax basis for bookkeeping, that assets being contributed to a partnership go on to the partnership's books at FMV, not the partners adj basis. | |
| March 21, 2008 | |
| If we are looking at this from the perspective of what is required for tax purposes, I think you are correct. I think we need more information here instead of assuming one thing or another. | |
PostingFromWork (talk|edits) said: | 21 March 2008 |
| Now I'm really confused, because I'm certain that for tax purposes, the partnership uses the partner's adj basis. ยง723, right? | |
| 21 March 2008 | |
| 1. Books are kept on tax basis
2. Meant to say liabilities exceed the tax basis for fixed assets, but not the FMV, due to accelerated depreciation 3. A/R & A/P are included in transfer....however i don't believe i can include them in the basis calculation since cash basis for tax but accrual basis for books 4. agreement says that once will contribute cash and the other will contribute assets & liabilities of llc. 5. when A/R & A/P is considered, the assets outweigh debt, which is why the parnter # 2 agreed Thanks! | |
| March 21, 2008 | |
| Sorry, PFW, I am confused also. Tsarlone, you say the books are kept on the tax basis. Yet you say that tax basis = cash but the books are on accrual?
Sec. 723 does state that contributed assets to a partnership should be made based on the partner's adjusted basis (plus any gain recognized). What happens to the A/R? Does the partner recognize the income under the LLC when the cash comes in? And then the partnership gets the money? | |
