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

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\begin{array} { | l | r | r | r | r | r | } \hline { ext { J\&u Limited Liablity Company } } \\hline & ext { Basis } & ext { FMV } & & ext { Basis } & ext { FMN } \\hline ext { Cash } & 20,000 & 20,000 & \begin{array} { r } ext { Account } \ ext { Payable }\end{array} & 7,000 & 7,000 \\hline ext { Inventory } & 5,000 & 5,000 & \begin{array} { r } ext { Mortgage } \ ext { Payable }\end{array} & 20,000 & 20,000 \\hline ext { Equipment } & 10,000 & 17,000 & & & \\hline ext { Building } & 30,000 & 45,000 & ext { A - Capital } & 22,000 & 30,000 \\hline & & & ext { B - Capital } & 16,000 & 30,000 \\hline ext { Total Assets } & \mathbf { 6 5 , 0 0 0 } & \mathbf { 8 7 , 0 0 0 } & \begin{array} { r } ext { Total Liab. \& } \\mathbf { 0 E }\end{array} & \mathbf { 6 6 , 0 0 0 } & \mathbf { 8 7 , 0 0 0 } \\hline\end{array}

If member C received a 1/3 capital interest for her services, the following tax consequences would result:
• A is allocated a $10,000 expense reducing A's FMV capital account to $20,000 and his tax basis capital account to $12,000. His tax basis would include a 1/3 share of the LLC debt or $9,000.
• B is allocated a $10,000 expense reducing B's FMV capital account to $20,000 and his tax basis capital account to $6,000. His tax basis would include a 1/3 share of the LLC debt or $9,000.
• C reports ordinary income of $20,000 as a guaranteed payment for services provided. C's FMV and tax basis capital account will equal $20,000. Her tax basis would include a 1/3 share of the LLC debt or $9,000.
• J&J, LLC-No gain or loss recognized and no adjustments to assets and liabilities. Member's capital accounts are adjusted as indicated.
If member C received a 1/3 profits interest for her services, the following tax consequences would result:
• A - No deduction would be available to member A because member C would not receive anything if the LLC were to liquidate immediately after the contribution. His tax basis would include a 1/3 share of the LLC debt or $9,000.
• B - No deduction would be available to member B because member C would not receive anything if the LLC were to liquidate immediately after the contribution. His tax basis would include a 1/3 share of the LLC debt or $9,000.
• C - Member C would not recognize any income because the liquidation value of her partnership interest is zero with a profits interest. Additionally, member C would have $0 in both her FMV and tax basis capital accounts. Her tax basis would include a 1/3 share of the LLC debt or $9,000. From this point forward, C's capital accounts will be adjusted to reflect her share of future LLC profits and losses.
• J&J LLC - No gain or loss recognized and no adjustments to assets and liabilities.

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

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

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