Question: Western Extraction LLC, headquartered in Teton County but with operations in Campbell and Carbon counties in Wyoming, made the following purchases in 2023:1. A $1,200,000 integrated digital system purchased on March 15, 2023, that includes:   - Geological modeling software (25%)   - Equipment control software (45%)   - Data analytics (30%)2. Cloud-based monitoring services ($350,000) purchased on July 1, 2023, accessed by employees in:   - Teton County, WY (30%)   - Campbell County, WY (20%)   - Carbon County, WY (10%)   - Montana (25%)   - South Dakota (15%)3. Digital training materials ($150,000) purchased on December 15, 2023The company operates in the mining industry and the software was delivered to the company's Teton County headquarters, but the equipment it controls is located in Campbell County.Calculate the total Wyoming state and local sales tax due. Explain all applicable exemptions, sourcing rules, and special provisions with reference to relevant Wyoming statutes and Department of Revenue guidance.

[+0.15] For correctly identifying that the equipment control software ($540,000) may qualify for the manufacturing exemption under § 39-15-105(a)(viii)(D) if it is considered tangible personal property used directly in manufacturing[+0.10] For correctly identifying that geological modeling ($300,000) and data analytics ($360,000) portions do not qualify for the manufacturing exemption[+0.10] For correctly applying the sourcing rules from § 39-15-104(f) to determine the appropriate sourcing for the digital products[+0.10] For correctly calculating that only 60% of cloud services ($210,000) are subject to Wyoming tax and properly allocating to counties (Teton: $105,000, Campbell: $70,000, Carbon: $35,000)[+0.15] For correctly applying any applicable exemptions to the digital training materials under Wyoming Department of Revenue Rules, Chapter 2[+0.15] For correctly applying any industry-specific exemptions available under Wyoming law to the appropriate items[+0.10] For correctly calculating the state tax amount (4% of total taxable amount)[+0.10] For correctly calculating Teton County local tax (2% rate applied to appropriate items)[+0.05] For correctly calculating Campbell County local tax (1% rate applied to appropriate items)[+0.05] For correctly calculating Carbon County local tax (1.5% rate applied to appropriate items)[+0.00] For correctly totaling all tax amounts


Question: In 2023, Professor Jones (62, single) has the following financial information:Income:- University salary: $195,000- Consulting income (Schedule C): $85,000- Passive rental income from domestic property: $30,000- Foreign dividend income from UK investments: $45,000 (£36,000)- Foreign tax paid to UK: $9,000 (£7,200)- Net capital gain from sale of investment property: $120,000- Cryptocurrency gains: $18,000 (from tokens held 14 months)Expenses and Deductions:- Mortgage interest (primary residence): $24,000- Home equity loan interest (used for home improvements): $5,500- State income taxes: $22,000- Property taxes: $14,000- Charitable contributions: $30,000- Rental property expenses: $35,000- Business expenses: $25,000- Unreimbursed employee business expenses: $8,000- Student loan interest: $1,500- Foreign housing expenses: $20,000Additional Information:- Professor Jones spent 45 days in the UK for research and consulting- The rental property was used personally for 10 days and rented for 355 days- Professor Jones has a suspended passive loss from prior years of $15,000- The investment property sold was held for 8 years with an adjusted basis of $280,000- Professor Jones made a $6,000 traditional IRA contributionRequired:1. Calculate Professor Jones's AGI, showing all adjustments to income2. Determine allowable itemized deductions with appropriate limitations3. Calculate taxable income4. Compute regular tax liability5. Determine foreign tax credit allowed6. Calculate net investment income tax (if applicable)7. Determine final tax liability8. Explain any special elections Professor Jones should considerCite all relevant IRC sections, regulations, and rulings.

Part 1: Adjusted Gross Income (0.25 points)[+0.05] For correctly identifying gross income components totaling $493,000[+0.05] For correctly applying the IRA contribution adjustment of $6,000 under IRC §219(b)(5)(A)[+0.05] For correctly determining that student loan interest deduction is fully phased out under IRC §221(b)[+0.05] For correctly calculating net business income of $60,000 ($85,000 - $25,000)[+0.05] For correctly applying passive activity loss limitations under IRC §469, resulting in no current deduction for the $5,000 rental lossPart 2: Itemized Deductions (0.15 points)[+0.05] For correctly applying the $10,000 SALT limitation under IRC §164(b)(6)[+0.05] For correctly calculating mortgage interest deduction of $29,500 under IRC §163(h)(3)[+0.05] For correctly determining that the $8,000 unreimbursed employee business expenses are not deductible under IRC §67(g)Part 3: Taxable Income (0.05 points)[+0.05] For correctly calculating taxable income of $417,500 ($487,000 - $69,500)Part 4: Regular Tax Liability (0.20 points)[+0.05] For correctly identifying long-term capital gains of $138,000[+0.05] For correctly calculating tax on ordinary income of $69,720 using 2023 tax brackets[+0.05] For correctly applying the 15% capital gains rate, resulting in $20,700[+0.05] For correctly calculating regular tax liability of $90,420Part 5: Foreign Tax Credit (0.10 points)[+0.05] For correctly calculating the foreign tax credit limitation of $10,494 under IRC §904[+0.05] For correctly determining the allowable foreign tax credit of $9,000Part 6: Net Investment Income Tax (0.10 points)[+0.05] For correctly identifying net investment income of $213,000 under IRC §1411[+0.05] For correctly calculating NIIT of $8,094 (3.8% of $213,000)Part 7: Final Tax Liability (0.05 points)[+0.05] For correctly calculating final tax liability of $89,514 ($90,420 - $9,000 + $8,094)Part 8: Special Elections (0.10 points)[+0.025] For correctly analyzing the inapplicability of Foreign Earned Income Exclusion under IRC §911[+0.025] For correctly identifying passive activity grouping possibilities under Reg. §1.469-4[+0.025] For correctly addressing cryptocurrency reporting requirements per IRS Notice 2014-21[+0.025] For correctly identifying potential QBI deduction considerations under IRC §199ATotal: 1.0 point


Question: The Wilson family has the following transaction sequence:1) In 2020, Father Wilson transfers appreciated stock (basis $100,000, FMV $500,000) to his son Junior, paying $150,000 in gift tax attributable to the net appreciation.2) In 2021, Junior contributes this stock to a family limited partnership (FLP) in which he receives a 40% interest. His sister (Sister) contributes cash of $300,000 for a 30% interest, and his mother (Mother) contributes property with a basis of $150,000 and FMV of $400,000 for a 30% interest.3) Within 60 days of formation, the FLP distributes $200,000 to Junior for "estate planning purposes."4) In 2022, the FLP sells Mother's contributed property for $450,000.5) In 2023, the FLP distributes the stock (now worth $600,000) to Sister.6) In 2024, Sister sells the stock for $650,000.Analyze the tax consequences of each step, including:a) Junior's basis in the stock received from Fatherb) Potential disguised sale treatment of Junior's contribution and distributionc) Tax implications of the sale of Mother's propertyd) Application of Section 704(c)(1)(B) to the distribution of stock to Sistere) Sister's basis in the distributed stock and her gain upon salef) Any Section 267 implications throughout these transactionsCite relevant code sections, regulations, and case law in your analysis.

[+0.10] For correctly calculating Junior's basis in the stock under IRC Section 1015(a) and (d) as $250,000 ($100,000 carryover basis + $150,000 gift tax paid on net appreciation of $400,000)[+0.15] For correctly identifying and analyzing the disguised sale under IRC Section 707(a)(2)(B) and Reg. §1.707-3, including:- [+0.05] Calculating the disguised sale portion as 40% ($200,000/$500,000)- [+0.05] Determining Junior's recognized gain as $100,000 (40% × ($500,000 - $250,000))- [+0.05] Calculating the partnership's basis in the stock as $350,000 ($200,000 for purchased portion + $150,000 for contributed portion)[+0.15] For correctly analyzing the sale of Mother's property, including:- [+0.05] Identifying the total gain as $300,000 ($450,000 - $150,000)- [+0.05] Applying Section 704(c) to allocate $250,000 of built-in gain to Mother- [+0.05] Correctly allocating the remaining $50,000 gain according to partnership interests (Mother: $15,000, Junior: $20,000, Sister: $15,000)[+0.20] For correctly analyzing the Section 704(c)(1)(B) implications when the stock is distributed to Sister:- [+0.05] Identifying that the distribution occurs within the 7-year period- [+0.05] Calculating the remaining built-in gain as $150,000 (60% × ($500,000 - $250,000))- [+0.05] Determining that Junior must recognize $150,000 of gain- [+0.05] Explaining that this increases the partnership's basis in the stock to $500,000[+0.15] For correctly determining Sister's tax consequences:- [+0.05] Calculating Sister's basis in the distributed stock as $500,000 under Section 732(a)- [+0.05] Calculating Sister's recognized gain on sale as $150,000 ($650,000 - $500,000)- [+0.05] Correctly characterizing the gain as capital gain[+0.15] For correctly analyzing Section 267 implications:- [+0.05] Identifying the related party relationships under Section 267(b)(1)- [+0.05] Explaining the potential application to disallow losses between related parties- [+0.05] Noting the relevance of Section 267(c) constructive ownership rules for partnership transactions[+0.10] For citing relevant authorities, including:- [+0.03] Citing Rev. Rul. 79-384 regarding gift tax basis adjustments- [+0.03] Citing Treas. Reg. §1.704-3 and §1.704-4 for Section 704(c) allocations- [+0.04] Citing relevant case law such as Vecchio v. Commissioner and Estate of Strangi v. Commissioner on partnership issues


Question: In 2022, Patricia transfers a commercial building to her son Michael under the following circumstances:- Fair market value of the building: $3,500,000- Patricia's adjusted basis: $1,200,000- Outstanding mortgage assumed by Michael: $1,800,000- Patricia paid $320,000 in gift tax on the transfer- The building had been depreciated by Patricia using straight-line depreciation over 39 years, with $300,000 in total depreciation taken- Six months after the transfer, Michael sells the building to his sister Jennifer for $2,900,000- Two months later, Jennifer sells the building to an unrelated third party for $3,600,000Required:a) Determine if this is a part-gift, part-sale transaction and explain why.b) Calculate Patricia's recognized gain or loss on the transfer and identify the character of the gain.c) Calculate Michael's basis in the property.d) Analyze the tax consequences of Michael's sale to Jennifer, including any limitations under Section 267.e) Calculate Jennifer's basis in the property and her gain or loss on the subsequent sale.

[+0.1] For correctly identifying this as a part-gift, part-sale transaction because the mortgage assumption of $1,800,000 constitutes consideration (amount realized) while the remaining value ($1,700,000) represents a gift, citing Regulation 1.1001-2 and/or Revenue Ruling 75-194.[+0.15] For correctly calculating Patricia's recognized gain:- [+0.05] For identifying amount realized as $1,800,000 (mortgage assumed)- [+0.05] For using the correct adjusted basis of $1,200,000- [+0.05] For calculating the recognized gain as $600,000[+0.15] For correctly characterizing Patricia's gain:- [+0.075] For identifying $300,000 as unrecaptured Section 1250 gain from depreciation- [+0.075] For identifying the remaining $300,000 as long-term capital gain[+0.2] For correctly calculating Michael's basis:- [+0.05] For identifying the basis for the purchased portion as $1,800,000- [+0.05] For correctly determining that the carryover basis portion is $0 (since the entire basis was absorbed by the sale portion)- [+0.05] For calculating the gift tax attributable to appreciation as $320,000- [+0.05] For calculating the total basis as $2,120,000 ($1,800,000 + $320,000)[+0.2] For correctly analyzing Michael's sale to Jennifer:- [+0.05] For identifying amount realized as $2,900,000- [+0.05] For using the correct adjusted basis of $2,120,000- [+0.05] For calculating the gain as $780,000- [+0.05] For correctly determining that Section 267 doesn't disallow the gain (only losses between related parties are disallowed)[+0.2] For correctly analyzing Jennifer's subsequent sale:- [+0.1] For correctly identifying Jennifer's basis as $2,900,000 (her purchase price)- [+0.05] For calculating her gain as $700,000 ($3,600,000 - $2,900,000)- [+0.05] For correctly characterizing the gain as capital gain


Question: Parent P owns a commercial building with the following attributes:- Purchased in 2000 for $400,000 (80% allocated to building, 20% to land)- Current fair market value: $1,200,000 (75% building, 25% land)- Adjusted basis: $250,000 ($100,000 for land, $150,000 for building after $170,000 accumulated depreciation)- The building is subject to a mortgage of $180,000In 2023, Parent P transfers the property to Child C under the following arrangement:- Child C assumes the $180,000 mortgage- Child C will pay Parent P $420,000 in 10 annual installments of $42,000 (ignore interest for simplicity)- Parent P intends the remaining value ($600,000) to be a gift- Parent P pays gift tax of $90,000 on the transfer- Two years later, Child C sells the property to an unrelated third party for $1,300,000Required:1. Determine whether this transaction qualifies for installment sale treatment under Section 4532. Calculate Parent P's recognized gain in the year of transfer and its character3. Determine Child C's basis in the property4. Calculate Child C's gain on the subsequent sale and any potential issues under Section 453(e)5. Discuss any potential issues under Section 267 regarding related party transactionsProvide detailed calculations and cite relevant Code sections, regulations, and authorities.

Part 1: Installment Sale Treatment [0.15 points][+0.05] For correctly identifying the transaction as part-gift, part-sale[+0.05] For correctly determining that the sale portion ($600,000) qualifies for installment sale treatment under Section 453[+0.05] For identifying that Section 453(i) requires immediate recognition of depreciation recapture regardless of installment methodPart 2: Parent P's Recognized Gain [0.30 points][+0.05] For correctly allocating the basis between gift and sale portions (50% each, $125,000 to sale portion)[+0.05] For calculating the total realized gain as $475,000 ($600,000 - $125,000)[+0.05] For correctly identifying $85,000 as potential Section 1250 recapture (50% of $170,000 accumulated depreciation)[+0.05] For recognizing that Section 453(i) requires immediate recognition of the $85,000 recapture in 2023[+0.05] For calculating the gross profit percentage as 92.86% ($390,000 ÷ $420,000)[+0.05] For determining that each $42,000 payment will result in $39,000 of recognized gain ($42,000 × 92.86%)Part 3: Child C's Basis [0.20 points][+0.05] For correctly applying Reg. §1.1015-4 to determine the initial basis as $600,000 (the greater of amount paid or Parent P's adjusted basis)[+0.05] For calculating the net appreciation in the gift portion as $475,000 ($600,000 - $125,000)[+0.05] For calculating the gift tax adjustment ratio as 79.17% ($475,000 ÷ $600,000)[+0.05] For determining Child C's final basis as $671,250 ($600,000 + $71,250 gift tax adjustment)Part 4: Child C's Subsequent Sale [0.20 points][+0.05] For calculating Child C's gain on sale as $628,750 ($1,300,000 - $671,250)[+0.05] For identifying that Section 453(e) applies to the second disposition within 2 years[+0.05] For calculating that 8 payments totaling $336,000 remain outstanding at the time of second disposition[+0.05] For determining that $312,000 of gain ($336,000 × 92.86%) would be accelerated for Parent P in the year of Child C's salePart 5: Section 267 Issues [0.15 points][+0.05] For correctly noting that Section 267(a)(1) loss disallowance doesn't apply since there's a gain[+0.05] For identifying potential Section 267(a)(2) implications regarding timing of interest deductions if Parent P is a cash-basis taxpayer[+0.05] For correctly determining that Section 267(d) isn't applicable in this scenarioTotal: 1.0 point


Question: Dr. Smith, a 68-year-old blind neurosurgeon, is a widow with one dependent child. For 2023, she has the following financial information:- Income from her medical practice (Schedule C): $420,000- W-2 wages paid to employees: $150,000- Unadjusted basis of qualified property: $200,000- Rental income from a commercial property (not considered SSTB): $60,000- Passive partnership income from a restaurant business: $40,000- Taxable interest and dividends: $25,000- Capital gains from stock sales: $30,000- Unreimbursed medical expenses: $45,000- State and local taxes paid: $35,000- Mortgage interest on primary residence: $18,000- Charitable contributions: $22,000- Student loan interest: $1,500- Contributed $30,000 to a defined benefit planCalculate Dr. Smith's:1. Total taxable income after all applicable deductions2. §199A qualified business income deduction3. Net investment income tax under §14114. Self-employment tax5. Total tax liability for 2023Cite relevant code sections and explain any limitations or phase-outs that apply.

[+0.05] For correctly identifying Dr. Smith's filing status as qualifying widow(er) with dependent child[+0.05] For correctly calculating the standard deduction of $30,700 ($27,700 base + $1,500 for age + $1,500 for blindness) per IRC §63(c) and §63(f)[+0.10] For correctly calculating itemized deductions:- Medical expenses: $5,719 ($45,000 - 7.5% of AGI) per §213(a)- SALT: $10,000 (limited) per §164(b)(6)- Mortgage interest: $18,000 per §163(h)- Charitable contributions: $22,000 per §170- Total: $55,719[+0.05] For correctly determining that itemizing is more beneficial than the standard deduction[+0.10] For correctly calculating self-employment tax:- $24,511 on first $160,200 (15.3%)- $7,533 on remainder at 2.9%- $1,980 Additional Medicare Tax (0.9% on amount over $200,000)- Total: $34,024 per §1401-1403[+0.05] For correctly calculating the self-employment tax deduction of $17,012 (50% of SE tax) per §164(f)[+0.10] For correctly calculating AGI of approximately $528,000 by:- Including Schedule C income, rental income, partnership income, interest, dividends, and capital gains- Deducting SE tax deduction and qualified plan contribution[+0.15] For correctly analyzing the §199A QBI deduction:- Identifying medical practice as SSTB with complete phase-out- Calculating 20% of non-SSTB income ($60,000 + $40,000) = $20,000- Applying W-2 wage limitation correctly- Determining final QBI deduction of $10,000[+0.10] For correctly calculating taxable income of approximately $458,000 (AGI minus itemized deductions minus QBI deduction)[+0.10] For correctly calculating Net Investment Income Tax:- Identifying NII components (rental, passive partnership, interest, dividends, capital gains)- Applying 3.8% tax to $155,000 of NII- Calculating NIIT of $5,890 per §1411[+0.15] For correctly calculating regular income tax using 2023 tax brackets for qualifying widow(er):- Applying progressive tax rates correctly- Calculating approximately $121,600 in regular income tax[+0.10] For correctly calculating total tax liability of approximately $161,500 (regular income tax + self-employment tax + NIIT)


Question: Thomas purchased a commercial building for $1,200,000 (80% allocated to building, 20% to land) on January 1, 2010. He took $350,000 in depreciation deductions before gifting the property to his nephew Michael on June 1, 2020, when the property's fair market value was $1,500,000. Thomas paid $180,000 in gift tax, with $120,000 attributable to the net appreciation. Michael converted 30% of the building to personal use as his residence and continued to rent out the remaining 70%. He took allowable depreciation of $70,000 on the business portion before selling the entire property on July 15, 2022, for $1,800,000. Calculate Michael's recognized gain on the sale, identifying the character of each component. Show all calculations and cite relevant code sections where appropriate.

[+0.1] For correctly identifying Thomas's adjusted basis at time of gift as $850,000 ($1,200,000 - $350,000)[+0.1] For correctly applying IRC Section 1015(a) for carryover basis and Section 1015(d)(6) for the gift tax adjustment, resulting in Michael's initial basis of $970,000 ($850,000 + $120,000)[+0.1] For properly allocating the basis between land ($194,000 = $970,000 × 20%) and building ($776,000 = $970,000 × 80%)[+0.1] For correctly subdividing the building basis between personal use portion ($232,800 = $776,000 × 30%) and business portion ($543,200 = $776,000 × 70%)[+0.1] For calculating the adjusted basis of the business portion at time of sale as $473,200 ($543,200 - $70,000 depreciation)[+0.1] For determining the total adjusted basis at sale as $900,000 ($194,000 + $232,800 + $473,200)[+0.1] For properly allocating the $1,800,000 sales price among land ($360,000), personal use portion ($432,000), and business portion ($1,008,000)[+0.1] For correctly calculating the gain on each component:- Land: $166,000 ($360,000 - $194,000)- Personal use portion: $199,200 ($432,000 - $232,800)- Business portion: $534,800 ($1,008,000 - $473,200)[+0.1] For properly identifying that under Section 1250(a) and Treas. Reg. §1.1250-3(c), the potential recapture includes all depreciation taken on the property ($350,000 by Thomas plus $70,000 by Michael, totaling $420,000), but limited to the gain on the business portion ($534,800). Therefore, the Section 1250 recapture amount is $420,000 taxable at 25% per Section 1(h)(1)(E)[+0.1] For correctly calculating the total recognized gain as $900,000 and properly characterizing the components as $420,000 of recapture income and $480,000 of long-term capital gain, citing Section 1223(2) for the tacked holding period


Question: In 2022, Professor Taylor transfers a commercial building to his son Michael under the following circumstances:- Professor Taylor's adjusted basis in the building is $400,000- The building is subject to a mortgage of $250,000, which Michael assumes- The fair market value of the building at transfer is $900,000- Professor Taylor originally acquired the building from his brother in 2018 for $600,000 when it had a fair market value of $700,000- Professor Taylor paid gift tax of $140,000 on the transfer to Michael- Michael had previously performed legal services for his father valued at $50,000, for which he was never compensated- Michael sells the building in 2023 for $1,100,000, receiving $300,000 down and the remainder in equal installments over 5 years with 5% interestRequired:a) Determine Professor Taylor's tax consequences from the transfer. (0.25 points)b) Calculate Michael's basis in the building. (0.35 points)c) Determine Michael's tax consequences upon the subsequent sale, including how to report the gain. (0.25 points)d) How would your answers change if Michael sold the building for $350,000 instead? (0.15 points)

Part A: Professor Taylor's Tax Consequences (0.25 points)[+0.05] For identifying this as a part-gift/part-sale transaction under Reg. §1.1001-1(e)[+0.05] For calculating amount realized as $250,000 (mortgage assumed)[+0.05] For calculating potential loss of $150,000 ($250,000 - $400,000)[+0.05] For correctly applying IRC Section 267(a)(1) to disallow the loss on a transaction between related parties[+0.05] For identifying the gift portion as $600,000-$650,000 (depending on treatment of legal services)Part B: Michael's Basis Calculation (0.35 points)[+0.05] For correctly bifurcating the transaction into part-sale and part-gift components[+0.05] For applying Reg. §1.1015-4 to determine basis for the sale portion[+0.05] For calculating the basis for the sale portion as $250,000[+0.05] For correctly applying IRC Section 1015(a) carryover basis rules to the gift portion[+0.05] For calculating the proportional basis allocation for the gift portion ($288,889)[+0.05] For correctly applying the IRC Section 1015(d) gift tax adjustment[+0.05] For calculating the gift tax basis adjustment of $77,778[+0.05] For arriving at the correct total basis of either $616,667 or $666,667 (depending on treatment of services)Part C: Michael's Tax Consequences on Sale (0.25 points)[+0.05] For calculating the total gain of approximately $433,333 ($1,100,000 - $666,667)[+0.05] For identifying this as an installment sale under IRC Section 453[+0.05] For calculating the gross profit percentage of 39.39% ($433,333/$1,100,000)[+0.05] For calculating first-year gain recognition of $118,170 (39.39% × $300,000)[+0.05] For calculating subsequent years' gain recognition of $63,024 per year (39.39% × $160,000)Part D: Sale at a Loss (0.15 points)[+0.05] For calculating the potential loss of $316,667 ($350,000 - $666,667)[+0.05] For correctly applying IRC Section 267(d) regarding previously disallowed losses[+0.05] For calculating the recognized loss as $166,667 ($316,667 - $150,000)


Question: Parker, a real estate developer (in business for 25 years), transfers the following assets to his son Jordan in 2022:1. A commercial building (held for 10 years):   - Fair market value: $3,500,000   - Adjusted basis: $1,200,000   - Original basis: $2,000,000   - Accumulated depreciation: $800,000 (straight-line)   - Subject to a mortgage: $1,500,000 (which Jordan assumes)2. Inventory of undeveloped lots:   - Fair market value: $800,000   - Adjusted basis: $500,0003. Equipment used in Parker's business:   - Fair market value: $400,000   - Adjusted basis: $150,000   - Accumulated depreciation: $250,000Parker paid $420,000 in gift tax attributable to this transfer. As part of the arrangement, Jordan also agrees to pay Parker $700,000 in 7 equal annual installments of $100,000 plus applicable interest at the applicable federal rate.Two years later, in 2024, Jordan sells the commercial building for $4,000,000 and one of the inventory lots (FMV $200,000 at time of gift, basis $125,000) for $250,000.Required:a) Determine the tax consequences for Parker in 2022, including any recognized gain, its character, and whether the installment method applies.b) Calculate Jordan's basis in each asset received.c) Determine the tax consequences for Jordan from the 2024 sales, including any recapture amounts and the character of any gain or loss.d) Discuss how the related party rules under IRC Section 453(e) might apply if Jordan's sale occurred within 2 years of receiving the property.Cite relevant code sections, regulations, and rulings in your analysis.

Part A: Tax Consequences for Parker (0.30 points)[+0.05] For correctly identifying this as a part-gift, part-sale transaction under Treas. Reg. 1.1001-2(a) where debt assumption is treated as amount realized[+0.05] For calculating total amount realized by Parker: $1,500,000 (mortgage) + $700,000 (installment payments) = $2,200,000[+0.05] For correctly allocating the amount realized among the three assets based on relative FMV:- Building: $2,200,000 × ($3,500,000/$4,700,000) = $1,638,298- Inventory: $2,200,000 × ($800,000/$4,700,000) = $374,468- Equipment: $2,200,000 × ($400,000/$4,700,000) = $187,234[+0.05] For correctly calculating gain/loss on each asset:- Building: $1,638,298 - $1,200,000 = $438,298 gain- Inventory: $374,468 - $500,000 = ($125,532) loss- Equipment: $187,234 - $150,000 = $37,234 gain[+0.05] For correctly applying IRC Section 267(a)(1) to disallow the loss on inventory between related parties[+0.05] For correctly characterizing the gains:- Building: $438,298 characterized as "unrecaptured Section 1250 gain" taxed at a maximum rate of 25% under Section 1(h)(6)- Equipment: Full $37,234 as ordinary income under Section 1245(a)Part B: Jordan's Basis Calculation (0.30 points)[+0.05] For correctly applying Treas. Reg. 1.1015-4 for basis in part-gift, part-sale transaction (greater of amount paid or transferor's adjusted basis, plus gift tax paid on net appreciation)[+0.05] For correctly calculating the gift portion of each asset:- Building: $3,500,000 - $1,638,298 = $1,861,702- Inventory: $800,000 - $374,468 = $425,532- Equipment: $400,000 - $187,234 = $212,766[+0.05] For correctly calculating net appreciation for gift tax basis adjustment under IRC Section 1015(d):- Building: $1,861,702 - ($1,200,000 × $1,861,702/$3,500,000) = $1,223,404- Inventory: $425,532 - ($500,000 × $425,532/$800,000) = $159,574- Equipment: $212,766 - ($150,000 × $212,766/$400,000) = $132,979[+0.05] For correctly allocating gift tax paid based on relative net appreciation:- Building: $420,000 × ($1,223,404/$1,515,957) = $339,000- Inventory: $420,000 × ($159,574/$1,515,957) = $44,200- Equipment: $420,000 × ($132,979/$1,515,957) = $36,800[+0.05] For correctly calculating Jordan's basis in each asset:- Building: $1,638,298 (amount paid) + $339,000 (gift tax adjustment) = $1,977,298- Inventory: $374,468 (amount paid) + $44,200 (gift tax adjustment) = $418,668- Equipment: $187,234 (amount paid) + $36,800 (gift tax adjustment) = $224,034[+0.05] For correctly identifying that under IRC Section 1223(2), Jordan's holding period includes Parker's holding period for the gift portion but not for the purchase portionPart C: Jordan's 2024 Sales Tax Consequences (0.25 points)[+0.05] For correctly calculating gain on commercial building: $4,000,000 - $1,977,298 = $2,022,702[+0.05] For correctly calculating gain on inventory lot:- Basis of specific lot = $93,617 (amount paid) + $11,050 (gift tax adjustment) = $104,667- Gain on lot sale = $250,000 - $104,667 = $145,333[+0.05] For correctly applying unrecaptured Section 1250 gain rules to the building sale:- Total accumulated depreciation = $800,000- Actual unrecaptured Section 1250 gain = $800,000 (taxed at maximum 25% rate)- Remaining gain characterized as Section 1231 gain = $2,022,702 - $800,000 = $1,222,702[+0.05] For correctly characterizing the remaining building gain as Section 1231 gain: $1,222,702[+0.05] For correctly characterizing the inventory lot gain as ordinary income under IRC Section 1221(a)(1) since it retains its character as inventory in Jordan's handsPart D: Related Party Rules Analysis (0.15 points)[+0.05] For correctly identifying that IRC Section 453(e) applies to dispositions by related persons within 2 years of the first disposition[+0.05] For correctly explaining that under Section 453(e)(1), if Jordan sells within 2 years, Parker's installment method gain would be accelerated to the extent of Jordan's amount realized[+0.05] For correctly noting that under Section 453(e)(3), the acceleration is limited to the excess of Jordan's amount realized over Parker's installment sale price, and citing the second disposition ruleTotal: 1.0 point


Question: Professor Taylor owns a home purchased in 2015 for $600,000 (land: $150,000, building: $450,000). In 2021, Taylor began using 30% of the home exclusively as the principal place of business for a consulting practice organized as a sole proprietorship. In 2022, Taylor converted an additional 40% of the home into a rental apartment, leaving 30% for personal use.For 2023, Taylor reports:- Consulting business gross income: $120,000- Consulting business expenses (excluding home office): $45,000- Rental income: $24,000- Rental expenses (excluding depreciation): $8,000- Home-related expenses: Mortgage interest ($18,000), property taxes ($12,000), utilities ($9,600), insurance ($4,800), repairs ($7,200), and depreciation (calculated using MACRS)Taylor actively participates in the rental activity but spends more time on the consulting business. Taylor's AGI before considering these activities is $90,000, and Taylor is in the 24% marginal tax bracket.Taylor sells the home in 2024 for $800,000 after using it as described above for 3 years.Required:Analyze the tax consequences of this scenario, specifically addressing:1. The allowable home office deduction under Section 280A for 20232. The treatment of the rental activity under Section 469 for 20233. The Qualified Business Income deduction under Section 199A for 20234. The taxable gain on the sale of the home in 2024, including Section 121 exclusion and depreciation recaptureCite relevant Tax Court cases, Treasury Regulations, and Revenue Rulings in your analysis.

Part 1: Home Office Deduction (0.25 points)[+0.05] For correctly allocating the home expenses among business (30%), rental (40%), and personal (30%) use[+0.05] For calculating total allocable expenses for the business portion: $15,480 (30% of $51,600 non-depreciation expenses)[+0.05] For correctly calculating business portion depreciation: $3,462 ($135,000 × 1/39)[+0.05] For applying the Section 280A(c)(5) gross income limitation correctly[+0.05] For determining the final allowable home office deduction of $18,942Part 2: Rental Activity Treatment (0.25 points)[+0.05] For correctly identifying the rental activity as presumptively passive under Section 469(c)(2)[+0.05] For analyzing why Taylor does not qualify for the real estate professional exception[+0.05] For calculating Taylor's MAGI as $146,058 for the $25,000 active participation exception[+0.05] For calculating the phase-out of the $25,000 exception: $23,029 reduction[+0.05] For determining the allowable rental loss deduction of $1,971 with $9,214 suspendedPart 3: Qualified Business Income Deduction (0.25 points)[+0.05] For identifying the consulting business as a specified service trade or business (SSTB)[+0.05] For calculating the consulting QBI as $56,058 ($120,000 - $45,000 - $18,942)[+0.05] For analyzing whether the rental activity qualifies as a trade or business under Rev. Proc. 2019-38[+0.05] For calculating the rental QBI as -$11,185 ($24,000 - $8,000 - $27,185)[+0.05] For determining the final QBI deduction of $8,975 (20% × $44,873) after netting the rental lossPart 4: Sale of Home Tax Consequences (0.25 points)[+0.05] For calculating the adjusted basis of $576,524 ($600,000 - $23,476 total depreciation)[+0.05] For calculating the realized gain of $223,476 ($800,000 - $576,524)[+0.05] For correctly applying Section 121 exclusion to the personal use portion ($67,043)[+0.05] For correctly applying Section 121(d)(6) to the business use portion (excluding $10,386 depreciation)[+0.05] For calculating the total taxable gain of $99,776, consisting of:   - $10,386 business depreciation recapture (25% maximum rate)   - $13,090 rental depreciation recapture (25% maximum rate)   - $76,300 remaining gain on rental portion (capital gains rates)


Question: Westfield LLC, a real estate investment company, is engaging in a complex exchange transaction. Analyze the tax consequences of the following scenario:Westfield LLC exchanges:- A fully depreciated commercial building (original cost $2,000,000, current FMV $3,500,000)- Equipment (adjusted basis $300,000, FMV $200,000)In return, Westfield receives:- An office complex (FMV $3,000,000)- A warehouse (FMV $500,000)- Cash of $150,000Additional information:- The commercial building is Section 1250 property with $800,000 of straight-line depreciation taken- $200,000 of the building's depreciation would have been recaptured as ordinary income under Section 1250 if sold directly- The equipment is Section 1245 property- Westfield LLC is owned 60% by Thompson Corp and 40% by individual investors- The exchange was facilitated through a qualified intermediaryRequired:1. Analyze this exchange under IRC Section 1031 and Treasury Regulation §1.1031(j)-1 for multi-asset exchanges2. Calculate all realized and recognized gains/losses, identifying their character3. Determine the appropriate basis allocation for the acquired properties4. Explain any depreciation recapture implications under Sections 1245 and 12505. Cite relevant code sections, regulations, and case law to support your analysis

[+0.10] For correctly identifying this as a multi-asset exchange subject to Treasury Regulation §1.1031(j)-1 and establishing the appropriate exchange groups (real estate and equipment)[+0.10] For correctly calculating the realized gain on the commercial building as $3,500,000 ($3,500,000 FMV - $0 adjusted basis)[+0.05] For correctly calculating the realized loss on the equipment as $100,000 ($200,000 FMV - $300,000 adjusted basis)[+0.05] For correctly explaining that the $100,000 loss on the equipment cannot offset the gain on the building under Treas. Reg. §1.1031(j)-1(b)(2)[+0.10] For correctly identifying that the $150,000 cash received is boot that triggers gain recognition[+0.10] For correctly calculating the total recognized gain as $150,000 (limited to the cash boot received)[+0.10] For correctly explaining that there is no Section 1245 recapture on the equipment due to the realized loss, and that losses cannot be recognized in a like-kind exchange under Treas. Reg. §1.1031(j)-1(b)(2)[+0.10] For correctly explaining that the $150,000 gain from the cash boot is characterized as Section 1250 recapture to the extent of the $200,000 potential recapture, making it ordinary income[+0.10] For correctly calculating the remaining deferred gain as $3,350,000 ($3,500,000 realized gain - $150,000 recognized gain)[+0.10] For correctly calculating the basis allocation between the office complex and warehouse using the proportional FMV method per Treas. Reg. §1.1031(j)-1(c):- Office complex: ($3,000,000 ÷ $3,500,000) × $3,350,000 deferred gain = $2,871,429- Warehouse: ($500,000 ÷ $3,500,000) × $3,350,000 deferred gain = $478,571[+0.05] For correctly calculating the final basis in each property:- Office complex: $128,571 ($3,000,000 - $2,871,429)- Warehouse: $21,429 ($500,000 - $478,571)[+0.05] For correctly citing Commissioner v. Tufts, 461 U.S. 300 (1983) and/or Treas. Reg. §1.1031(d)-2 regarding boot treatment[+0.05] For correctly citing Peabody Natural Resources Co. v. Commissioner, 126 T.C. 261 (2006) regarding application of exchange group rules[+0.05] For correctly explaining that under Treas. Reg. §1.1250-1(c)(2), the remaining potential Section 1250 recapture of $50,000 ($200,000 - $150,000) is deferred and carries over to the replacement properties


Question: Westfield LLC exchanges a fully depreciated commercial building (original basis $3M, adjusted basis $0, FMV $4.2M) and land (basis $800,000, FMV $1.8M) for an office complex consisting of a building (FMV $3.5M) and land (FMV $2M), plus $500,000 in cash. The relinquished building was Section 1250 property with $1.2M of unrecaptured Section 1250 gain. The exchange occurs on January 15, 2023.Required:a) Calculate the total realized gain on the exchange. (0.5 points)b) Calculate the recognized gain, including the proper characterization of ordinary income and capital gain components under IRC §1250. (1.0 point)c) Determine the basis allocation between land and building for the replacement property, citing the appropriate Treasury Regulations. (1.0 point)d) Calculate the first-year MACRS depreciation deduction for the new building. (0.5 points)e) Explain how your answers to parts (b) and (c) would change if Westfield had also been relieved of a $300,000 mortgage on the relinquished property. (1.0 point)

Part a) (0.5 points)[+0.1] For correctly identifying the FMV of relinquished property as $6M ($4.2M + $1.8M)[+0.1] For correctly identifying the adjusted basis of relinquished property as $800,000 ($0 + $800,000)[+0.3] For correctly calculating the realized gain as $5.2M ($6M - $800,000)Part b) (1.0 point)[+0.2] For correctly identifying boot received as $500,000 cash[+0.2] For correctly calculating recognized gain as $500,000 (limited to boot received)[+0.2] For correctly citing Treas. Reg. §1.1031(b)-1(c) regarding character of gain[+0.3] For correctly characterizing the $500,000 recognized gain as ordinary income under §1250 recapture rules[+0.1] For correctly noting that $700,000 of §1250 gain remains unrecognizedPart c) (1.0 point)[+0.2] For correctly calculating the exchange basis before adjustment as $800,000[+0.1] For correctly adding recognized gain of $500,000 to basis[+0.1] For correctly calculating new basis as $1,300,000[+0.2] For correctly citing Treas. Reg. §1.1031(j)-1(c) for basis allocation[+0.2] For correctly calculating building basis as $827,273 ($1,300,000 × $3.5M/$5.5M)[+0.2] For correctly calculating land basis as $472,727 ($1,300,000 × $2M/$5.5M)Part d) (0.5 points)[+0.1] For correctly identifying 39-year straight-line depreciation for commercial real property[+0.1] For correctly applying mid-month convention for January (11.5 months)[+0.1] For correctly citing Treas. Reg. §1.168(d)-1[+0.2] For correctly calculating first-year depreciation as $20,313 ($827,273 × 0.02564 × 11.5/12)Part e) (1.0 point)[+0.1] For correctly identifying mortgage relief as additional boot of $300,000[+0.1] For correctly calculating total boot as $800,000 ($500,000 cash + $300,000 mortgage relief)[+0.2] For correctly calculating new recognized gain as $800,000[+0.2] For correctly characterizing the entire $800,000 as ordinary income under §1250[+0.1] For correctly calculating new basis as $1,600,000 ($800,000 + $800,000)[+0.1] For correctly calculating new building basis as $1,018,182 ($1,600,000 × $3.5M/$5.5M)[+0.1] For correctly calculating new land basis as $581,818 ($1,600,000 × $2M/$5.5M)[+0.1] For correctly calculating revised first-year depreciation as $25,000 ($1,018,182 × 0.02564 × 11.5/12)


Question: Westfield Partners LP, a domestic partnership, owns three properties:- Property A: U.S. commercial building (basis $3M, FMV $7M, §1250 recapture potential $1.2M)- Property B: Vacant land in Canada (basis $1M, FMV $1.5M)- Property C: U.S. rental property (basis $2M, FMV $2.5M)The partnership agreement provides for special allocations: Partner X (30% interest) receives 60% of gain/loss from Property A; Partner Y (40% interest) receives 70% of gain/loss from Property B; and Partner Z (30% interest) receives 50% of gain/loss from Property C.Westfield exchanges Properties A and B for a U.S. office building valued at $7M and takes back a 5-year installment note for $1.5M with 4% interest. The partnership allocates the new building 80% to Partner X and 20% to Partner Y.Analyze the transaction addressing:1. Like-kind exchange eligibility for each property2. Total gain realized and recognized by the partnership3. Character of the gain4. Each partner's recognized gain allocation5. Basis in the replacement property6. Future installment note tax treatment7. Whether the special allocations have substantial economic effect under §704(b)Cite relevant code sections, regulations, and case law.

[+0.1] For correctly identifying Property A as qualifying under §1031(a) and Property B as not qualifying under §1031(h)(1) because it's foreign real property[+0.1] For calculating total realized gain of $4.5M ($4M from Property A + $0.5M from Property B)[+0.1] For identifying the $1.5M installment note as boot under Treas. Reg. §1.1031(b)-1(c)[+0.1] For calculating total recognized gain of $2M ($0.5M from Property B + $1.5M boot from Property A)[+0.1] For correctly characterizing the gain as $1.2M §1250 recapture (taxed at 25% per §1(h)(1)(E)) and $0.8M long-term capital gain[+0.1] For correctly allocating recognized gain to partners: Partner X = $0.9M (60% of Property A gain) and Partner Y = $0.35M (70% of Property B gain)[+0.1] For calculating the basis in the replacement property as $4.5M (basis in relinquished properties $4M - boot received $1.5M + gain recognized $2M)[+0.1] For correctly applying §453 to the installment note, including identifying the 100% gross profit percentage for Property A's portion[+0.1] For analyzing the special allocations under §704(b) regulations, identifying the three requirements for substantial economic effect (capital account maintenance, liquidation according to positive capital accounts, and obligation to restore negative capital accounts)[+0.1] For correctly concluding that the 80/20 allocation of replacement property likely lacks substantial economic effect under Treas. Reg. §1.704-1(b)(2)(iii) and citing relevant authority (Rev. Rul. 2007-42 or Treas. Reg. §1.704-1(b)(5), Example 10)


Question: Westfield LLC, owned equally by siblings Maria and Carlos (who are U.S. citizens), exchanges a commercial building on June 1, 2023, through a qualified intermediary. The relinquished property has:- Adjusted basis: $3.5M ($5M original cost less $1.5M depreciation)- FMV: $8M- Subject to mortgage: $2.2MBy July 10, Westfield identifies three potential replacement properties:- Property X: Shopping center valued at $6M- Property Y: Office building valued at $4.5M- Property Z: Warehouse valued at $5MOn September 15, Westfield acquires Property X for $6.2M by:- Assuming a $3M mortgage- Receiving $1M seller financing (5-year installment note at 4% interest)- Using $2.2M from the qualified intermediaryOn November 20, Westfield acquires a 40% interest in Property Z for $2M cash from the intermediary.On December 15 (within the 180-day period), Carlos sells his 50% interest in Westfield LLC to an unrelated party for $2.5M.Required:1. Calculate the total gain realized and recognized by Westfield2. Determine the character of any recognized gain (Section 1250 recapture vs. Section 1231 gain)3. Calculate the basis in each acquired property4. Explain the tax implications of Carlos's sale of his interest5. Explain whether the answer would change if Maria sold her acquired property on February 1, 2024

[+0.05] For correctly identifying this as a Section 1031 exchange with qualified intermediary[+0.05] For verifying the identification requirements were met within 45 days (July 10 is within 45 days of June 1)[+0.05] For verifying the exchange period requirements were met (all properties acquired within 180 days)[+0.1] For correctly calculating the realized gain as $4.5M ($8M FMV - $3.5M adjusted basis)[+0.1] For correctly analyzing mortgage boot:- Mortgage relief: $2.2M- Mortgage assumed: $3M- Net mortgage relief: $0 (mortgage assumed exceeds relief per Treas. Reg. §1.1031(d)-2)[+0.1] For correctly identifying the seller financing ($1M) as boot received[+0.05] For correctly calculating total boot received as $1M[+0.05] For correctly calculating recognized gain as $1M (limited to boot received)[+0.1] For correctly characterizing the recognized gain:- $1M as Section 1250 recapture (ordinary income)- Remaining $3.5M as deferred Section 1231 gain[+0.1] For correctly calculating the basis in acquired properties:- Total basis to allocate: $3.5M (old basis) - $0 (net mortgage relief) + $1M (gain recognized) = $4.5M- Basis in Property X: $3.4M ($4.5M × $6.2M/$8.2M)- Basis in 40% of Property Z: $1.1M ($4.5M × $2M/$8.2M)[+0.1] For correctly analyzing Carlos's sale under general partnership interest sale rules:- Identifying Carlos and Maria as related parties under Section 1031(f)(3)- Explaining that Carlos's sale within 2 years triggers the related party rule under Section 1031(f)(1)- Noting that Carlos's sale is treated as a sale of a partnership interest under Section 741, generally resulting in capital gain or loss[+0.05] For correctly determining that Westfield must recognize the remaining deferred gain of $3.5M due to Carlos's sale[+0.05] For correctly analyzing how the recognized gain affects Maria:- If Westfield LLC is treated as a partnership for tax purposes, the $3.5M gain would flow through to partners based on the profit-sharing ratio in the operating agreement- If Westfield LLC is a disregarded entity (e.g., if it made an election to be disregarded), then Maria would recognize 100% of the remaining gain as the sole remaining owner- Explaining that the specific allocation depends on the LLC's tax classification and operating agreement terms[+0.05] For correctly analyzing the February 1, 2024 scenario:- If Maria sold within 2 years (before June 1, 2025), the related party rule would be triggered- This would cause recognition of any remaining deferred gain[+0.05] For identifying potential exceptions under Section 1031(f)(2) that might apply (death, non-tax avoidance purpose)[+0.05] For referencing Rev. Proc. 2008-16 regarding the 24-month safe harbor for establishing non-tax avoidance purposeTotal: 1.0 point


Question: Metropolis Partners LP owns three properties:- Property X: Commercial building held for 12 years, original basis $3.8M, adjusted basis $2.2M due to depreciation, FMV $6.5M, subject to $1.5M mortgage- Property Y: Vacant land held for investment, basis $800K, FMV $1.2M- Property Z: Residential rental property, basis $1.5M, adjusted basis $900K due to depreciation, FMV $2.8MOn February 1, 2023, Metropolis transfers Property X to a qualified intermediary (QI). On March 10, Metropolis identifies:1. A shopping center valued at $5.2M2. An office complex valued at $4.8M3. A warehouse valued at $3.1MOn April 15, the QI acquires the warehouse for $3.1M and transfers it to Metropolis. For the remaining exchange proceeds, the QI provides:- A 5-year installment note for $1.4M with 4% interest- $500K in cashMetropolis immediately invests the $500K cash in a Qualified Opportunity Zone Fund (QOZF).Simultaneously, Metropolis exchanges Property Y with Gotham LLC (owned by the brother of Metropolis's managing partner) for a property valued at $1.2M.Six months later, Metropolis sells Property Z and reinvests all proceeds in another QOZF investment.Eighteen months after the Property Y exchange, Gotham LLC sells the acquired property for $1.5M.Required:1. Calculate the total gain recognized by Metropolis in 20232. Determine the character of the recognized gain (ordinary vs. capital)3. Calculate the basis in each acquired property4. Explain the tax implications of the QOZF investments5. Analyze the impact of the related party transactionCite relevant code sections, regulations, and case law in your analysis.

Property X Exchange Analysis (0.5 points)[+0.05] For correctly calculating the realized gain on Property X as $4.3M ($6.5M FMV - $2.2M adjusted basis)[+0.05] For identifying $1.6M as potential Section 1250 depreciation recapture ($3.8M original basis - $2.2M adjusted basis)[+0.05] For correctly identifying all boot received: $500K cash + $1.4M note + $1.5M mortgage relief = $3.4M total boot[+0.05] For applying IRC §1031(b) to recognize gain to the extent of boot received ($3.4M)[+0.05] For correctly applying IRC §1250 to characterize $1.6M as ordinary income recapture[+0.05] For correctly characterizing the remaining $1.8M as capital gain[+0.05] For citing IRC §453(i) regarding immediate recognition of depreciation recapture in installment sales[+0.05] For correctly calculating the warehouse basis as $4.1M ($2.2M original basis - $1.5M mortgage relief + $3.4M gain recognized)[+0.10] For correctly explaining that the $500K QOZF investment doesn't qualify for deferral under IRC §1400Z-2(a)(1) and Treas. Reg. §1.1400Z2(a)-1 because it represents boot from an exchange, not capital gain from a saleProperty Y Exchange Analysis (0.2 points)[+0.05] For identifying this as a related party exchange under IRC §1031(f)[+0.05] For calculating the realized gain on Property Y as $400K ($1.2M - $800K)[+0.05] For correctly applying IRC §1031(f)(1) to disqualify the exchange due to Gotham's disposition within 2 years[+0.05] For citing Rev. Rul. 2002-83 regarding related party exchanges and explaining that Metropolis must recognize the full $400K gain in 2023Property Z Sale and QOZF Investment (0.2 points)[+0.05] For calculating the realized gain on Property Z as $1.9M ($2.8M - $900K)[+0.05] For correctly applying IRC §1400Z-2 regarding QOZF investments[+0.05] For explaining that the gain on Property Z can be deferred until December 31, 2026, or earlier disposition[+0.05] For explaining the QOZF basis rules under IRC §1400Z-2(b)(2)(B): initial $0 basis, 10% increase after 5 years, additional 5% after 7 years, and potential tax-free appreciation after 10 yearsComprehensive Analysis (0.1 points)[+0.05] For correctly calculating the total 2023 recognized gain as $3.8M ($3.4M from Property X + $400K from Property Y + $0 from Property Z)[+0.05] For correctly breaking down the character of the gain as $1.6M ordinary income and $2.2M capital gainTotal: 1.0 point


Question: Dr. Martinez owns a building purchased for $1.2M in 2010. The building has been used 60% for her medical practice and 40% as a rental property. She has claimed $500,000 in depreciation ($300,000 on the business portion, $200,000 on the rental portion). In 2023, she exchanges this property for a new building valued at $2M that she plans to use 75% for her practice and 25% as a rental. She also receives $100,000 cash in the exchange.Calculate and explain:1. The total realized gain on the exchange2. The recognized gain, including any depreciation recapture under Sections 1245 and 12503. The basis in the new property, addressing the mixed-use nature of both propertiesCite relevant code sections and regulations in your answer.

[+0.1] For correctly identifying that the property must be treated as two separate properties (60% business/40% rental) under Rev. Proc. 2008-16 and Treas. Reg. §1.1031(a)-1[+0.1] For correctly calculating the adjusted basis of the relinquished property as $700,000 ($1.2M - $500,000 depreciation)[+0.1] For correctly calculating the total realized gain as $1.4M ($2.1M FMV - $700,000 adjusted basis)[+0.1] For correctly allocating the business portion's adjusted basis as $420,000 ($720,000 - $300,000 depreciation) and the rental portion's adjusted basis as $280,000 ($480,000 - $200,000 depreciation)[+0.1] For correctly identifying that $300,000 of Section 1245 recapture applies to the business portion and must be recognized as ordinary income[+0.1] For correctly determining that no Section 1250 recapture applies to the rental portion (assuming straight-line depreciation was used)[+0.1] For correctly calculating the boot received as $60,000 for the business portion (60% of $100,000) and $40,000 for the rental portion (40% of $100,000)[+0.1] For correctly calculating the total recognized gain as $340,000 ($300,000 from the business portion and $40,000 from the rental portion)[+0.1] For correctly calculating the basis in the new property's business portion as $660,000 ($420,000 - $60,000 + $300,000) and the rental portion as $280,000 ($280,000 - $40,000 + $40,000)[+0.1] For correctly maintaining the separate basis amounts in the new property: $660,000 for the business portion and $280,000 for the rental portion, totaling $940,000, without reallocating based on the new usage percentages


Question: TechReal Partners, a partnership, owns several investment properties. They're planning a complex exchange involving multiple properties with the following details:Relinquished Properties (transferred July 1, 2023):1. Office building in Chicago: Acquired in 2006 for $3.8M, depreciated using straight-line method, current basis $2.2M, FMV $6.5M2. Warehouse in Dallas: Acquired in 2018 for $2.1M, depreciated using straight-line method, current basis $1.8M, FMV $1.6M3. Manufacturing equipment: Acquired in 2020 for $900,000, depreciated using MACRS, current basis $540,000, FMV $750,000Replacement Properties:1. Office complex in Seattle: FMV $5.8M (identified July 25, 2023, acquired October 15, 2023)2. Retail space in Phoenix: FMV $2.2M (identified July 25, 2023, acquired December 20, 2023)3. New manufacturing equipment: FMV $600,000 (identified August 20, 2023, acquired September 30, 2023)Additionally:- TechReal receives $250,000 cash in the exchange- TechReal assumes a $1M mortgage on the Seattle property- The Dallas warehouse had a $500,000 mortgage that is relieved in the exchange- One of TechReal's partners is the brother of the seller of the Phoenix property- TechReal plans to sell the Seattle property in 18 months to an unrelated partyRequired:1. Determine if all properties qualify for like-kind exchange treatment, citing relevant code sections and regulations2. Calculate the total realized gain/loss for each relinquished property3. Calculate the recognized gain/loss, identifying any recapture required under Sections 1245 and 12504. Determine the basis in each replacement property5. Explain how the related party rules affect this transaction6. Discuss how the planned sale of the Seattle property might impact the tax treatment7. If TechReal had instead sold all properties and purchased the new properties, calculate the additional tax liability they would face (assume a 21% corporate rate, 25% rate for unrecaptured Section 1250 gain, and 20% for Section 1231 gains)

[+0.10] For correctly identifying that the Seattle property and manufacturing equipment qualify for like-kind treatment under IRC Section 1031(a) and Treas. Reg. §1.1031(k)-1, but the Phoenix property does not qualify because it was acquired after the 180-day exchange period (December 20, 2023 is more than 180 days after July 1, 2023)[+0.10] For correctly calculating realized gain/loss for each property:- Chicago office: $6.5M - $2.2M = $4.3M gain- Dallas warehouse: $1.6M - $1.8M = ($0.2M) loss- Manufacturing equipment: $750K - $540K = $210K gain[+0.10] For correctly identifying that relief of the $500K Dallas mortgage and assumption of the $1M Seattle mortgage constitutes net boot of $500K under Treas. Reg. §1.1031(d)-2, and total boot received is $750K ($250K cash + $500K net mortgage relief)[+0.10] For correctly applying Treas. Reg. §1.1031(j)-1 multiple property exchange rules:- Separating properties into exchange groups: real estate (Chicago office and Dallas warehouse) and personal property (manufacturing equipment)- Allocating boot based on relative FMVs within exchange groups:  * Real estate group: $6.5M + $1.6M = $8.1M total FMV  * Chicago office allocation: ($6.5M/$8.1M) × $750K = $602K boot  * Dallas warehouse allocation: ($1.6M/$8.1M) × $750K = $148K boot[+0.10] For correctly calculating recognized gain:- Chicago office: $602K (limited to boot received)- Dallas warehouse: $0 (losses not recognized in like-kind exchanges)- Manufacturing equipment: $210K (limited to realized gain)[+0.10] For correctly identifying unrecaptured Section 1250 gain of $602K on the Chicago office (limited to gain recognized) taxed at 25% maximum rate, and Section 1245 recapture of $210K on the manufacturing equipment (limited to gain recognized) taxed at ordinary rates[+0.10] For correctly calculating basis in replacement properties following Treas. Reg. §1.1031(j)-1:- Seattle office: $2.2M (Chicago basis) - $602K (boot allocated) + $602K (gain recognized) + $1M (mortgage assumed) = $3.2M- Manufacturing equipment: $540K (old basis) - $0 (boot allocated to real estate group) + $210K (gain recognized) = $750K[+0.10] For correctly analyzing the related party issue:- Identifying that acquisition of replacement property from a related party through a qualified intermediary may be subject to scrutiny under IRC Section 1031(f)(4) anti-abuse rules- Citing relevant authority such as Ocmulgee Fields, Inc. v. Commissioner, 132 T.C. 105 (2009) or Rev. Rul. 2002-83- Explaining that the Phoenix property acquisition may not qualify for Section 1031 treatment if the IRS determines the transaction was structured to avoid the related party rules[+0.10] For correctly explaining that the planned sale of the Seattle property in 18 months does not violate the 2-year holding period requirement for related party exchanges under IRC Section 1031(f)(1) since the Seattle property was not acquired from a related party[+0.10] For correctly calculating additional tax liability if properties were sold instead of exchanged:- Chicago office: $4.3M total gain with $1.6M as unrecaptured Section 1250 gain (25% rate) and $2.7M as Section 1231 gain (20% rate) = $1.6M × 25% + $2.7M × 20% = $400K + $540K = $940K- Dallas warehouse: $0.2M loss offsetting other Section 1231 gains, reducing tax by $0.2M × 20% = $40K- Manufacturing equipment: $210K gain as Section 1245 recapture (21% rate) = $44.1K- Total tax if sold: $944.1K- Tax on exchange: $602K × 25% + $210K × 21% = $150.5K + $44.1K = $194.6K- Additional tax liability: $944.1K - $194.6K = $749.5K


Question: Partnership ABC exchanges a fully depreciated commercial building (original cost $2,000,000, current FMV $3,500,000) for a ranch property worth $2,800,000, a promissory note of $500,000 payable over 5 years with 4% interest, and $200,000 in cash. The partnership has three equal partners. The ranch property has potential for both investment appreciation and limited business use.Required:a) Calculate the total amount of gain the partnership must recognize in the year of exchange, showing all relevant components.b) Explain how this gain should be characterized (ordinary income vs. capital gain) with reference to specific IRC sections.c) Determine if the installment method can be applied to the promissory note, citing relevant authority.d) Calculate the partnership's basis in the newly acquired ranch property.e) Explain how the tax treatment would change if one partner had a negative capital account of $300,000 at the time of the exchange.

[+0.1] For correctly identifying this as a Section 1031 exchange with boot received in the form of cash and a promissory note totaling $700,000[+0.1] For calculating the total realized gain: $3,500,000 (FMV) - $0 (adjusted basis) = $3,500,000[+0.15] For correctly applying IRC Section 1245 to identify that all $2,000,000 of depreciation must be recaptured as ordinary income regardless of boot received[+0.1] For determining that the partnership must recognize $2,000,000 of ordinary income in the year of exchange (the greater of boot received or recapture amount)[+0.1] For correctly allocating $666,667 of ordinary income to each of the three equal partners[+0.1] For correctly citing IRC Section 453(f)(6) and Treasury Regulation 1.453-9(c) to explain that the installment method cannot be used for the recapture portion of the gain[+0.15] For correctly calculating the partnership's basis in the ranch property as $1,300,000 ($0 original basis + $2,000,000 gain recognized - $700,000 boot received) with reference to Treasury Regulation 1.1031(d)-1(e)[+0.2] For explaining that a partner with a negative capital account of $300,000 would face additional tax consequences, including:- Potential deemed distribution under IRC Section 752(b) if the exchange reduces partnership liabilities- Possible gain recognition under IRC Section 731(a) to the extent the deemed distribution exceeds the partner's outside basis- Required allocation to restore negative capital account under Treasury Regulation 1.704-1(b)(2)(ii)(b) through a qualified income offset provision[+0.1] For citing relevant authority such as Revenue Ruling 92-92 regarding recapture priority in like-kind exchanges with boot and/or Teruya Brothers, Ltd. v. Commissioner, 124 T.C. 45 (2005) regarding partnership Section 1031 exchanges


Question: TechReal LLC, owned equally by siblings Alex and Morgan (who don't actively participate in management), exchanges the following assets with Innovest Corporation (owned by their cousin) on June 15, 2023:1. Commercial warehouse in Chicago (acquired 2015, 80% business/20% personal use, original basis $3,200,000, accumulated depreciation on business portion $720,000, FMV $4,500,000)2. Manufacturing equipment (7-year MACRS property, acquired 2019, original basis $900,000, accumulated depreciation $557,143 using 200% declining balance, FMV $600,000)3. Patent #8675309 (self-created in 2017, $0 basis, FMV $800,000)In exchange, TechReal receives:1. Office building in Seattle (FMV $4,200,000)2. Solar energy equipment (5-year MACRS property, FMV $1,100,000)3. $600,000 cashOn February 1, 2025, Innovest sells the Chicago warehouse for $5,100,000.Required:a) Applying Treasury Regulation §1.1031(j)-1, determine the recognized gain for TechReal, identifying any recapture under Sections 1245 and 1250.b) Calculate TechReal's basis in each property received, including recovery periods under Rev. Proc. 87-56.c) Analyze how Innovest's 2025 sale affects TechReal's exchange treatment under Section 1031(f).d) If TechReal had $400,000 in suspended passive activity losses from a previous venture, how would these affect the current tax situation?e) Discuss the impact if the patent had been purchased rather than self-created, citing relevant authority from IRC Section 197 and related regulations.

[+0.05] For correctly identifying that the transaction involves related parties under IRC Section 1031(f)[+0.05] For properly separating the Chicago warehouse into 80% business ($3,600,000 FMV) and 20% personal ($900,000 FMV) components[+0.05] For calculating the adjusted basis of the business portion of the warehouse as $1,840,000 ($3,200,000 × 80% - $720,000)[+0.05] For calculating the adjusted basis of the personal portion of the warehouse as $640,000 ($3,200,000 × 20%)[+0.05] For calculating the adjusted basis of the manufacturing equipment as $342,857 ($900,000 - $557,143)[+0.05] For correctly identifying the patent's $0 basis as a self-created intangible[+0.05] For properly grouping assets into exchange groups per Treas. Reg. §1.1031(j)-1:- Group 1 (Real Estate): Business portion of warehouse- Group 2 (Personal Property): Manufacturing equipment- Group 3 (Intangibles): Patent[+0.05] For calculating exchange group surpluses/deficiencies:- Group 1: $600,000 surplus ($4,200,000 - $3,600,000)- Group 2: $500,000 surplus ($1,100,000 - $600,000)- Group 3: $800,000 deficiency ($0 - $800,000)[+0.05] For correctly allocating the $600,000 cash boot first to the exchange group with deficiency (Group 3)[+0.05] For recognizing that the personal use portion of the warehouse ($900,000 FMV) is treated as a taxable sale[+0.05] For calculating the gain on the personal portion as $260,000 ($900,000 - $640,000)[+0.05] For calculating the Section 1245 recapture on the manufacturing equipment as $0 (no gain recognized in this exchange group)[+0.05] For calculating the gain on the patent as $800,000 ($800,000 - $0) with $600,000 recognized due to boot received[+0.05] For identifying that the patent gain is ordinary income under IRC Section 1231(b)(1)(C)[+0.05] For calculating the total recognized gain as $860,000 ($260,000 + $600,000)[+0.05] For calculating the basis in the Seattle office building as $1,840,000 (carryover basis from business portion of warehouse)[+0.05] For calculating the basis in the solar equipment as $342,857 (carryover basis from manufacturing equipment)[+0.05] For identifying the recovery period for the office building as 39 years under Rev. Proc. 87-56[+0.05] For identifying the recovery period for the solar equipment as 5 years under Rev. Proc. 87-56[+0.05] For correctly analyzing that Innovest's sale of the warehouse within 2 years triggers Section 1031(f)(1)[+0.05] For explaining that the related party disposition causes TechReal to retroactively recognize gain on the business portion of the warehouse ($1,760,000)[+0.05] For identifying that Section 1031(f)(2) exceptions do not apply in this scenario[+0.05] For explaining that the suspended passive activity losses of $400,000 can offset ordinary income from the patent gain under IRC Section 469(f)[+0.05] For correctly stating that only $400,000 of the $600,000 patent gain can be offset by the passive activity losses[+0.05] For explaining that if the patent had been purchased, it would be Section 197 intangible amortized over 15 years[+0.05] For citing that under IRC Section 197(f)(7) and Treas. Reg. §1.197-2(g)(8), the sale of a Section 197 intangible is treated as the sale of a Section 1231 asset


Question: Partnership ABC has three equal partners (A, B, and C). The partnership owns an office building with an adjusted basis of $3,000,000 and fair market value of $9,000,000, subject to a mortgage of $2,000,000. The partnership agreement specially allocates 50% of the gain on this building to partner A for previous capital contributions. The partnership exchanges this property for a retail center worth $10,000,000 subject to a $3,000,000 mortgage. The partnership also receives a 5-year installment note for $1,000,000 as boot in the exchange.Required:1. Calculate the amount and timing of gain recognition for the partnership.2. Calculate each partner's basis adjustment in their partnership interest.3. Explain how the tax consequences would change if partner B had a negative capital account of $500,000 before the exchange.4. Explain how the tax consequences would change if the partnership had been using the building 20% for partner C's personal business.Cite relevant IRC sections, Treasury Regulations, and/or court cases to support your answers.

[+0.10] For correctly calculating the realized gain of $6,000,000 ($9M FMV - $3M basis)[+0.10] For correctly identifying the boot received: $1M note + $1M net debt relief ($3M new debt - $2M old debt) = $2M total boot[+0.10] For correctly calculating the recognized gain as $2,000,000 (limited to boot received) with citation to Treasury Regulation 1.1031(b)-1(c)[+0.05] For correctly noting that the $1M installment note may qualify for installment sale treatment under IRC Section 453[+0.10] For correctly allocating the recognized gain: $1M to Partner A (50% special allocation) and $500,000 each to Partners B and C (25% each of remaining gain) per IRC Section 704(a)[+0.10] For correctly calculating Partner A's basis adjustment: $1M (gain) + $1M (1/3 of new debt) - $666,667 (1/3 of old debt) = $1,333,333 increase[+0.10] For correctly calculating Partners B and C's basis adjustments: Each increases by $500,000 (gain) + $1M (1/3 of new debt) - $666,667 (1/3 of old debt) = $833,333 increase[+0.10] For explaining that Partner B's negative capital account is affected by the $333,333 share of increased liabilities under IRC Section 752, but doesn't eliminate potential future gain recognition[+0.05] For citing Treasury Regulation 1.704-1(b)(2)(ii)(b) regarding the requirement that B's negative capital account must be restored upon liquidation[+0.10] For correctly identifying that 20% personal use disqualifies that portion from Section 1031 treatment with citation to Revenue Procedure 2008-16[+0.10] For correctly calculating the additional recognized gain due to personal use: 20% of $6M = $1.2M additional gain[+0.05] For correctly explaining how the additional gain would be allocated according to the partnership agreement (50% to A, 25% each to B and C)[+0.05] For explaining that the personal use portion affects the basis calculation for the new property under IRC Section 1031(d) and Treasury Regulation 1.1031(d)-1


Question: Dr. Amelia Chen, a self-employed dermatologist, purchased a home for $450,000 in 2012. Since 2016, she has used 25% of the home (based on square footage) exclusively for her medical practice. She claimed depreciation deductions totaling $32,000 for the business portion of her home. In 2023, she sells the home for $750,000.In 2020, Dr. Chen also began renting out a separate portion of her home (15% based on square footage) to a tenant, claiming $12,000 in depreciation on this rental portion. She maintained her personal residence in the remaining 60% of the home.Dr. Chen is single and has lived in the home as her primary residence for the entire ownership period.Required:1. Calculate Dr. Chen's total realized gain on the sale.2. Determine how much of the gain qualifies for the Section 121 exclusion.3. Calculate the unrecaptured Section 1250 gain subject to the 25% maximum tax rate.4. Calculate the remaining taxable gain and identify its character (ordinary income, Section 1231 gain, or capital gain).5. Determine Dr. Chen's total taxable gain from the sale.Cite relevant Internal Revenue Code sections and explain your reasoning for each component of the calculation.

[+0.1] For correctly calculating the total realized gain as $300,000 ($750,000 - $450,000)[+0.1] For correctly identifying the three portions of the home: personal use (60%), business use (25%), and rental use (15%)[+0.1] For correctly calculating the gain attributable to the personal portion as $180,000 ($300,000 × 60%)[+0.1] For correctly applying IRC §121 to exclude the $180,000 gain on the personal portion (within the $250,000 single taxpayer limitation)[+0.1] For correctly calculating the gain attributable to the business portion as $75,000 ($300,000 × 25%)[+0.05] For correctly calculating the gain attributable to the rental portion as $45,000 ($300,000 × 15%)[+0.1] For correctly identifying that the $32,000 depreciation on the business portion is recaptured as unrecaptured Section 1250 gain per IRC §1(h)(1)(E)[+0.05] For correctly identifying that the $12,000 depreciation on the rental portion is recaptured as unrecaptured Section 1250 gain per IRC §1(h)(1)(E)[+0.1] For correctly calculating the total unrecaptured Section 1250 gain as $44,000 ($32,000 + $12,000)[+0.1] For correctly calculating the remaining business portion gain as $43,000 ($75,000 - $32,000) and identifying it as Section 1231 gain[+0.05] For correctly calculating the remaining rental portion gain as $33,000 ($45,000 - $12,000) and identifying it as Section 1231 gain[+0.05] For correctly citing IRC §121(d)(6) regarding the non-exclusion of depreciation taken after May 6, 1997[+0.1] For correctly calculating the total taxable gain as $120,000 ($44,000 unrecaptured Section 1250 gain + $76,000 Section 1231 gain)


Question: Patricia owns a property that she has used as follows:- Years 1-3: Primary residence- Years 4-7: Rental property- Years 8-10: Primary residence againThe property has an original basis of $400,000. During the rental period, she claimed $60,000 in depreciation. The property is now worth $900,000. Patricia exchanges this property for a new investment property worth $700,000 plus $200,000 cash. She has not used Section 121 exclusion in the past 2 years.Calculate Patricia's recognized gain, the character of the gain, and her basis in the new property. Cite relevant code sections and rulings in your answer.

[+0.1] For correctly identifying that this transaction involves both IRC Section 121 and Section 1031 and citing Revenue Procedure 2005-14 as the relevant guidance for mixed-use properties[+0.1] For correctly calculating the adjusted basis of $340,000 ($400,000 original basis - $60,000 depreciation)[+0.1] For correctly calculating the realized gain of $560,000 ($900,000 FMV - $340,000 adjusted basis)[+0.1] For properly allocating the property between personal use (6/10) and business use (4/10) based on the years of use[+0.1] For correctly calculating the personal portion gain as $336,000 ($560,000 × 6/10)[+0.1] For correctly applying Section 121 exclusion to the personal use portion ($336,000 excluded)[+0.1] For correctly calculating the business portion gain as $224,000 ($560,000 × 4/10)[+0.1] For identifying the $60,000 as unrecaptured Section 1250 gain taxed at 25% per Section 1(h)(1)(E)[+0.05] For correctly calculating the remaining gain eligible for Section 1031 treatment as $164,000 ($224,000 - $60,000)[+0.05] For correctly allocating the boot received to the business portion as $80,000 ($200,000 × 4/10)[+0.05] For correctly calculating the recognized gain from the business portion as $80,000 (limited to boot received)[+0.05] For correctly calculating the total recognized gain as $140,000 ($60,000 unrecaptured Section 1250 gain + $80,000 boot)[+0.1] For correctly calculating the basis in the new property as $280,000 ($340,000 adjusted basis - $200,000 boot received + $140,000 gain recognized)


Question: Omega LLC, a real estate investment company, is engaging in a complex like-kind exchange involving multiple properties with depreciation recapture considerations. The transaction occurs on June 15, 2023, and involves the following:Relinquished Properties:- Commercial building: Original cost $2,500,000, accumulated depreciation $1,000,000 (including $400,000 of Section 1250 recapture potential from accelerated depreciation), current FMV $3,200,000- Equipment used in the building: Original cost $800,000, accumulated depreciation $600,000, current FMV $300,000Received in Exchange:- New commercial building: FMV $3,000,000- New equipment: FMV $300,000- Cash: $200,000Omega LLC uses a qualified intermediary for this transaction and properly identifies the replacement properties within the required timeframe.Required:a) Calculate the total realized gain on this exchange.b) Determine how much gain must be recognized and explain the character of that gain.c) Calculate the basis in each of the newly acquired assets.d) Explain how the depreciation recapture rules apply in this transaction.Cite relevant IRC sections, Treasury Regulations, and/or case law to support your analysis.

[+0.10] For correctly identifying the exchange groups under Treas. Reg. §1.1031(j)-1:   - Real property group: Relinquished FMV $3,200,000, Received FMV $3,000,000   - Personal property group: Relinquished FMV $300,000, Received FMV $300,000   - Cash (boot): $200,000[+0.15] For correctly calculating the realized gain:   - Building: $3,200,000 - $1,500,000 = $1,700,000   - Equipment: $300,000 - $200,000 = $100,000   - Total realized gain: $1,800,000[+0.20] For correctly calculating the recognized gain with proper boot allocation under Treas. Reg. §1.1031(j)-1(b):   - Building: ($1,700,000/$1,800,000) × $200,000 = $188,889 recognized   - Equipment: ($100,000/$1,800,000) × $200,000 = $11,111 recognized   - Total recognized gain: $200,000[+0.20] For correctly determining the character of the recognized gain:   - Building gain: $188,889 is ordinary income under Section 1250(d)(4)(A) due to recapture   - Equipment gain: $11,111 is ordinary income under Section 1245 recapture   - Citing Treas. Reg. §1.1250-3(d) for recapture treatment in like-kind exchanges[+0.20] For correctly calculating the basis in the newly acquired assets:   - Building: $1,500,000 (old basis) - $188,889 (boot allocated) + $188,889 (gain recognized) = $1,500,000   - Equipment: $200,000 (old basis) - $11,111 (boot allocated) + $11,111 (gain recognized) = $200,000[+0.15] For correctly explaining the depreciation recapture application:   - Identifying that Section 1250 recapture applies to the building component   - Explaining that Section 1245 recapture applies to the equipment   - Noting that recapture is recognized to the extent of gain recognized in the exchange per IRC Section 1250(d)(4)(A) and Rev. Rul. 84-121   - Explaining that remaining unrecognized recapture potential carries over to the replacement property as provided in Treas. Reg. §1.1250-3(d)(4) and Treas. Reg. §1.1245-2(c)(4), which preserve the character of potential recapture income in the replacement property's basis


Question: Pinnacle LLC, a real estate investment company, is engaging in a complex like-kind exchange under IRC Section 1031. The transaction involves the following:Property Relinquished by Pinnacle LLC:- Commercial building: Original basis $3.2M, fully depreciated to adjusted basis $0, FMV $4.5M (depreciated using straight-line method over 39 years)- Equipment: Original basis $800K, fully depreciated to adjusted basis $0, FMV $500K (depreciated using MACRS)Property Received by Pinnacle LLC:- Land: FMV $1.8M- New commercial building: FMV $2.7M- New equipment: FMV $500K- Cash boot: $800KThe replacement property is subject to a $1.2M mortgage that Pinnacle LLC assumes.Required:1. Calculate Pinnacle LLC's total realized gain on the exchange.2. Identify all boot received in the transaction.3. Analyze the exchange by separating into appropriate exchange groups according to Treasury Regulations.4. Determine the amount and character of gain that must be recognized, including any recapture amounts.5. Calculate the basis in each component of the replacement property.Cite relevant IRC sections and Treasury Regulations to support your analysis.

[+0.1] For correctly calculating the total realized gain as $5M ($4.5M + $500K) based on FMV of $5M minus adjusted basis of $0[+0.1] For correctly identifying all boot received: $800K cash plus $1.2M liability relief for a total boot of $2M[+0.15] For properly separating the exchange into exchange groups per Treas. Reg. §1.1031(j)-1:- Real Property Exchange Group: Building ($4.5M) exchanged for land and building ($4.5M)- Personal Property Exchange Group: Equipment ($500K) exchanged for equipment ($500K)[+0.15] For correctly identifying that the $500K gain on the equipment is §1245 recapture that must be recognized regardless of §1031 deferral, citing §1245(b)(4)[+0.1] For correctly identifying that the building gain qualifies as unrecaptured §1250 gain under §1(h)(1)(E) and §1(h)(6), taxed at a maximum rate of 25%[+0.15] For correctly calculating the total recognized gain as $2M:- $500K §1245 recapture (must be fully recognized)- $1.5M additional gain recognized (limited to remaining boot of $2M - $500K)[+0.1] For correctly applying the substitute basis principle under §1031(d): $0 (original basis) + $2M (gain recognized) - $2M (net boot received) = $0 total basis[+0.15] For correctly allocating the basis among the replacement properties:- Land: $0 × ($1.8M/$5M) = $0- Building: $0 × ($2.7M/$5M) = $0- Equipment: $0 + $500K (§1245 recapture) = $500K[+0.1] For correctly citing all relevant authorities, including IRC §1031, §1245, §1250, §1(h), and Treas. Reg. §1.1031(j)-1


Question: ABC Partnership has three equal partners: Alex, Blake, and Cameron. The partnership owns two investment properties:- Property X: Acquired in 2010 for $3M, current basis $1.8M, FMV $6M- Property Y: Acquired in 2018 for $4.5M, current basis $4M, FMV $5MThe partnership agreement includes special allocations with substantial economic effect under Section 704(b). Due to Section 704(c) considerations from prior contributions, the partners have the following tax capital accounts and Section 704(c) amounts in the properties:Partner | Tax Capital | 704(c) in Property X | 704(c) in Property Y-------|------------|---------------------|--------------------Alex   | $1.5M      | $1.2M gain          | $0Blake  | $2.1M      | $0                  | $300K lossCameron| $2.2M      | $0                  | $0In 2023, the partnership exchanges both properties for a single replacement property worth $10.5M plus $500K in cash through a qualified intermediary. The partnership agreement specifies that any gain or loss from Property X is specially allocated 50% to Alex and 25% each to Blake and Cameron, while any gain or loss from Property Y is specially allocated 60% to Blake and 20% each to Alex and Cameron.The replacement property will be held 40% by Alex, 35% by Blake, and 25% by Cameron according to a new special allocation.Required:1. Calculate the total gain realized and recognized by the partnership2. Determine each partner's allocation of recognized gain considering both Section 704(b) special allocations and Section 704(c) implications3. Calculate each partner's basis in the partnership interest after the exchange4. Explain how the Section 704(c) amounts will be handled in the replacement property5. Discuss whether the IRS might challenge these allocations under the anti-abuse rules of Treas. Reg. §1.701-2 and cite relevant authority

[+0.10] For correctly calculating the realized gain on Property X as $4.2M ($6M - $1.8M) and Property Y as $1M ($5M - $4M), for a total realized gain of $5.2M[+0.05] For correctly identifying that the recognized gain is limited to the boot received of $500K under IRC Section 1031(b)[+0.10] For properly allocating the recognized gain between properties based on relative FMVs per Treas. Reg. §1.1031(j)-1:- Property X: $500K × ($6M ÷ $11M) = $272,727- Property Y: $500K × ($5M ÷ $11M) = $227,273[+0.15] For correctly applying Section 704(c) principles to the recognized gain:- Identifying that Alex's Section 704(c) gain of $272,727 must be recognized first from Property X- Recognizing that Blake's Section 704(c) loss is not recognized in the exchange per Treas. Reg. §1.704-3(a)(8)[+0.15] For properly calculating each partner's share of the recognized gain:- Alex: $272,727 (704(c) from Property X) + $45,455 (20% of $227,273 from Property Y) = $318,182- Blake: $136,364 (60% of $227,273 from Property Y) = $136,364- Cameron: $45,454 (20% of $227,273 from Property Y) = $45,454[+0.10] For correctly calculating each partner's outside basis after the exchange:- Alex: $1.5M + $318,182 = $1,818,182- Blake: $2.1M + $136,364 = $2,236,364- Cameron: $2.2M + $45,454 = $2,245,454[+0.15] For properly explaining the Section 704(c) treatment in the replacement property:- Identifying that Alex's remaining $927,273 of Section 704(c) gain carries over- Identifying that Blake's $300,000 Section 704(c) loss carries over- Citing Treas. Reg. §1.704-3(a)(8) and Rev. Rul. 2004-49 for the carryover treatment- Explaining the impact of the changing ownership percentages under Treas. Reg. §1.704-3(a)(9)[+0.20] For a thorough analysis of potential IRS challenges:- Citing Treas. Reg. §1.701-2 (partnership anti-abuse rule)- Citing Treas. Reg. §1.704-3(a)(10) (Section 704(c) anti-abuse rule)- Referencing Canal Corp v. Commissioner, 135 T.C. 199 (2010) regarding economic substance- Discussing substantial economic effect requirements under Treas. Reg. §1.704-1(b)(2)(iii)- Mentioning Rev. Rul. 2004-49 regarding Section 704(c) in like-kind exchanges- Citing PLR 200651030 which addresses partnership interests in Section 1031 exchanges- Identifying the need to document business purposes for the allocation changes


Question: Westfield LLC owns a commercial building purchased 10 years ago for $2.5 million (land value: $500,000, building: $2 million). The building has been depreciated using straight-line depreciation over 39 years, with accumulated depreciation of $512,820. The property is now worth $3.2 million. Westfield exchanges this property for a mixed-use property valued at $3.2 million (60% commercial, 40% residential rental). The replacement property consists of $600,000 in land value and $2.6 million in building value. Additionally, the replacement property has a mortgage of $800,000, which Westfield assumes. Westfield's relinquished property had a mortgage of $500,000 that was paid off in the exchange.Required:1. Calculate the realized gain on the exchange.2. Calculate the recognized gain, if any, including the impact of any potential depreciation recapture.3. Determine the basis in the new property.4. Explain how the basis should be allocated between the commercial and residential portions.5. Calculate the future annual depreciation deductions available to Westfield.Cite relevant IRC sections, Treasury Regulations, or other authority to support your analysis.

Part 1: Realized Gain (1.0 point)[+0.2] For correctly identifying the adjusted basis of the relinquished property as $1,987,180 ($2.5M - $512,820)[+0.2] For correctly identifying the amount realized as $3.2M (FMV of replacement property)[+0.2] For correctly calculating the realized gain as $1,212,820 ($3.2M - $1,987,180)[+0.2] For citing IRC Section 1001 for gain realization principles[+0.2] For recognizing that the entire transaction qualifies as a like-kind exchange under IRC Section 1031(a)Part 2: Recognized Gain (1.0 point)[+0.2] For correctly calculating the mortgage boot as $300,000 ($800,000 assumed - $500,000 relieved)[+0.2] For correctly determining that $300,000 of gain must be recognized due to mortgage boot[+0.2] For citing Treas. Reg. §1.1031(d)-2 regarding mortgage relief as boot received[+0.2] For correctly noting that straight-line depreciation on commercial property is not subject to recapture at ordinary income rates under IRC Section 1250[+0.2] For identifying that the recognized gain is subject to the 25% maximum rate under Section 1(h)(1)(E)Part 3: Basis in New Property (1.0 point)[+0.25] For correctly applying the basis formula: Adjusted basis of relinquished property - Boot received + Gain recognized + Assumed mortgage[+0.25] For correctly calculating the new basis as $2,787,180 ($1,987,180 - $300,000 + $300,000 + $800,000)[+0.25] For citing IRC Section 1031(d) regarding basis determination in like-kind exchanges[+0.25] For explaining that the exchange is partially taxable but still qualifies for partial non-recognition under Section 1031Part 4: Basis Allocation (1.0 point)[+0.2] For correctly allocating $522,597 to land ($600,000/$3.2M × $2,787,180)[+0.2] For correctly allocating $2,264,583 to building ($2,787,180 - $522,597)[+0.2] For correctly allocating $1,358,750 to the commercial portion (60% of $2,264,583)[+0.2] For correctly allocating $905,833 to the residential portion (40% of $2,264,583)[+0.2] For citing Treas. Reg. §1.168(i)-6(c) regarding basis allocation principlesPart 5: Future Depreciation (1.0 point)[+0.2] For correctly identifying 39-year MACRS straight-line for the commercial portion[+0.2] For correctly identifying 27.5-year MACRS straight-line for the residential portion[+0.2] For correctly calculating annual commercial depreciation as $34,840 ($1,358,750 ÷ 39)[+0.2] For correctly calculating annual residential depreciation as $32,939 ($905,833 ÷ 27.5)[+0.2] For citing IRC Section 168(c) and Rev. Proc. 87-56 regarding depreciation methods and recovery periods


Question: Westside LLC, a real estate investment company, is engaging in a complex exchange transaction. The company is exchanging a commercial property complex consisting of a building, land, and equipment for a new commercial property plus cash. The transaction occurred on June 15, 2023.Relinquished Property:- Commercial building: Original cost $2,000,000, held for 10 years, straight-line depreciation of $800,000 taken, adjusted basis $1,200,000, FMV $2,000,000- Land: Original cost $500,000, adjusted basis $500,000, FMV $1,500,000- Equipment: Original cost $400,000, adjusted basis $300,000, FMV $200,000- The relinquished property is subject to a mortgage of $500,000Replacement Property:- New commercial building: FMV $1,800,000- New land: FMV $1,400,000- Cash received: $300,000- Westside's mortgage of $500,000 is assumed by the other party, but Westside assumes a $200,000 mortgage on the replacement propertyRequired:1. Calculate the total realized gain or loss on this transaction.2. Determine how much gain or loss must be recognized, including any Section 1250 recapture.3. Calculate the basis allocation in the replacement properties (building and land).4. Cite relevant IRC sections and regulations that apply to this transaction.

[+0.1] For correctly identifying that the transaction is governed by IRC Section 1031 and that post-TCJA only real property qualifies for like-kind exchange treatment[+0.15] For correctly calculating the realized gain on the building ($800,000) and land ($1,000,000)[+0.05] For correctly calculating the realized loss on the equipment (-$100,000)[+0.1] For correctly calculating the total realized gain of $1,700,000 ($800,000 + $1,000,000 - $100,000)[+0.1] For correctly identifying and calculating boot received: $300,000 cash plus $300,000 net mortgage relief ($500,000 - $200,000) = $600,000 total boot[+0.1] For correctly recognizing that the equipment exchange does not qualify for Section 1031 treatment and the $100,000 loss must be recognized separately[+0.15] For correctly allocating the $600,000 boot between building and land based on relative FMV:- Building: ($2,000,000/$3,500,000) × $600,000 = $342,857- Land: ($1,500,000/$3,500,000) × $600,000 = $257,143[+0.1] For correctly applying Section 1250 recapture rules to the $342,857 gain allocated to the building, noting it's subject to recapture as ordinary income (limited to the $800,000 total depreciation taken)[+0.1] For correctly calculating the total recognized gain of $500,000 ($600,000 boot - $100,000 equipment loss)[+0.15] For correctly calculating the basis in the replacement properties:- Total basis to allocate: $2,000,000 (original basis) - $100,000 (recognized loss) + $600,000 (recognized gain) = $2,500,000- New building basis: ($1,800,000/$3,200,000) × $2,500,000 = $1,406,250- New land basis: ($1,400,000/$3,200,000) × $2,500,000 = $1,093,750


Question: ABC Partnership owns three investment properties: Property X (acquired in 2010, basis $2.5M, FMV $6M, depreciation taken $1.2M), Property Y (acquired in 2015, basis $3M, FMV $4M, depreciation taken $800,000), and Property Z (acquired in 2018, basis $4M, FMV $3.5M, depreciation taken $500,000). The partnership has four equal partners (W, X, Y, and Z).In 2023, the following transactions occur:1) On February 1, ABC Partnership transfers Property X to an unrelated party through a qualified intermediary.2) On March 10, ABC identifies three potential replacement properties: Property A ($5.8M), Property B ($6.5M), and Property C ($7M).3) On April 15, Partner W withdraws from the partnership and receives Property Y plus a promissory note for $1M in complete liquidation of her interest.4) On May 1, ABC acquires Property A as replacement for Property X.5) On September 1, Partner X transfers his partnership interest to his wholly-owned S Corporation.6) On December 15, the partnership sells Property A for $6.2M.Required:a) Analyze the Section 1031 exchange implications for ABC Partnership, including any gain recognition and basis calculations. Cite relevant regulations.b) Determine the tax consequences to Partner W upon withdrawal, including gain recognition, character of gain, and basis in Property Y.c) Explain how Partner X's transfer affects the partnership and any Section 1031 implications.d) Calculate the tax consequences of the December sale of Property A, considering all prior transactions.e) Discuss any special reporting requirements under Sections 1031(f) and 6045(e).

Part A: Section 1031 Exchange Analysis (0.30 points)[+0.05] For correctly identifying that Property X qualifies for like-kind exchange treatment under IRC Section 1031[+0.05] For noting that the identification of Properties A, B, and C complies with the 3-property rule under Treas. Reg. §1.1031(k)-1(c)(4)(i)[+0.05] For calculating realized gain on Property X as $3.5M ($6M FMV - $2.5M basis)[+0.05] For determining that $200,000 of boot exists ($6M - $5.8M) requiring gain recognition[+0.05] For calculating the recognized gain as $200,000 under IRC Section 1031(b)[+0.05] For calculating the basis in Property A as $2.5M (original basis) + $200,000 (gain recognized) = $2.7M per IRC Section 1031(d)Part B: Partner W Withdrawal (0.25 points)[+0.05] For calculating Partner W's basis in partnership interest as $2.375M (1/4 of partnership's inside basis of $9.5M)[+0.05] For identifying that Partner W receives $5M in value ($4M property + $1M note)[+0.05] For calculating total gain recognized as $2.625M ($5M - $2.375M)[+0.05] For correctly characterizing $200,000 (1/4 of $800,000 depreciation on Property Y) as Section 1250 recapture income under Section 751(a)[+0.05] For determining Partner W's basis in Property Y as $3M under Section 732(a)Part C: Partner X's Transfer (0.15 points)[+0.05] For correctly stating that Partner X's transfer to his wholly-owned S Corporation does not terminate the partnership under current tax law[+0.05] For explaining that this transfer does not affect the Section 1031 exchange already completed[+0.05] For noting that the S Corporation takes a transferred basis in the partnership interest under Section 362(a)Part D: Sale of Property A (0.20 points)[+0.05] For calculating the gain on sale as $3.5M ($6.2M - $2.7M)[+0.05] For correctly determining that the gain is recognized by the partnership[+0.05] For allocating the gain appropriately among the remaining partners[+0.05] For explaining the character of the gain (including potential Section 1250 recapture)Part E: Reporting Requirements (0.10 points)[+0.05] For identifying Form 8824 filing requirement for the like-kind exchange[+0.05] For noting that Form 1099-S must be filed under Section 6045(e) for the real estate transactions


Question: Apex Partners, a domestic partnership, owns three properties:1. Property A: Commercial building in New York (basis: $3M, FMV: $7M, acquired 2010)2. Property B: Rental property in London (basis: $2M, FMV: $4M, acquired 2015)3. Property C: Land in a Qualified Opportunity Zone (basis: $1M, FMV: $1.5M, acquired 2019)On March 15, 2023, Apex executes the following transactions:- Exchanges Property A for a commercial building in Chicago (FMV: $5M) plus a 5-year note for $2M with 4% interest, with $400,000 principal payment received in 2023- Exchanges Property B for a rental property in Toronto (FMV: $3M) plus $1M cash- Sells Property C for $1.5M and reinvests $1.2M into a Qualified Opportunity Fund within 180 daysAssuming all properties are held for investment, determine:1. The total gain realized and recognized in 20232. The character of all recognized gains3. The basis in each new property4. The tax implications if the Chicago property is sold in 2025 for $6MCite relevant IRC sections, Treasury Regulations, and case law in your analysis.

[+0.1] For correctly identifying Property A exchange as a Section 1031 exchange with boot in the form of a $2M note[+0.1] For calculating the realized gain on Property A as $4M ($7M FMV - $3M basis) and applying IRC Section 1031(b) for boot recognition[+0.1] For correctly applying the installment sale rules under IRC Section 453 to the note received in the Property A exchange, calculating the gross profit percentage as 100% and the 2023 recognized gain as $400,000[+0.1] For correctly determining that Property B exchange fails Section 1031 qualification under IRC Section 1031(h) because U.S. and foreign real property are not like-kind[+0.1] For calculating the realized and recognized gain on Property B as $2M ($4M FMV - $2M basis)[+0.1] For correctly analyzing Property C sale under IRC Section 1400Z-2, identifying that the $500,000 gain ($1.5M - $1M) is eligible for deferral through 2026 due to the $1.2M QOF investment[+0.1] For calculating the total 2023 recognized gain as $2.4M ($400,000 from Property A + $2M from Property B + $0 from Property C)[+0.05] For correctly characterizing all gains as long-term capital gains based on holding periods exceeding one year[+0.1] For correctly calculating the basis in the Chicago property as $1.4M ($3M original basis - $2M boot + $400,000 recognized gain) per Section 1031(d)[+0.05] For correctly determining the basis in the Toronto property as $4M (cost basis under Section 1012)[+0.05] For correctly calculating the basis in the QOF investment as $0 for the $1.2M portion representing deferred gain per Section 1400Z-2(b)(2)(B) and $300,000 for the remaining portion[+0.05] For identifying that the sale of the Chicago property in 2025 would result in a realized gain of $4.6M ($6M - $1.4M basis)[+0.1] For correctly noting that the 2025 sale would trigger recognition of any remaining deferred gain from the installment note under Treas. Reg. §1.1031(k)-1(j)(2)