C. What cost recovery deduction, if any, does Tyler claim on the equipment? The equipment is 5-year MACRS property. Explain. $12,500 under Sec. 168 or Sec 179. Each of these sections applies to a "purchase." Tyler is deemed to have ourchased the equipment. What deduction does Tyler get with respect to the accounts receivable when they are collected? $12,500 or ordinary income flows through to Tyler, but Tyler can offest that income with Tyler's Sec. 743(b) adjustment. So, Tyler does not pay tax on the collection of the AR. What deduction does Tyler get with respect to the land and buildings? You may assume that the value of the land is $160,000 and the basis is in the land is $100,000. The fair value of the building is $120,000 and the basis is $75,000 Tyler can depreciate the portion of the Sec. 743(b) adjustment over 27.5 or 39 years. Is any of Gerald's gain 25% capital gain? Consider §1(h) and Reg. §1(h)-1(b)(3). Explain. Perhaps, but Congressional intent is unclear. What deduction(s) does Tyler get with respect to the goodwill? Consider §197. Amortizable under Section 197 over 15 years. d. Under §751(d), are the accounts receivable “inventory"? Yes. The equipment? No. What about any supplies? Yes./nPart 1 Alexandria and Gerald own and operate CSA, LLC, which reports as a partnership. The company balance sheet shows assets as of today as follows: Cash Accounts receivable Equipment (Cost = $28,000) Land and Buildings (Cost $220,000) Goodwill (Cost = $60,000) Fair Market Value Adjusted Basis $40,000 $40,000 $25,000 $25,000 $0 $0 $280,000 $175,000 $130,000 $25,000 This is purchased goodwill that was amortized. The Section 1245 recapture is $35,000 ($60,000 - $25,000). The remaining gain is Section 1231 gain. $500,000 $240,000 Alexandria owns 50% of the profits, losses and capital; Gerald, 50%. Gerald sold the 50% interest to Tyler for $250,000 cash. a. What is the amount and character of Gerald's gain or loss? Note: You may assume that Gerald's outside basis = Gerald's share of inside basis. Sales price Basis Gain Sec 751 assets Other $42,500 $207,500 $0 $120,000 $250,000 $120,000 $130,000 $42,500 $87,500 Ordinary Capital Income Gain Sec 751(a) Sec 741 b. What is the amount and allocation of any adjustment if there is an election in effect under § 754? Fair Market Value Adjusted Basis Sec 743(b) Adjustment Cash $40,000 $40,000 $0 Accounts receivable Equipment (Cost = $28,000) $25,000 $0 $12,500 $25,000 $0 $12,500 Land and Buildings (Cost $220,000) Goodwill (Cost $60,000) $280,000 $175,000 $52,500 $130,000 $500,000 $240,000 $25,000 $52,500

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