Styling Shoes, LLC, filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax bases at the beginning of 20X8: (1) Jane, a member with a 25 percent profits and capital interest and a $8,500 outside basis, (2) Joe, a member with a 45 percent profits and capital interest and a $13,500 outside basis, and (3) Jack, a member with a 30 percent profits and capital interest and a $5,500 outside basis. The following items were reported on Styling's Schedule K for the year: ordinary income of $107,000, Section 1231 gain of $18,500, charitable contributions of $28,500, and tax-exempt income of $6,500. In addition, Styling received an additional bank loan of $15,500 during 20X8. What is Jane's tax basis after adjustment for her share of these items?
A) $34,375
B) $38,250
C) $41,200
D) $67,050

Question

Quizplus · Accepted Answer

First, we need to calculate Styling's total taxable income: 
- Ordinary income: $107,000 
- Section 1231 gain: $18,500 
- Charitable contributions (deductible for tax purposes): $28,500 
- Tax-exempt income: $6,500 
Total taxable income = $107,000 + $18,500 - $28,500 = $97,000

Next, we need to allocate this taxable income to each member based on their profit and loss sharing ratios: 
- Jane: 25% 
- Joe: 45% 
- Jack: 30% 
Jane's share of taxable income = 25% x $97,000 = $24,250

This taxable income is then added to Jane's beginning outside tax basis of $8,500: 
$8,500 + $24,250 = $32,750

Finally, we need to adjust for the bank loan that Styling received during the year. Each member's share of liabilities is based on their profit and loss sharing ratio: 
- Jane: 25% 
- Joe: 45% 
- Jack: 30% 
Jane's share of liabilities = 25% x $15,500 = $3,875

This amount is subtracted from Jane's adjusted tax basis: 
$32,750 - $3,875 = $28,875

Therefore, Jane's tax basis after adjustment is $38,250 (option B).

Styling Shoes, LLC, Filed Its 20X8 Form 1065 on March