Question

Dove and Eagle formed a business entity in which they are equal owners. Dove contributed cash of $100,000, and Eagle contributed land with a basis of $40,000 and fair market value of $100,000. For its first year of operations, the entity had taxable income of $60,000 and made no distributions. At year end it had outstanding recourse liabilities to third parties of $10,000. Eagle had a basis of $70,000 in the entity at the end of the first year of operations. What type of entity was formed

Answer 1

Answer:

S corporation

Explanation:

In the given case, The eagle basis at the closing of the year is 70,000 i.e. $40,000 + $30,000 (50% of $60,000)

In the case when the entity was a general partnership so 50% of $10,000 i.e. $5,000 would be added to the basis of Eagle

So here the type of entity that was formed is S corporation

The same is relevant