KPMG Tax Case Competition 2012

Thompson Vou Danielle Bennett Jonathan Pham Jessica Sugianto Buck and Dee Luxx Buck and Dee Luxx House Remodel $680,000 Tax Planning Tax Planning Sale of Apartments Payment $120,000 cash Questions Thank You Sale of apartments & purchase of raw land VS Like-kind exchange Paying contractor with painting and cash Sale of stocks Sale of machine Tax & Cash Flow Implications Rental Real Estate Exception "...held that the rental of real estate, even if the taxpayer rents out only one piece of real estate, is a trade or business regardless of the level of personal effort." TC Memo 1962-218 Section 1231 treatment Allocated $3 million sale based on % of basis Amazing Arms 25% Quiet Meadows 75% > (4.2 million) Section 1231 loss Purchase of Raw Land Cash outflow: $8 million or $9 million VS Like-kind Exchange Buck's Value $9 million creates surplus must include $800,000 boot $300,000 deferred gains lower basis than if purchased Dee's Value $8 million creates defecit $200,000 section 1231 gain recognized $100,000 deferred gain lower basis than if purchased Bill $560,000 painting $500,000 recognized gain Selling Stocks Sale 1 Sale 2 Long term capital gain Long term capital loss $10,000 ($50,000) Net ($40,000) long term capital loss Sale of Machine Causes $1,800,000 recognized gain $1,000,000 ordinary gain $800,000 section 1231 gain (caused by depreciation recapture) Sold Apartments and Purchase Land Like-kind Exchange What to do? It depends...