Finch, Inc., a calendar year general contractor, and Cardinal, Inc., a development corporation with a July 31 year end, formed the equal FC, LLC, on January 1 of the current year. Both LLC members are C corporations. The LLC was formed to construct and lease shopping centers in Seattle, Washington. Finch contributed cash of $1 million, equipment (basis of $200,000, fair market value of $500,000), building permits, and architectural designs created by Finch’s employees (basis of $0, fair market value of $200,000). Cardinal contributed land (basis of $500,000, fair market value of $700,000) and cash of $1 million. The cash was used as follows:
|
Legal fees for drafting LLC agreement |
$ 20,000 |
|
Materials and labor costs for construction in progress on shopping center |
1,900,000 |
|
Office expenses (utilities, rent, overhead, etc.) |
80,000 |
What issues must the LLC address in preparing its initial tax return?