Mike, Seth and Bill form a partnership to develop and operate an internet web site.

Mike, Seth and Bill form a partnership to develop and operate an internet web site. Seth and Bill invest $60,000 each; Mike has no capital to invest and instead agrees to supply his ideas and services. At the outset, the partners agree to share capital and profits equally. 1. What are the tax consequences to the partners and the partnership on formation? 2. How would the result in question 1 change if Seth’s and Bill’s investments consisted of a computer terminal, tools and other raw materials with a fair market value of $120,000 and a collective basis to Seth and Bill of $60,000 immediately prior to the contribution? 3. How would the result in question 2 change if Mike agrees to forfeit his one-third interest in the partnership’s service before the web site is developed?

Mike, Seth and Bill form a partnership to develop and operate an internet web site. Seth and Billinvest $60,000 each; Mike has no capital to invest and instead agrees to supply his ideas and…

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