Question

1. The ABC cash method general partnership, which has made a §754 election, had the following balance sheet at the time D purchased C’s interest for $60,000 cash. None of the partnership’s assets were contributed by a partner:

Assets                                                             Liabilities and Partners’ Capital

                        A.B.                 F.M.V.                                     A.B.*               F.M.V.

                                                                        Liabilities                                $30,000

                                                                        Capital:

Accounts                                                                     A          $30,000           60,000

Receivable      $0                    $30,000                       B          30,000             60,000

Inventory         30,000             60,000                         C          30,000             60,000

Land (§1231    30,000             15,000

Asset)

Building(§1231 30,000           105,000          

Asset no depr-

eciation recap-

ture)                                                                                                                               

Totals $90,000           $210,000                                 $90,000           $210,000

1. What is D’s personal inside basis in each of the assets?
2. What is D’s personal inside basis in the assets if he paid $70,000 (rather than $60,000) for C’s interest?
3. Same as (a), above (i.e. D buys C’s interest for $60,000), except that C contributed the accounts receivable to the partnership at a time when the fair market value of the receivables was $30,0000 and their basis was zero.

Answer 1