Question

Patrick purchases one third interest in the PPP partnership from an existing partner for 600,000. The partnership has assets with a value of 1.2m. PPP has a 754 election in effect. What is the amount of the basis adjustment?

a. 600,000 increase in the basis of partnership assets

b. 0

c. 200,000 increase in Patrick’s share of outside basis in the partnership assets

d. 200,000 increase in Patrick’s inside basis in the partnership assets to FMV on the partnerships books as goodwill or mark to market adjustment.

Answer 1

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Solution: c. 200,000 increase in Patrick's share of outside basis in the partnership assets Answer: Explanation: The purpose of election of section 754 is to eliminate the discrepancies between inside basis of asset and outside bases of partner's interest. Partnership with section 754 election in effect is required to Increase the basis of remaining partnership property in the amount of any additional cost paid by new partner. In this case, Patrick's basis is $600000. As a result, partnership must increase the basis of its remaining or present property by $200000 for depreciation attributable to IRC Sec. 743(b) basis adjustments.