Reference no: EM131734540

Question - D, E and F form a partnership by contributing the following property (in each case worth $200 net of liabilities) in exchange for equal 1/3 interests in the partnership's capital, profits and losses.  The partnership assumes all liabilities encumbering the contributed assets.

D contributes land with a fair market value of $400, which is encumbered by a recourse mortgage of $240.  D has held the land for several years as an investment, and his basis in the land is $100.  D also contributes $40 in cash.

E contributes a building, a § 1231 asset, with a value of $260 in which E has an adjusted basis of $130.  The building was purchased several years ago by E and is subject to a recourse mortgage $60.  

F, a cash method taxpayer, contributes zero basis accounts receivable from his business worth $350, and assigns his accounts payable of $150 to the partnership.    

NOTE:  For purposes of this problem, ignore the possibility that there might be a disguised sale, assume that DEF uses the traditional method for making § 704(c) allocations, and finally assume that for purposes of § 752 the partners share all partnership liabilities equally.  

(a)  With respect to each partner, 

(i)  Is any gain or loss recognized?

(ii)  What is her outside basis?  

(b)  With respect to DEF:

(1) Does it recognize any gain or loss on formation?

(2) What is its inside basis in the contributed property?  

(c) Construct an opening balance sheet for the partnership.