Reference no: EM132819443

problem 1: A and B enter into a partnership agreement on January 1, year 1. A contributes $25,000 cash and agrees to devote his full-time services to the partnership, B contributes $500,000 cash. The agreement provides that all deductions and taxable loss will be allocated to B until there is net taxable income and then B will be allocated an amount of income equal to her prior allocated losses. Thereafter, all taxable income or loss will be allocated equally. Determine the substantiality of the partnership allocation agreement under the following circumstances:

a.) The partnership is formed for wildcat oil drilling of a particular piece of property.

b.) The partnership is formed to acquire and lease machinery. Because of the nature of the machinery and its depreciable life, there is a strong likelihood at the time of formation that B's allocations will be completely offset by December 31, year 4.

c.) In (b) above, assume that the allocations are not expected to be completely offset until December 31, year 10.