Adam and Amit formed a partnership this year to operate a retail store specializing in gag gifts. Adam, who has been in the business for about 13 years as a sole proprietor, owned the following assets:

Adam transferred these assets to the partnership on February 1, 2008, in exchange for a 60% partnership interest. Amit contributed $59,000 in cash and marketable securities with a fair market value of $30,000 in return for a 40% interest. The marketable securities were purchased about 12 years ago at a cost of $25,000.
REQUIRED
(A) How can Adam's assets be transferred to the partnership without immediate tax consequences? What is the cost to the partnership of Adam's assets?
(B) What is the maximum non-partnership consideration that Adam can receive without adverse tax consequences?
(C) What is the adjusted cost base of his partnership interest to Adam, assuming that the only consideration received for the transferred assets is a partnership interest?
(D) What is the adjusted cost base of his partnership interest to Amit, assuming that (i) the only consideration received for the transferred assets is a partnership interest and (ii) Amit and the partnership elected jointly to have the rollover provisions [ssec. 97(2)] apply to the transfer?

Transcribed Image Text:

Cost amount Fair market value Inventory Store fixtures (cost: $17,500. Leasehold improvements (cost S37,500) Goodwill 22,000 19.500 35,000 40.000 S 89,000 133,500 22,000 16,000 33,500