A and B form the AB partnership to operate an international business. They make equal contributions to the partnership. The income of the business, as well as the sources of that income, is uncertain. The partnership agreement provides that capital accounts will be maintained in accordance with capital account balances. The partnership agreement also gives both A and B an unlimited deficit restoration obligation. A is a U.S citizen and B is a citizen and full-time resident of Germany, meaning that generally B is only taxable in the United States on income that is U.S. source. The partnership conducts business in the United States and in Germany. The partnership agreement provides that B will be allocated all of the income, gain, loss, and deduction derived in Germany, and A is allocated the remaining income, gain, loss, and deduction.

a. Describe the tax consequences.

b. How would you answer change if the partnership agreement provided that all income, gain, loss, and deduction will be shared equally, but that B will be allocated all income, gain, loss, and deduction derived from his country in computing his equal share?