Alice, Beth and Carl formed the ABC Partnership early in Year 1. Alice and Beth each contributed $100,000 for their partnership interests, and Carl contributed land having a $100,000 FMV and $160,000 adjusted basis. The land remained a capital asset to the partnership. Late in Year 2, Carl sold his interest in the partnership to Dan for $100,000. Shortly after that transaction, the partnership sold the land to an outside party for $100,000. The partnership has no Sec. 754 election in effect (discussed in Chapter C:10). The partners have asked that you explain the consquences these transactions have to the partnership and the partners, especially Carl and Dan. At a minimum, you should consult the following resources:

-IRC Sec. 704

-Reg. Sec. 1.704-3(a)