Allocation of Debt. The majority of partnership agreements provide upon liquidation of a partnership, each partner must restore any negative capital balances. The application of this agreement determines the adjustment to a partners outside basis when a debt is assumed by the partnership.

Discuss and explain the constructive liquidation of the doomsday scenario (Treas. Reg. 1.752-2(b)) for the following situation:

Alice and Bob are equal partners each contributing $5,000. The partnership purchased land for $15,000. It paid $10,000 in cash and obtained a $5,000 recourse loan for the remaining purchase price.