Answer all parts.

A and B each contribute $75,000 to form the AB general partnership. The partnership agreement satisfies the primary or basic test for economic effect under Section 704(b). Partnership profits and losses are allocated 75% to A and 25% to B. The partnership uses its $150,000 cash and borrows an additional $350,000 on a recourse basis and purchases land for $500,000.

A. How will the $350,000 liability be allocated and what will be each partners outside basis? In answering this question, please demonstrate whether the liability is a recourse liability or a nonrecourse liability for purposes of IRC section 752.

B. What result in part (a), above, if A is a limited partner who is not obligated to restore a capital account deficit but the partnership agreement includes a qualified income offset provision, a minimum gain chargeback provision, and requisite nonrecourse deduction provisions, thereby satisfying the alternate test of economic effect and the Treasury Regulations promulgated under IRC section 704(b)? In answering this question, please demonstrate whether the liability is a recourse liability or a nonrecourse liability for purposes of IRC section 752.

C. Modified Facts: Assume the facts in Part (b) above, that is that A is a limited partner and B is a general partner. Also assume that the AB limited partnership purchases a building on leased land instead of purchasing land as initially described. Finally, assume that that the $350,000 liability described above is a nonrecourse liability borrowed from a commercial lender, securing the loan with a mortgage on the building. The terms of the loan require the payment of market rate interest and no principal for the first ten years. Assume for convenience that the $500,000 building is depreciable at the rate of $50,000 per year for ten years, and that other partnership income (including lease expenses on the land and interest on the liability) equals expenses for the years in question. The partnership agreement contains a qualified income offset, and B is required to make up any capital account deficit. Except as otherwise required by a minimum gain chargeback provision, the agreement allocates profit and loss 75% to A and 25% to B until such time as the partnership recognizes items of income and gain that exceed the items of deduction and loss that it has recognized over its life. Subsequent partnership income and losses are allocated equally between A and B. Assume that it is reasonably anticipated that the equal allocation will begin after ten years. The partnership agreement states that A and B each have a 50% interest in partnership profits for purposes of Section 752.

How is the $350,000 liability allocated in year one? In answering this question, please demonstrate whether the liability is a recourse liability or a nonrecourse liability for purposes of IRC section 752.

D. Based on the facts in part (c) above, how will the liability be allocated at the end of year four? In answering this question, please demonstrate whether the liability is a recourse liability or a nonrecourse liability in year four for purposes of IRC section 752