As of the end of the current tax year, Valerie Flemings tax basis in her partnership interest was $45,000. At that time she received a $60,000 non-liquidating cash distribution. Assume that all other partners also received proportionate cash distributions, so that the provisions of 751(b) do not apply to the distribution. Immediately following the distribution, the partnership had the following assets:

Basis FMV

Cash $ 10,000 $ 10,000

Accounts Receivable 0 45,000

Depreciable Equipment 50,000 80,000 (Depr assets are IRC 1231 assets and NOT capital assets)

Land (Held for Investment) 25,000 145,000

Stocks 65,000 105,000

$140,000 $385,000

Assume that the partnership originally purchased the depreciable equipment for $100,000. The equipment is being depreciated using accelerated depreciation. The partnership had a 754 election in effect at the date of the distribution.

a. By how much will the partnership be required to adjust its tax basis in its remaining assets under 734(b) in connection with the distribution to Valerie?

b. To which class(es) of assets will the adjustment be allocated?

c. How will the adjustment be allocated among the partnerships remaining assets? This means calculate the adjustment to the assets.