At the beginning of the year, Charles is a 20% partner in the LMC Partnership. His outside basis at that time is $250,000. Included in that amount is his 20% share of partnership recourse liabilities in the amount of $100,000.

During the year, Charles receives a guaranteed payment of $100,000 for services to the partnership. His share of ordinary partnership income for the year is $80,000. He is allocated $5,000 of capital loss from the sale of investments by the partnership and he is also allocated $2,000 of tax exempt interest from state and local bonds owned by the partnership.

On the last day of the partnership tax year, Charles receives a cash distribution of $120,000. The partnership also agrees to reallocate $40,000 of recourse liabilities away from him and to other partners. These moves are made in partial liquidation of his partnership interest in that he has a smaller share of the partnership afterward.

1. What is Charles outside basis after all of these events?

Assume that the basis of Charles' original contribution was equal to its partnership book value and that all items of income, deduction, gain, and loss of the LMC Partnership have the same values for both partnership book and tax purposes. 2. What is the ending value of Charles' capital account?

(HINT: IF ALL ALLOCATIONS OF BOOK AND TAXABLE INCOME ARE THE SAME AMOUNTS AND CHARLES DOES NOT HAVE ANY DIFFERENCES BETWEEN HIS OUTSIDE BASIS AND CAPITAL ACCOUNT DUE TO BUILT-IN GAINS OR LOSSES, THEN WHAT IS THE ONLY DIFFERENCE BETWEEN THE COMPUTATION OF OUTSIDE BASIS AND THE CAPITAL ACCOUNT?)