Basic Facts: Alva and Buck are partners in a newly-formed general partnership. They will share profits and losses equally (although their capital accounts may not always be equal). The partnership will maintain capital accounts in accordance with Reg. 1.704-1(b)(2)(iv). The partners share recourse liabilities equally. Prepare an opening balance sheet for the partnership (including tax capital accounts), reflecting the formation transaction described in Problem 1 below, and then determine the appropriate adjustments to the partners capital accounts for each of the operating transactions described in Problem 2 below. Following the determination of each of these adjustments for book purposes, set forth the effect, if any, of each of these transactions on Alva's and Buck's bases in their partnership interests.

1. Formation Transaction. Alva contributes to the partnership: Basis FMV cash $50 $50 land (encumbered by a $100 recourse mortgage that the partnership assumes) 100 200 Buck contributes to the partnership Bs own note for $50 payable in 5 years bearing interest at the AFR 0 50 Xs note payable to B 50 50 Equipment 75 100,

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