Carrie DLake, Reed A. Green, and Doug A. Divot share a passion for golf and decide to go into the golf club manufacturing business together. On January 2, 2021, DLake, Green, and Divot form the Slicenhook Partnership, a general partnership. Slicenhooks main product will be a perimeter-weighted titanium driver with a patented graphite shaft. All three partners plan to actively participate in the business. The partners contribute the following property to form Slicenhook:

PartnerContributionCarrie DLakeLand, FMV$ 460,000 Basis $460,000, Mortgage$ 60,000Reed A. GreenCash$ 400,000Doug A. DivotCash$ 400,000

Carrie had recently acquired the land with the idea that she would contribute it to the newly formed partnership. The partners agree to share in profits and losses equally. Slicenhook elects a calendar year-end and the accrual method of accounting. In addition, Slicenhook received a $1,500,000 recourse loan from Big Bank at the time the contributions were made. Slicenhook uses the proceeds from the loan and the cash contributions to build a state-of-the-art manufacturing facility ($1,200,000), purchase equipment ($600,000), and produce inventory ($400,000). With the remaining cash, Slicenhook invests $45,000 in the stock of a privately owned graphite research company and retains $55,000 as working cash. Slicenhook operates on a just-in-time inventory system so it sells all inventory and collects all sales immediately. That means that at the end of the year, Slicenhook does not carry any inventory or accounts receivable balances. During 2021, Slicenhook has the following operating results:

Sales $ 1,126,000Cost of goods sold 400,000Interest income from tax-exempt bonds 900Qualified dividend income from stock 1,500Operating expenses 126,000Depreciation (tax) 179 on equipment$ 39,000 Equipment81,000 Building24,000144,000Interest expense on debt 120,000

The partnership is very successful in its first year. The success allows Slicenhook to use excess cash from operations to purchase $15,000 of tax-exempt bonds (you can see the interest income already reflected in the operating results). The partnership also makes a principal payment on its loan from Big Bank in the amount of $300,000 and a distribution of $100,000 to each of the partners on December 31, 2021. The partnership continues its success in 2022 with the following operating results:

Sales $ 1,200,000Cost of goods sold 420,000Interest income from tax-exempt bonds 900Qualified dividend income from stock 1,500Operating expenses 132,000Depreciation (tax) Equipment$ 147,000 Building30,000177,000Interest expense on debt 96,000

The operating expenses include a $1,800 trucking fine that one of its drivers incurred for reckless driving and speeding and meals expense of $6,000 (the meals were not provided by a restaurant). By the end of 2022, Reed has had a falling out with Carrie and Doug and has decided to leave the partnership. He has located a potential buyer for his partnership interest, Indie Ruff. Indie has agreed to purchase Reeds interest in Slicenhook for $730,000 in cash and the assumption of Reeds share of Slicenhooks debt. Carrie and Doug, however, are not certain that admitting Indie to the partnership is such a good idea. They want to consider having Slicenhook liquidate Reeds interest on January 1, 2023. As of January 1, 2023, Slicenhook has the following assets:

Tax BasisFMVCash$ 876,800$ 876,800Investmenttax exempts15,00018,000Investment stock45,00045,000Equipmentnet of depreciation333,000600,000Buildingnet of depreciation1,146,0001,440,000Land460,000510,000Total$ 2,875,800$ 3,489,800

Carrie and Doug propose that Slicenhook distribute the following to Reed in complete liquidation of his partnership interest:

Tax BasisFMVCash$ 485,000$ 485,000Investment stock45,00045,000Equipment$200,000 cost, net of depreciation111,000200,000Total$ 641,000$ 730,000

Slicenhook has not purchased or sold any equipment since its original purchase just after formation.

b. What is each partners initial tax basis in Slicenhook on January 2, 2021?

c. Prepare Slicenhooks opening tax basis balance sheet as of January 2, 2021.

d. Using the operating results, what are Slicenhooks ordinary income and separately stated items for 2021 and 2022? What amount of Slicenhooks income for each period would each of the partners receive? (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

e-1. Using the information provided, prepare Slicenhooks page 1 to be included with its Form 1065 for 2021. (Use 2021 tax rules regardless of the year on the form.)

Visit the IRS website and download Form 1065. Enter the required values in the appropriate fields. Save your completed Tax Form to your computer and then upload it here by clicking "Browse." Next, click "Save."

e-2. Using the information provided, prepare a Schedule K-1 for Carrie. (Use 2021 tax rules regardless of the year on the form.)

Visit the IRS website and download Form 1065 Schedule K-1. Enter the required values in the appropriate fields. Save your completed Tax Form to your computer and then upload it here by clicking "Browse." Next, click "Save."

f. What are Carries, Reeds, and Dougs bases in their partnership interest at the end of 2021 and 2022?

g-1. If Reed sells his interest in Slicenhook to Indie Ruff, what are the amount and character of his recognized gain or loss?

g-2. What is Indies basis in the partnership interest?

h-1. If Reed sells his interest in Slicenhook to Indie Ruff, what is Indie's inside basis in Slicenhook?

h-2. What effect would a 754 election have on Indies inside basis? i-1. If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reeds partnership interest, what are the amount and character of Reeds recognized gain or loss?

i-2. If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reeds partnership interest, what is Reeds basis in the distributed assets?

j-1. If Reed sells his interest, what is his after-tax cash? Assume his ordinary marginal tax rate is 35 percent and his capital gains tax rate is 15 percent.

j-2. If Slicenhook distributes the assets proposed by Carrie and Doug in complete liquidation of Reed's partnership interest and Reed were to immediately sell the distributed assets, what is his after-tax cash? Assume his marginal tax rate is 35 percent and his capital gains rate is 15 percent.