1. Consider the balance sheet for the XYZ Partnership.

Assets Liability & Capital

Tax FMV Tax FMV

Cash $ 30 $ 30 Liabilities $ 0 $ 0

Accts. Rec. 0 60

Land 30 60 Capital

$ 60 $150 Tax FMV

Capital, X $ 20 $ 50

Capital, Y 20 50

Capital, Z 20 50

$ 60 $150

X sells her interest in the partnership to B for $50 cash.

A. What is the amount and character of the gain or loss realized by X on sale of her partnership interest to B?

B. What is B’s initial outside basis in his partnership interest? In the absence of a § 754 election, how much income will B report if the partnership collects the accounts receivable? If a § 754 election is made, along with a § 743(b) adjustment, how much income will B report if the partnership collects the receivables. Also, how much is the §743(b) adjustment and how is it allocated among the assets?