Daisy Tree Partnership owns and operates two apartment

complexes in the metropolitan area. The first complex was

contributed to the partnership by partner L. The other two

partners (M and N) contributed cash which, together with

borrowed funds, was used to purchase the second complex.

The three partners share partnership income, loss, gain and

deduction equally. The tax basis and book value of the

partnerships assets at the end of the current year are as

follows:

Tax Book

Cash and equivalents $60,000 $60,000

Receivables 0 45,000

Apartment Complex 1 600,000 1,500,000

Accum. depreciation, complex 1 (120,000) (300,000)

Apartment Complex 2 2,475,000 2,475,000

Accum. depreciation, complex 2 (180,000) (180,000)

Land and other assets 200,000 200,000

Total assets $2,035,000 $4,070,000

a. Assume that the partnership uses the traditional

method with curative allocations to make allocations

under Code Sec. 704(c). Further assume that complex

1 has a remaining useful life of 8 years for book

and tax. Complex 2 has a remaining useful life of

25.5 years. Both are depreciated using the straight-

line method for both book and tax. Show how book and

tax depreciation will be allocated among the

partners.

b. Does the curative allocation of depreciation on

complex 2 from L to M and N completely cure the

discrepancy caused by the ceiling rule with respect

to the allocation of depreciation on complex 1?

c. How can the partnership eliminate the remaining

discrepancy?