Hi and Lo are forming Hi-Lo Partnership. Hi contributes $400,000 cash and Lo contributes real estate with an adjusted basis of $320,000 and a fair market value of $460,000. The real estate is subject to a $60,000 recourse liability, which is also transferred into the partnership (assumed) and is shared equally by the partners for basis purposes. Hi and Lo share in all partnership profits and losses equally except for any precontribution gains, which must be allocated according to the statutory rules for built-in gain allocations.

a. What are His and Los adjusted tax basis in their partnership interest immediately after the partnership is formed?

b. What are Hi's and Lo's capital accounts immediately after the partnership is formed?

c. If the partnership sells the real estate contributed by Lo for $500,000, what is the tax gain allocated to each partner?