In 2022, Oscar and Andy pooled their resources to form Feline&Canine Partnership. They will both work actively in the business and they have agreed to share profits and losses 50-50. To form this partnership, Oscar contributed manufacturing equipment with a FMV of $1,000,000 and a basis of $100,000. Andy contributed $400,000 of cash and land with a fair market value of $800,000 and a basis of $500,000. The equipment contributed by Oscar was not encumbered by debt. The land contributed by Andy had a $200,000 mortgage (qualified nonrecourse debt) which was assumed by FELINE&CANINE Partnership.

1. Determine the basis that Oscar and Andy each have in their partnership interest in FELINE&CANINE after forming FELINE&CANINE partnership. (In other words, what are their outside bases?)

1. During 2022, FELINE&CANINE Partnership had non-separately stated loss (ordinary operating loss) of $(80,000), a long-term capital gain of $20,000. In 2022, they refinanced the $200,000 mortgage and now have a total of $250,000 of qualified non-recourse debt.
   1. What items of income will Oscar report on his 1040 return?
   2. What is Oscars outside basis in his partnership interest at the end of 2022?
2. In 2023, FELINE&CANINE Partnership sold the land (originally contributed by Andy) for $900,000. Determine the amount of gain to be allocated to Oscar and to Andy.

1. In 2023, when Oscars outside basis is $180,000, Oscar received a proportionate non-liquidating distribution as follows:
   1. How much gain or loss much FELINE&CANINE Partnership recognize as a result of this distribution?

Adjusted basis Fair Market Value

Cash $130,000 $130,000

Inventory 20,000 45,000

Office equipment 60,000 80,000

1. What is Oscars basis in the assets he receives in this distribution?
2. What is Oscars outside basis in his partnership interest following the distribution?