Jokan contributes a nondepreciable asset to the Mahali LLC in exchange for a one-fourth (25%) interest in the capital, profits, and losses of the LLC. The asset has an adjusted tax basis to Jokan and the LLC of $80,000 and a fair market value and 704(b) "book" basis on the contribution date of $144,000. The asset is encumbered by a nonrecourse note of $112,000 that has not been guaranteed by any of the LLC members.

Under 704(c) principles, the Regulations provide that the first $of the nonrecourse debt is allocated to Jokan. Jokan's basis in his LLC interest is $.