Krypton Partnership owns and operates an office building in the medical district of a large city. The property was contributed to the partnership several years ago by partner K. Under the terms of the partnership agreement, K is allocated 20% of the partnerships profits, gains, losses and deductions, other than depreciation. Depreciation is allocated 50% to K and 50% to the other partners. The office building is encumbered by a nonrecourse mortgage of $750,000. Its tax basis is $650,000 and its book value is $875,000.

a.Under the general rules governing the allocation of partnership nonrecourse liabilities, how much of the nonrecourse liability will be allocated to K?

b. Would an allocation of $425,000 of the nonrecourse liability to K be acceptable under the regulations? Explain.

c. What about an allocation of $330,000?

d. Could the partnership allocate $475,000 of the liability to K this year and change the allocation to $330,000 next year (adjusted for changes in the tax basis and book value of the property)?