Partner A owns a one-interest in the ABC cash method, calendar year general partnership, which manufactures and sells inventory. A, B and C, the original partners, each made initial cash contributions of $75,000. All income has been distributed as earned. On January 1^st, A sells his interest in the partnership to D. Consider the tax consequences of the sale to A, assuming he has owned his partnership interest for several years. The balance sheet of the ABC partnership (which is to be used in all parts of this problem unless the facts indicate to the contrary) is as follows:

Assets Partners Capital

A.B. F.M.V. A.B. F.M.V.

Cash $45,000 $45,000 A $75,000 $135,000

Inventory75,000 90,000 B 75,000 135,000

A/R 0 45,000 C 75,000 135,000

CA 105,000 225,000 Total $225,000 $405,000

Total:$225,000 $405,000

Consider the tax consequences to A on his sale in the following alternative situations:

(a) A sells his interest for $135,000 cash.

(b) Each partner originally contributed $150,000 cash (and assume each has an outside basis of $150,000), and the capital asset has a basis to the partnership of $330,000. A sells his interest to D for $135,000 cash.

(c) Each partner originally contributed only $45,000 cash instead of $75,000, and the capital asset was purchased and held subject to a $90,000 liability. A sells his interest to D for $105,000 cash.

(d) The sale occurs on March 31, one quarter of the way through the year, at a time when As share of partnership income through March 31 (all ordinary income) is $30,000. It is agreed that D will pay A $165,000 for his interest and also will acquire As right to income.