1. Partner A owns a one-third 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 problems 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

Inventory 75,000 90,000 B 75,000 135,000

Accounts C 75,000 135,000

Receivable 0 45,000

Capital Asset 105,000 225,000

$225,000 $405,000 $225,000 $405,000

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

1. A sells his interest for $135,000 cash
2. Each partner originally contributed $15,000 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.
3. 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.
4. 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.

2. Assume the same basis facts as in Problem 1, except the ABC partnership is an accrual method partnership so that the accounts receivable have an adjusted basis of $45,000 and A has an outside basis of $90,000. For each part, determine only the amount of As Section 751(a) ordinary income:

1. A sells his interest to D on January 1
2. What result in (a), above, if the partnership held the inventory as a capital asset, but A is a dealer in that type of property?
3. What result in (a), above, if the partnership owns no inventory but has a 50% interest in another partnership (partnership #2), whose only assets are inventory with a basis of $150,000 and a value of $180,000?
4. What result in (a), above, if in addition the partnership has a contract worth $30,000 to perform real estate management services for the next ten years?