Question:These are questions on Partnership Taxation Coming from a casebook.

1. A, B and C each contribute $20,000 to form the ABC general partnership. The partnership agreement satisfies the primary test for economic effect under Section 704(b). Partnership profits and losses are allocated 40% to A, 40% to B and 20% to C. The partnership uses its $60,000 cash and borrows an additional $40,000 on a recourse basis and purchases land for $100,000.
2. How will the $40,000 liability be allocated and what will be each partner's outside basis?
3. What result in (a), above, if A, B, and C had contributed $10,000, $20,000 and $30,000, respectively to the ABC partnership?
4. What result in (a), above, if A and B are limited partners who are not obligated to restore a capital account deficit but the partnership agreement includes a qualified income offset?
5. What result in (c) above, if A contributes $15,000 of stock to the partnership as security for the liability and all income, gain or loss on the stock is allocated to A? What result if A contributes $15,000 note as security for the liability?
6. What result in (c), above, if A personally guarantees the $40,000 liability?

2. G and L form a limited partnership, G, the general partner, contributes $10,000 and L, the limited partner, contributes $90,000. The partnership purchases a building on leased land, paying $100,00 cash and borrowing $900,000 on a nonrecourse basis from a commercial lender, securing the loan with a mortgage on the building. The terms of the loan require the payment of market rate interest and no principal for the first ten years. Assume for convenience that the building is depreciable at the rate of $50,000 per year for twenty years, and that other partnership income equals expenses for the years in question. The partnership agreeement contains a qualified income offset, and G is required to make up any capital account deficit. Except as otherwise required by a minimum gain chargeback provision, the agreement allocates profit and loss 90% to L and 10% to G until such time as the partnership recognizes items of income and gain that exceed the items of deduction and loss that it has recognized over its life. Subsequent partnership income and losses are allocated equally between G and L. Assume that it is reasonably anticipated that ehe equal allocation will begin after ten years. The partnership agreement states that G and L each has a 50% interest in partnership profits for purposes of Section 752.

a. How is the $900,000 liability allocated in year one?

b. How will the liability be allocated at the end of year three?

c. How will the liability be allocated at the end of years one and three if excess nonrecourse liabilities are allocated in a ratio of 90% to L and 10% to G?

d. What result in (a) above, if the debt is guaranteed by G, who has no right to reimbursement from the partnership? Does the result change if G has a right to reimbursement from the partnership? What if G has a gross asset of only $6,000?

e. What result in (a), above, if the debt is guaranteed by L, and L as a right to reimbursement from the partnership?

f. What result in (a), above, if G is the lender?

3. The equal AB partnership's only asset is Building #1, which has a fair market value of $800,000 and an adjusted basis of $300,000. C becomes a one-third partner by contributing Building #2 with a fair market value of $700,000 and an adjusted basis of $150,000 and which is subject to a $300,000 recourse liability which the partnership assumes. At the time of C's contribution, the partnership revalues its assets under Reg. 1.704-1(b)(2)(iv)(f).

a. How is the $300,000 liability allocated?

b. What result in (a), above, if the liability is a nonrecourse debt secured by Building #2 and the partners agree to use the traditional method to allocated Section 704(c) gain?

c. If C, instead of contributing Building #2, contributes $400,000 cash and shortly thereafter the partnership incurs a $500,000 nonrecourse loan secured by Building #1, how is the $500,000 liability allocated?