Questions:

1.A, B, C, and D are members of the ABCD Partnership (ABCD) which has the following balance sheet:

Tax and BookFair Market Value

Assets

Cash$80$80

Accounts Receivable040

Inventory80120

Land (investment)40120

Total$200$360

Capital

A4090

B30.90

C2090

D1090

Total Liabilities and Capital$100360

The partners have equal partnership interests, which they purchased from former partners at various times and prices. The partnership has never made an election under Section 754. Each partnership interest has been held for more than one year. In the following questions, determine each partner's taxable gain or loss, basis in each distributed asset, basis in the partnership interest, and the results to the partnership.

a.ABCD distributes $20 in cash and a one-fourth undivided interest in the land to each partner.

b.ABCD distributes $10 in cash, one-fourth of the accounts receivable, and a one-fourth undivided interest in the land to each partner.

c.ABCD distributes $10 in cash, one-fourth of the inventory, and a one-fourth undivided interest in the land to each partner.

d.ABCD distributes one-fourth of the inventory and a one-fourth undivided interest in the land to each partner.

2.The ABC Partnership (ABC) is a dealer in land. All of its assets consist of land held for sale to customers in the ordinary course of business. B, an attorney, receives a current distribution of land from ABC on June 1, Year 2 which the partnership purchased on March 1, Year 2. The basis of the land to the partnership is $20 and its fair market value at the date of distribution is $25. B's basis in her partnership interest prior to the distribution is $50.

a.On July 1, Year 6, B sells the land for $30. What is the amount and character of B's gain?

b.In a. above, assume that B sells the land on July 1, Year 7. What is the amount and character of B's gain?

c.Assume that ABC purchases the land on June 1, Year 1 for $20 and distributes it to B on June 1, Year 2. B sells the land on July 1, Year 6 for $30. What is the amount and character of B's gain?

3.On January 1, the basis for A's partnership interest in the ABC Partnership is $50. A draws $10 each month from the partnership during the year. The partnership is on a calendar year. All distributions are in cash. The ABC Partnership has no profits from January to November, but has profits of $400 for December. A's share of the profits is 40 percent. Does A have taxable income or gain because of the withdrawals during the first 11 months of the partnership's taxable year? What financial accounting treatment regarding the draws would ensure the best tax consequences?