The ABC partnership is a general partnership and capital is a material income producing factor. ABC has a section 754 election in place. It has no liabilities and possesses the following assets:

1. Adjusted Basis FMV
2. Cash 15,000 15,000
3. Inventory 81,000 96,000
4. Land #1 133,000 153,000
5. Land #2 108,000 168,000
6. Land #3 83,000 123,000
7. $ 420,000 $ 555,000

Arthur wishes to leave the partnership. An agreement is reached whereby Arthur is to receive one-third of the Inventory and Land #1 in full payment for his interest in the partnership. The partnership has no goodwill and no accounts receivable. At the time of the distribution, Arthur’s outside basis in his partnership interest was equal to $135,000.

a) Does Arthur have to recognize any gain as a result of his receipt of the Inventory and Land #1 in liquidation of his interest in the ABC partnership? If so, what is the amount of that gain?

b) What is Arthur’s basis in the Inventory and Land #1 following their distribution to him in liquidation of his interest in the ABC partnership?

c) What is the partnership’s basis in Land #2 and Land #3 as determined under section 734(b)?