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 allocate 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?