You are a newly hired staff accountant at an accounting firm and are eager to demonstrate your skills to the tax partner in your firm and its clients. Arnold is an opportunistic real estate investor and a client of your firm. Arnold has told you that he is looking at Tropicana Partners, a longstanding client of a rival accounting firm. He tells you that Tropicana Partners owns a fully depreciated office building and land at 320 Sycamore Street, Bedford Falls, NY. Tropicana Partners has four equal partners: Beth, Ellen, Marty and Erica. Arnold tells you that Tropicana Partners balance sheet at June 30, 2023 is projected to look as follows:

Tax Basis FMV

Cash $ 40,000 $ 40,000

Building $ 0 $ 1,000,000

Land $100,000 $ 500,000

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Total $ 140,000 $1,540,000

Capital Accounts

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Beth $ 35,000 $ 385,000

Ellen $ 35,000 $ 385,000

Marty $ 35,000 $ 385,000

Erica $ 35,000 $ 385,000

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Total $ 140,000 $ 1,540,000

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Recently Arnold approached Beth and offered to purchase Beths 25% partnership interest for $385,000 in cash effective at 12:01AM on July 1, 2023. Ellen, Marty and Erica are not interested in selling their partnership interests, dont want to sell the land/building and wish to remain as partners in the partnership; but they are willing to admit Arnold into the partnership. The land and building owned by Tropicana Partners is subject to what is known as a triple-net lease. Under a triple net lease, the tenant is responsible for all operating costs of the property, including maintenance, repairs, real estate taxes and insurance. The tenant pays Tropicana Partners $10,000 each month in cash under the lease. Tropicana Partners immediately distributes this $10,000 each month pro-rata to the partners. You can assume that there is no IRC 1250 recapture applicable to the building, you can also assume that Tropicana Partners is a calendar year taxpayer. (a) Prepare a brief memo for the tax partner (and Arnold) explaining what tax advantaged opportunities may be available to Arnold in purchasing Beths partnership interest even though the building is fully depreciated. Your memo should also discuss the impact (if any) and any actions that Tropicana Partners needs to take to implement your ideas.

(b) The tax partner and Arnold are justifiably impressed with your memo in QUESTION 6 and share your memo with Tropicana Partners, which agrees to implement your idea. You are tasked with drafting the election needed to implement your idea. Prepare a draft of the election and cite your authority for what is required in the election.

(c ) Based on the quality of your work, Tropicana Partners has decided to fire its long-standing accounting firm and instead asks you to prepare their 2023 partnership tax return and the attendant Schedules K-1. For planning and estimated tax purposes you are being asked to prepare draft tax year 2023 Schedules K-1 for: Arnold, Beth and Ellen. You may use the fillable Schedule K-1 available on the IRS Website here: https://www.irs.gov/pub/irs-pdf/f1065sk1.pdf and attach your responses as saved .pdfs.

(d) Explain how Beth will be taxed in 2023 as a result of the sale of her partnership interest to Arnold.

(e) What is Arnolds basis in Tropicana Partners at 12/31/2023?