On January 1 of Year One, Nupartner purchased a one-third interest in a partners
ID: 2559286 • Letter: O
Question
On January 1 of Year One, Nupartner purchased a one-third interest in a partnership for $40,000. At the time of the purchase, the partnership had the following assets:
Adjusted Base
Fair Market Value
Account Receivable
0
30,000
Land
60,000
90,000
a. If section 754 had not been elected by the partnership, what result to Nupartner upon the collection of the receivables?
b. What result to Nupartner in (a), above, if the partnership had made a section 754 election?
c. Who makes the section 754 election? When and how must the election be made?
d. Will Nupartner’s purchase and the section 754 election have any immediate tax impact on the remaining old partners?
e. Will the section 743(b) basis adjustment affect Nupartner in situations other than on collection of partnership income or sales of partnership property?
f. At the end of Year Three, the partnership had earnings, all of which had been distributed, and it continued to hold the identical accounts receivable and land, each of which had the same basis and fair market value. Assuming no section 754 election, what result to Nupartner if, before the receivables are collected, he sells his partnership interest to Buyer for $40,000?
g. What result to Nupartner in (f) above if the partnership had made a section 754 election?
h. What is Buyer’s inside basis in (g) above?
i. If the partnership properly maintained capital accounts and the selling partner’s capital account prior to the sale of his interest was $20,000, what is Nupartner’s capital account upon purchase of his one-third interest for $40,000
if: i. a section 754 election were in effect
ii. a section 754 election were not in effect.
Adjusted Base
Fair Market Value
Account Receivable
0
30,000
Land
60,000
90,000
Explanation / Answer
(a) Partnership has $30000 ordinary income.
Nupartner's has $10000 distributive share of ordinary income.
(c) 754 partnership makes election
Reg 754 1(b) Election is made in written filed with the partnership return for the taxable year during which the distribution or transfer occur.
(d) --- No. It will not have an immediate effect.
--- If old partner sells their interest (a) There transferee's may be affected by 754 election
(b) The election may make the interest less desirable if the assets are
depreciated.
--- 754 election requires the Partnership to adjust the basis of assets distributed to the partners.
(e) Reg 1.743 (i) Basis adjustments affect depreciation deductions
(j) Basis adjustments affect the basis in assets distribution from the partnership
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.