PROBLEM 3 The GL limited partnership was organized at the beginning of the curre

Question

PROBLEM 3 The GL limited partnership was organized at the beginning of the current year. G, the general partner, contributed $10 for a10% interest in profits, losses and capital, and L, as limited partner, received a 90% interest in profits, losses and capital in exchange for a capital contribution of $90. The p/s immediately purchased a rental apartment building for $1,000, paying $100 in cash and isuing a $900 purchase money note, with interest payable currently and a lump-sum principal payment due in 20 years. Determine each partner's initial outside basis under each of the following alternatives: (a) The note is recourse, and hence the p/s (and G as its general partner) is personally liable on the note. As a limited partner, L is required to make no additional capital contributions beyond the $90 he contributed upon formation. L has no personal liability with respect to the note. (b) Same as (a) except that under the p/s agreement, L as the limited partner, is obligated to contribute additional capital of $900 to the partnership in the future (making the total required capital from L S990).

Explanation / Answer

Solution:

Determining the Each Partner's Initial Outside Basis Under the Each of the Following Alternatives:

a) The Basis of the Partnership of G & L is as follows,

b) Now the partners could allocate the loss in the constructive liquidation to L, as follows:

Because of L’s obligation is to contribute upto the amount of $900 of additional capital, this allocation will have $810 of the liability is allocated to L (making his outside basis $900), and $90 of the liability is allocated to G (making his basis $100).

G L $10 $90 -$100 -$900 ($90) ($810)

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