Problem 1.
ARE (Alice, Ralph & Ed) is an equal partnership that has made a § 754 election. On January 1 of this year, Alice’s outside basis is $2100 and the partnership’s balance sheet is as follows (expanded to include fair market values (000’s omitted)):
Assets Liabilities & Capital AB/Book FMV Liabilities
Cash $3000 $3000 $1500
Accts Rec. 0 300
Inventory 300 600
Blackacre 1500 1200
Whiteacre 600 1200
Greenacre 900 1500
Total $6300 $7800 Capital Accounts Tax/Book FMV
Alice $1600 $2100
Ralph 1600 2100
Ed 1600 2100
Total $4800 $6300
NOTE: Blackacre, Whiteacre and Greenacre are all parcels of land. On this date, the partnership makes the following alternative distributions in liquidation of Alice’s interest in the partnership. Please determine the basis that Alice takes in each of the assets she receives, and the adjustments (if any) that the partnership must make to the each of its retained assets.
(a) Alice receives $600 cash, the accounts receivable and Blackacre.
(b) Alice receives $600 cash, ½ the inventory, and Whiteacre.
(c) Alice receives $300 cash, the accounts receivables, and Greenacre
(d) Alice receives $1800 in cash and the receivables.
(e) What difference would it make in Problem #1(c), if there were no § 754 election in place at the time of the distribution?