The KJS partnership is formed with a contribution of the following properties:

Partner Property FMV $($Agreed$)$ Tax Basis

Katie Cash $2,000,0002,000,000$

Jim Equipment $2,000,000400,000$

Sarah Cash $2,000,0002,000,000$

Assume that Jims contributed equipment will be depreciated at the rate of $20\%$ per year for both book and for tax.

The partners have agreed to split all items one$-$third each. Their agreement complies with the alternate test for economic effect.

In Year $1$ of the partnership, the following items are reported for both book and for tax purposes:

Gross receipts $3,000,000$

Operating Expenses $<1,800,000>$ all items of ordinary income$/$loss$,$ line $1$ of the K$-1$

Net Income $1,200,000$

The foregoing items do NOT include the depreciation for Jim contributed equipment.

REQUIRED:

$(1)$ Show book and tax capital accounts for each member assuming the traditional method is used.

$(2)$ Show book and tax capital accounts for each member assuming the traditional method with curative allocations is used.

$(3)$ Report the beginning and ending unrecognized section $704($c$)$ gain for Jim under each method.

Answer rating: 100% (QA)

Partnership Capital Account Computations Initial Contributions Book Value Fair Market Value Agreed C... View the full answer