1.Alex and Bernie are equal general partners in a plumbing business. The AB Partnership reports income from sales of inventory on the accrual method and income from services on the cash method. The assets of the AB Partnership, including goodwill, are as follows:

Asset Adjusted Basis = Book Value            F.M.V.
Cash                                            $10,000        $10,000
Accounts Receivable                $ 20,000        $50,000
Inventory                                   $ 50,000        $80,000
Equipment                                $ 80,000      $ 130,000
Goodwill                                   $            0      $   60,000
                                               $    160,000      $ 330,000


The AB Partnership owes a bank $30,000 on a purchase money loan to acquire some of the equipment. All the gain inherent in the Equipment is section 1245 gain.  Goodwill is self-created. Alex’s outside basis immediately before the sale is $80,000.  Cliff purchased Alex’s partnership interest for a cash payment of $150,000. The “new” BC partnership promised to indemnify Alex on the debts to the bank. Assume the partnership has a §754 election in effect, but that Alex has no §743 (b) adjustments.

a)What are the consequences to Alex on the sale?
b)What are the consequences to Clint on the purchase?