Question: A, B and C, three individuals, form a general partnership by contributing the following property in exchange for equal 1/3 interests in the partnerships capital,

A, B and C, three individuals, form a general partnership by contributing the following property in exchange for equal 1/3 interests in the partnership’s capital, profits, and losses: A contributes land, a capital asset that A acquired several years ago, worth $100 in which A has a tax basis of $40. B contributes machinery with a basis of $25 and a value of $60, plus $40 in cash. B purchased the machinery several years ago for $75 and has taken $50 of depreciation. C contributes inventory with a value of $100 in which C has a basis of $90.

(a) What gain and/or loss will be recognized by the partners and the partnership on formation?

(b) What will be the partnership’s “inside basis” and holding period for each of the contributed assets?

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