A, B, C, & D (all individuals) form a general partnership in which they each have an equal interest in capital and profits. All the partners and the partnership are cash method taxpayers. In exchange for their respective partnership interest, each partner transfers the following assets, all of which have been held more than 2 years.

PartnerAssetsAdjusted BasisFair Market Value

ALand $30,000$70,000

Goodwill$0$30,000

BEquipment(S 1245 gain) $25,000$45,000

Installment note from

The sale of land $20,000$25,000

Inventory$5,000$30,000

CBuilding$25,000$60,000

Land$25,000$10,000

Receivables for services

Rendered to E$0$30,000

DCash$100,000$100,000

(a) What are the tax consequences (consider only gain and loss realized and recognized, basis and holding period) to each of the partners?

(b) What are the tax consequences (consider only gain recognized, basis and holding period) to the partnership?

(c) Although each of the partners contributes property of equal value, D transfers only cash while the other partners transfer property. Internal Revenue Code Section 704(c)(1)(A) requires the partnership to allocate the pre-contribution gain or loss solely to the contributing partner when the partnership subsequently disposes of the property. What is the objective of that section? See also Internal Revenue Code Section 724.