A partnership started on January 1, 2016 has two partners, Charlie and Linus. On the date the partnership initiated, Charlie and Linus had $25,000 of initial tax basis, respectively, and each had a 50 percent profits interest. Their respective initial tax bases each had $5,000 related to a loan (totaling $10,000) the partnership had taken out without collateral where each partner had signed to be personally responsible for $5,000 should the business profits not be enough to pay the debt off. On July 1, 2016, Linus sold his profits and capital interest to Sally for $65,000. On the date of the sale, Linuss adjusted outside tax basis in his partnership interest was $45,000 (after adjusting his basis for items that increased or decreased his basis throughout the first half of the year). Charlie and Linuss profits interest didnt change between the partnerships initiation and July 1, 2016. Sally would take on Linuss partnership interests and sign the same $5,000 responsibility for the business loan for which Linus had previously been responsible.

a.Will the partnership immediately recognize any gain or loss on Linuss sale of his partnership interest? If so, how much will it recognize?

b. What will Sallys outside tax basis be on July 1, 2016?