Basic Facts: DEF is an equal general partnership engaged in medical practice. On January 1, 2007, D died, triggering the partnerships buy/sell agreement. Just prior to his death, Ds outside basis was $130. According to the agreement, the partnership must pay Ds sole beneficiary, B, $500 in liquidation of her interest in the partnership. Neither the partnership agreement nor the buy/sell agreement mentions goodwill. There is no 754 election in place. On the date of death, DEFs balance sheet (with FMVs) was as follows:

Assets Liabilities & Capital:

AB/Book FMV Liabilities $150

Cash $120 $120

Accts Rec. 0 150

Installment Oblig. 150 270

Equipment 90 300

Land 30 510

Goodwill 0 300

$390 $1650 Capital Accounts Tax/Bk FMV

D $80 $500 E 80 500 F 80 500 $240 $1500

Assume that the equipment was purchased by the partnership for $400, and that the land is used in the partnerships business.

Questions: Before the distribution to B in liquidation of her interest in the partnership, what is her outside basis? What are the income tax consequences to B of the $500 distribution? What difference would it have made if the agreement explicitly allocated $100 to goodwill?