1. D, E, and F form a partnership by contributing the following property (in each case worth $200 net of liabilities) in exchange for 1/3 interests in the partnerships capital, profits, and losses. The partnership assumes all liabilities encumbering the contributed assets. D contributes land with a fair market value of $400, which is encumbered by a recourse mortgage of $240. D has held the land for several years as an investment, and his basis in the land is $100. D also contributes $40 in cash. E contributes a building, a Sec. 1231 asset, with a value of $260 in which E has an adjusted basis of $130. The building was purchased several years ago by E and is subject to a recourse mortgage of $60. F, a cash method taxpayer, contributes zero basis accounts receivable from his business worth $350 and assigns his accounts payable of $150 to the partnership.

NOTE: For purposes of this problem, ignore the possibility that there might be a disguised sale, assume that DEF uses the traditional method for making Sec. 704 allocations, and finally, assume that for purposes of Sec. 752 the partners share all partnership liabilities equally.

1. With respect to each partner:
   1. Is any gain or loss recognized? No gain/loss recognized by partners
   2. What is their outside basis? D's outside basis is $0 (100+40+100-240), E's basis is $170 (130+100-60), F's basis is?
2. With respect to D, E, F:
   1. Does it recognize any gain or loss on formation? No gain/loss recognized by the partnership
   2. What is its inside basis in the contributed property? $240 basis in the cash, $100 basis in the land, $130 basis in the building
3. Construct an opening balance sheet for the partnership.

Assets				Liabilities & Capital
	Basis		Book		Liabilities
Cash	$		$		Capital Accounts
Other assets					Tax		Book
				A	$		$
				B C

d. How would the consequences to D differ, if, instead of contributing the $40 of cash, D contributed her own negotiable promissory note for $40, bearing adequate stated interest?