for funding its operations. LP Partners also purchases a large tract of river and swamp, an area

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for funding its operations. LP Partners also purchases a large tract of river and swamp, an area where the land is quite inexpensive, for $2.2 million, putting down $200,000 as a down payment and obtaining a nonrecourse loan for $2 million from a bank owned by Trixie's uncle. Two years after the operations of LP Partners commence, during which time it has been performing quite well, the UP partnership makes a distribution to Caitlin of its entire interest in LP Partners. Previous distributions to Caitlin had caused her to have no remaining basis in her interest in UP Partnership. At the time, the UP Partnership has a basis of $300,000 in its interest in LP Partners, and that interest was worth $600,000. Instructions First, perform an analysis and explain what would be the UP Partnership share of the liabilities of LP Partners. Be sure to explain your reasoning and cite the applicable law. Second, explain the tax effect of the distribution to all parties: Caitlin, Aaron, and UP Partnership.

Explain both gain and loss effects as well as any effect on a basis.