Introductory Example:

Consider the following simple, three-person general partnership:

Assets			Liabilities & Capital
AB/Book	FMV			Liabilities
Cash $30	$30			$0
Accts Rec. 0	60
Land 30	60
$60	$150
				Capital Accounts
				Tax/Book FMV
			X	$20 $50
			Y	20 50
			Z	20 50
		Total		$60 $150

In the introductory example above, what is the Buyers initial outside basis in his partnership interest? In the absence of any elections, how much income will the Buyer report if the partnership collects the receivables? Might Buyer find that result problematic?

P purchased the 1/3 interest from A Problem 2 in Part A above for $500 cash. What is P's initial outside basis and the balance in her capital account at the time of purchase?

In the absence of a 754 election, what would be the tax consequences to P if she held the interest for three years and then sold it for $500. Assume that during this period of time the partnership engaged in no transactions and there was no change in the value of its assets (ignore cost recovery allowances).

If the partnership makes a 754 election:

What is the amount of the 743(b) adjustment and how should it be allocated among the partnerships assets?

Is this adjustment reflected in Ps "book" capital account under 1.704-1(b)(2)(iv)(m)(2)?

How should the partnership compute its cost recovery allowance on the building and the machinery for the year of P's purchase and thereafter?