On December 31, 20X0, the ABC Partnership, a calendar year partnership, made a liquidating distribution of all of the stock to Alex, a one-third partner in the ABC Partnership. Immediately prior to the distribution, the ABC Partnership balance sheets from a tax and book standpoint are as follows:
 

 

 

ABC Partnership (as of 12/31/X0)	Adjusted Basis	Book Value/Capital Account
Assets:
Cash	$300,000	$300,000
Account Receivable	-0-	300,000
Stock held for investment	300,000	300,000
	$600,000	$900,000
Liabilities	------------------	-0-
Alex	$200,000	$300,000
Bob	200,000	300,000
Cathy	200,000	300,000
	$600,000	$900,000

Part II. Question 1:  

Discuss the tax consequences to Alex, Bob, Cathy and the partnership and construct the post-distribution balance sheets assuming the partnership has not previously made a section 754 election and, assuming further, there are no applicable mandatory allocations under sections 704(c), 737 or disguised sales under section 707.

NOTE: A (1) blank Exchange table and (2) blank Tax & Book balance sheets appear below. Please use them to conduct your analysis and fill in your numerical answers. Further, there is adequate space to write your analysis below the balance sheets. You will be graded based on (a) filling out the table and balance sheets and (b) summarizing your determinations as to tax consequences to all parties.

 

 

(2) How would your answer to the previous question change if the partnership had a section 754 election in effect on the date of the liquidating distribution?
 

Be sure to discuss whether there would be any change to the balance sheets—partner inside or outside basis, book values or capital accounts?
 

There is no need to construct an exchange table or balance sheets.

Answer rating: 100% (QA)

Without the section 754 election the liquidating distribution will result in differing tax consequences for Alex Bob Cathy and the partnership Tax Con... View the full answer