Sally is a 25% partner in the STUV partnership. She has a tax basis in her partnership interest of $300,000. Sally also owns some land and a small building that she would like to sell to the partnership. The property has a fair market value of $500,000. Sally purchased the building for $400,000, and after taking MACRS deductions, her tax basis in the building is $350,000.

Part 1

If Sally sells the property to the partnership, what are the tax consequences to Sally?

Sally’s lawyer, who has a basic understanding of tax law, suggests that Sally should contribute the building to the partnership, and subsequently take a distribution of $500,000 from the partnership. What are the tax consequences of this transaction?

Part 2

Do you think the lawyer’s advice will work? In reaching your conclusion please consult the Internal Revenue Code and any other primary authority.

Part 3

Prepare a memo explaining your reasoning in a clear concise manner citing appropriate primary authority.

Answer rating: 100% (QA)

Sally sells the property to a partnership firm the consequence would be that any proceeds above the tax basis are considered incomegain The Income is ... View the full answer