Question: The DEF cash method general partnership, which has not made an Internal Revenue Code Section 754 election, had the following balance sheet at the time

The DEF cash method general partnership, which has not made an Internal Revenue Code Section 754 election, had the following balance sheet at the time G purchased Ds interest for $50,000. D contributed the inventory to the partnership at a time when the value of the inventory was $15,000.

Assets Partners Capital

A.B. F.M.V A.B. F.M.V.

Cash $50,000 $50,000 D $100,000 $50,000

Inventory 30,000 10,000 E 125,000 50,000

Land 270,000 90,000 F 125,000 50,000

Total: $350,000 $150,000 $350,000 $150,000

(a) Will the basis of the partnerships assets be adjusted under Internal Revenue Code Section 743 as a result of Ds sale to G? Should G urge the partnership to make an Internal Revenue Code Section 754 election?

(b) Assuming no adjustments are made to the basis of the partnerships assets, what will be the result to G if the partnership sells the inventory for $10,000? What result to G if the partnership sells the land for $90,000?

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