Sean,Penelope,and Juan Formed the SPJ Partnership by Each Contributing Assets

question 46

Essay

Sean,Penelope,and Juan formed the SPJ partnership by each contributing assets with a basis and fair market value of $200,000.In the following year,Penelope sold her one-third interest to Pedro for $225,000.At the time of the sale,the SPJ partnership had the following balance sheet:
$\begin{array} { l }& \text {Basis }& \text { FMV}\\\text { Cash } & \$ 200,000 & \$ 200,000 \\\text { Land } & {\$ 400,000} &{\$ 475,000}\\&{\$ 600,000}&{\$ 675,000}\end{array}$
Shortly after Pedro became a partner,SPJ sold the land for $475,000.What are the tax consequences of the sale to Pedro and the partnership (1)assuming there is no Section 754 election in place,and (2)assuming the partnership has a valid Section 754 election?

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Definitions:

Unconditional Positive Regard

A term in psychology referring to accepting and supporting someone regardless of what they say or do, mainly used in client-centered therapy.

Acceptability Hypothesis

A theory suggesting that individuals tend to accept information or ideas as true if they correspond with their pre-existing beliefs or values.

Fully Functioning Individual

A concept in humanistic psychology referring to someone who is living in alignment with their true self, exhibiting openness to experience and a lack of defensiveness.

Unconditional Positive Regard

An attitude of acceptance and respect on the part of an observer, no matter what a person says or does, especially in the context of client-centered therapy.