Kathy Purchases a One-Third Interest in the KDP Partnership from Paul

question 16

Multiple Choice

Kathy purchases a one-third interest in the KDP Partnership from Paul for $60,000. Just prior to the sale, Paul's outside and inside bases in KDP are $48,000. KDP's balance sheet includes the following: $$\begin{array}{l}\begin{array} { l r r } \text { Assets: } & \underline { \text { Basis } } & \underline { \text { FMV } } \\\text { Cash } & \mathbf { \$ 4 8 , 0 0 0 } & \$ \mathbf { 4 8 , 0 0 0 } \\\text { Land held for investment } & \mathbf { 9 6 , 0 0 0 } & \mathbf { 1 3 2 , 0 0 0 }\end{array}\\\\\text { Liabilities and Capital: }\\\begin{array} { r r } \text { Capital } \text { - Paul } &&&&&& \mathbf { 4 8 , 0 0 0 } \\\text { - Kristi } &&&&&& \mathbf { 4 8 , 0 0 0 } \\\text { - David } &&&&&& \mathbf { 4 8 , 0 0 0 }\end{array}\end{array}$$ If KDP has a §754 election in place, what is Kathy's special basis adjustment?

• A) $0
• B) $36,000
• C) $12,000
• D) None of these is correct.

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Definitions:

Behavioral Aggregation

The process of combining multiple instances of behavior over time to give a more stable assessment of an individual's typical behavior.

Attitudes and Behavior

The relationship between individuals' evaluations of objects, people, or events (attitudes) and their actions (behavior).

Effort Justification

The tendency to assign greater value to outcomes that require a higher level of effort to achieve, often as a means to rationalize the expenditure of resources.

Effort Justification

A phenomenon where individuals assign greater value to outcomes they had to put effort into achieving or obtaining.