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

question 89

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:
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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