Jeordie and Kendis Created the JK Partnership by Contributing $100,000

question 63

Essay

Jeordie and Kendis created the JK Partnership by contributing $100,000 each. The $200,000 cash was used by the partnership to acquire a depreciable asset. The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg. § 1.704-1(b) (the "economic effect" Regulations) and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated. The partnership agreement provides that MACRS will be allocated 20% to Jeordie and 80% to Kendis. All other items of partnership income, gain, loss, deduction, and credit will be allocated equally between the partners. In the first year, MACRS is $40,000 and no other operating transactions occur. The property is sold at the end of the year for $160,000 and the partnership is liquidated immediately thereafter.
To satisfy the economic effect test, how much of the $160,000 cash (from the sale) is allocated each to Jeordie and Kendis?

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Definitions:

Dispersed Geothermal Energy

Geothermal energy resources that are widespread and not concentrated in specific locations, typically utilized for low-temperature applications.

Second Law

Often referring to the Second Law of Thermodynamics, which states that the total entropy of a closed system can never decrease over time.

Thermodynamics

The branch of physics that deals with the relationships between heat, work, temperature, and energy.

Entropy

A measure of the disorder or randomness in a system, often associated with the Second Law of Thermodynamics, indicating the direction of spontaneous processes.