Palmer Contributes Property with a Fair Market Value of $4,000,000

question 2

Essay

Palmer contributes property with a fair market value of $4,000,000 and an adjusted basis of $3,000,000 to AP Partnership. Palmer shares in $1,000,000 of partnership debt under the liability sharing rules, giving him an initial adjusted basis for his partnership interest of $4,000,000. One month after the contribution, Palmer receives a cash distribution from the partnership of $2,000,000. Palmer would not have contributed the property if the partnership had not contractually obligated itself to make the distribution. Assume Palmer's share of partnership liabilities will not change as a result of this distribution.
a. Under the IRS's likely treatment of this transaction, what is the amount of gain or loss that Palmer will recognize because of the $2,000,000 cash distribution?
b. What is the partnership's basis for the property after the distribution?
c. If Palmer is unhappy with this result, can you suggest a possible alternative that may provide him with a better answer?

Understand the concept of price elasticity of demand and its determinants.

Recognize the difference between short-run and long-run elasticity of demand.

Identify factors that make demand more elastic or inelastic.

Understand the impact of price changes on the quantity demanded.

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Definitions:

Grandfather

A term often used to describe clauses that exempt certain individuals or entities from new regulations based on previous conditions.

Bailment

The legal relationship created when personal property is transferred from one party to another under agreement that the property will be returned or otherwise disposed of according to the owner's directions.

Mutual Benefit

refers to a situation or action that provides advantages or positive outcomes to all parties involved.

Fundamental Duty

A basic or essential obligation that is imposed on an individual or entity by law, morality, or contract.