Alicia and Barry Form the AB Partnership at the Start

question 62

Multiple Choice

Alicia and Barry form the AB Partnership at the start of the current year with a land contribution by Barry and a cash contribution by Alicia. Barry's contributed property is subject to a recourse mortgage assumed by the partnership. Barry has an 80% interest in AB's profits and losses. The land has been held by Barry for the past 6 years as an investment. It will be used by AB as an operating asset in its parking lot business. Which of the following statements is correct?

• A) Immediately after formation, Alicia's basis in the partnership equals the cash contributed by Alicia.
• B) Immediately after formation, Alicia's basis in the partnership equals the cash she contributed plus her share of the recourse debt contributed by Barry.
• C) Since the debt is recourse, the constructive liquidation scenario is not applicable for determining the allocation of debt to the partners.
• D) AB's basis in the land contributed by Barry equals Barry's basis in the land immediately before the contribution date, less the amount of the recourse debt assumed by the partnership.
• E) None of the above.