Jim and Marta Created the JM Partnership by Contributing $60,000

question 71

Essay

Jim and Marta created the JM Partnership by contributing $60,000 each.The $120,000 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 10% to Jim and 90% to Marta.All other items of partnership income,gain,loss,deduction,and credit will be allocated equally between the partners.In the first year,MACRS is $20,000 and no other operating transactions occur.The property is sold at the end of the year for $100,000 and the partnership is liquidated immediately thereafter.
To satisfy the economic effect test,how much of the $100,000 cash (from the sale)is allocated each to Jim and Marta?

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Definitions:

Takeover

The acquisition of one company by another, in which the acquiring company obtains majority control over the targeted firm.

Acquired Firm's Management

The executive and leadership team of a company that has been acquired by another entity.

Mergers

The combination of two or more companies into one, with the goal of achieving synergies such as cost reductions and increased market share.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale.