Answer: Susy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GPO

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Susy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GPO ( a general partnership). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining interest. Anna's property was encumbered by a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year.

Sales $560,000

Utilities, salaries, and other operating expenses 360,000

Short-term capital gain 10,000

Tax-exempt interest income 4,000

Charitable contributions 8,000

Distribution to Suzy 10,000

Distribution to Anna 20,000

At the end of the year, Suz-Anna held recourse debt of $100,000 for partnership accounts payable and qualified nonrecourse debt of $200,000.

a. What is Suzy's basis after formation of the partnership? Anna's basis?

b. What income and separately stated items does Suz-Anna report on Suzy's schedule K-1? What items does Suzy report on her tax return?

c. All partnership debts are shared proportionately. At the end of the tax year, what are Suzy's basis and amount at risk in her partnership interest?

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