Prentice Halls Federal Taxation 2013 Corporations Partnerships Estates and Trusts 26Th Edition Pope Solutions Manual Full Chapter PDF

Prentice Halls Federal Taxation 2013
Corporations Partnerships Estates and

Trusts 26th Edition Pope Solutions
Manual
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Chapter C:9
Partnership Formation and Operation
Discussion Questions
C:9-1 Advantages of a partnership for Yvonne and Larry include:

1. The partnership itself is not subject to tax, thereby eliminating the problem of double
taxation that exists for C corporations. p. C:9-4.
2. Partners may divide the partnership's profit or loss among themselves without regard
to their proportionate capital interests (as long as the allocation has substantial economic effect).
pp. C:9-17 through C:9-20.
3. Partnerships are popular because of the relative simplicity and informality inherent in
creating and operating such entities. No legal agreement is required to form a partnership but a
written agreement is advisable. p. C:9-2.
4. Under the conduit principle of taxation, partnership losses and other items receiving
special tax treatment flow through to the partners. p. C:9-4.
C:9-2 Lack of limited liability. A corporation provides limited liability protection for the business
owners while a general partnership does not. The purchase of the inn is likely to be financed with
debt and additional debt is likely to be incurred during the renovations. The construction required
during the renovation and the day-to-day operation of the inn provides significant exposure for
liability from lawsuits. The partnership form would not protect the owners of the business from
possibly losing their individual assets. If the owners want the advantages of a partnership and still
have limited liability, they may want to consider a limited liability company (LLC) or a limited
liability limited partnership (LLLP) if available in the taxpayer’s state. pp. C:2-3 through C:2-6 and
C:9-2 through C:9-4.
C:9-3 General partnership. Because Sam will be providing business advice, this partnership should
be arranged as a general partnership. Both brothers will be actively managing the business and
therefore limited liability protection would not be available to Sam if the partnership is created as a
limited partnership with Sam as the limited partner. The brothers, however, also may want to
consider an LLC instead of a partnership. pp. C:9-2 through C:9-4.
C:9-4 Whether Doug receives a profits interest or a capital and profits interest; he theoretically
should report the value of the property he receives for services as ordinary income. In this case, the
initial basis for his partnership interest equals the amount he reports as income. If the profits
interests cannot be valued, however, Doug recognizes no income and has a zero basis in his
partnership interest. Also, under Rev. Proc. 93-27, 1993-2 C.B. 343, the IRS will not treat receipt of
a profits interest as a taxable event unless one of the following events occurs: (1) the profits interest
relates to a substantially certain and predicable income stream, (2) the partner disposes of the interest
within two years of receipt, or (3) the interest is a publicly traded partnership. (Note: The IRS is in
the process of revising its rules concerning service partners. See Notice 2005-43, 2005-24 C.B.
1221.) pp. C:9-10 through C:9-12.
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

C:9-1
C:9-5 a. Probably not. The existing partner could contribute the property tax-free to the
partnership, but Sec. 704(c) requires that the tax attributes from contributed property be allocated to
the partner that contributes the property. Under Sec. 704(c), the partners must specially allocate
among themselves the income, gain, loss, and deductions attributable to contributed property in a
manner that reflects the difference between the property's FMV and its tax basis at the time of the
contribution. In addition, the partnership will have the property with a carryover basis, which is
below its FMV. For depreciable assets, the partnership will get smaller depreciation deductions and
the special allocation of depreciation among the partners may not totally compensate the other
partners. pp. C:9-5 through C:9-12 and C:9-18 through C:9-20.
b. Sell or lease the property to the partnership or sell the property to a third party who
then contributes the property to the partnership. pp. C:9-27 and C:9-28.
c. Ordinary income recognition is required on a partner's sale of property to the
partnership where the seller owns more than 50% of the capital or profits interests if the property is
either depreciable, or is not a capital asset, in the hands of a partnership. If the partner leases
property to a partnership, the partner retains the depreciation and other deductions with respect to the
property. The leasing partner also avoids the depreciation recapture provisions. Rentals received
from the partnership are taxed as ordinary income. A sale of the property to a third party is taxed as
any other sale would be with no special tax consequences. pp. C:9-27 and C:9-28.
C:9-6 a. The partner recognizes gain on the contribution of property and assumption of a
liability if the amount of the liability assumed by the other partners exceeds the contributing
partner's basis in the contributed property plus her share of existing partnership liabilities. pp. C:9-5
through C:9-8.
b. Net decrease. The basis in the partnership interest will be decreased by the amount of
the liability assumed by the other partners. Viewed another way, her basis will increase by her share
of the increase in partnership liabilities and decrease by her liability assumed by the partnership, for
a net decrease. pp. C:9-6 through C:9-8.
C:9-7 a, b, and d. p. C:9-12.
C:9-8 No. Partnership ordinary income is the total of partnership income and deduction items that
do not have to be separately stated. This partnership has $100,000 of ordinary income. Partnership
taxable income, however, is the sum of all taxable items that are either separately stated or included
in ordinary income. BW’s partnership taxable income is $150,000 ($100,000 ordinary income +
$50,000 long-term capital gain). p. C:9-17.
C:9-9 The partner's distributive share will equal the sum of the partner’s earnings for one-half of
his or her beginning-of-the-year interest for the entire year and the partner’s earnings for the other
one-half of his or her beginning-of-the-year interest for nine months (calculated on a daily basis).
pp. C:9-18 and C:9-19.
C:9-10 Usually no because a limited partner normally has no economic risk for recourse debt.
However, a limited partner's basis is increased by recourse liabilities to the extent the limited partner
is liable to incur an economic loss, for example, to the extent he or she is obligated to repay a

C:9-2
general partner should the general partner have to pay the debt or to the extent the limited partner
has guaranteed the debt. pp. C:9-21 through C:9-24.
C:9-11 Qualified nonrecourse real estate financing is included in the at-risk basis of both general and
limited partners. This financing meets the requirements for qualified nonrecourse real estate
financing. p. C:9-26.
C:9-12 Less restrictive. Section 704(d) limits the loss to the adjusted basis (before reduction by
current year's losses) of a partner's interest in the partnership at the end of the partnership tax year in
which the loss occurs. This basis includes recourse debt (to the extent of a partner’s economic risk
of loss) and includes nonrecourse debt. The at-risk basis does not include nonrecourse debt (other
than qualified nonrecourse real estate financing). Thus, the at-risk rules are more restrictive than the
Sec. 704(d) rule. p. C:9-26.
C:9-13 No. As a limited partner in the JRS Partnership, Jeff is almost certainly subject to the passive
loss limitation rules on losses from this partnership. Accordingly, income from a general partnership
in which Jeff materially participates (and thus earns active income) cannot be used to offset the
passive losses. Jeff can use losses from the JRS Partnership only to offset passive income, or he can
claim the losses when he sells his entire interest in the JRS Partnership or when the partnership
terminates. pp. C:9-26 and C:9-27.
C:9-14 Contribute the property. ABC Partnership will hold the land as inventory for resale to
customers and not as a capital asset. Because Helen owns more than a 50% interest in the ABC
Partnership, the sale of the land to the partnership will generate ordinary income instead of capital
gain for Helen. If Helen instead contributes the land to the partnership, it will recognize no gain
until it sells the lots. Then, as the partnership sells each lot, Helen will recognize the precontribution
gain as well as her share of any postcontribution appreciation, and all the gain will be ordinary
income taxable at a marginal rate of up to 35%. In total, the ordinary income under this alternative
will be the same as if Helen had sold the land to the partnership. A contribution, however, will
allow her to delay the gain recognition. Even better results occur if Helen can dispose of 5% or
more of her partnership interest so that she owns, directly and indirectly, 50% or less of the ABC
Partnership. If she owns 50% or less, she can recognize capital gain on the sale of the land to the
partnership and use these gains to offset any capital losses she already may have recognized or that
she may desire to recognize. The capital gains are taxed to most taxpayers at a maximum marginal
tax rate of 15% or up to 20 percentage points below the rate applicable to ordinary income.
Alternatively, she could sell the land to a third party who would then contribute the land to the ABC
Partnership, assuming the partnership desires a new partner. Her gain on the sale of the land would
be capital gain, and the contributing partner would recognize no gain when he or she transferred the
land to the partnership. pp. C:9-27 and C:9-28.
C:9-15 A guaranteed amount is stated as a fixed dollar amount regardless of the partnership's income
or loss. A guaranteed minimum can be determined only after the profitability of the partnership's
operations has been determined. A guaranteed minimum may be paid partly out of the partner's
distributive share and partly as a guaranteed payment, which total to the amount of the guaranteed
minimum. pp. C:9-28 and C:9-29.

C:9-3
C:9-16 Yes. Regulation Sec. 1.707-1(c) provides that a partner reports guaranteed payments as
ordinary income in the partner's tax year that includes the last day of the partnership's tax year in
which the partnership deducted the payments under its method of accounting. A partner reports his
or her distributive share of partnership items (determined under Sec. 702(a)) in the tax year that
includes the last day of the partnership's tax year. Thus, from a timing perspective, the two
payments schemes are the same to Tracy. pp. C:9-28 and C:9-29.
C:9-17 The Sec. 704(e) rules apply only to a capital interest in a partnership, where capital is a
material income producing factor and where the family member is the true owner of the interest. If
capital is a material income-producing factor for the partnership, the family partnership rules apply.
p. C:9-30.
C:9-18 The distributive shares allocated to Andrew and Steve will be combined and then a
reasonable salary for Andrew's personal services will be allocated to him. The remaining portion of
the distributive share (after a reasonable salary to Andrew) will be allocated 30/50ths to Andrew and
20/50ths to Steve. p. C:9-30.
Issue Identification Questions
C:9-19 • Does Bob recognize any gain on the formation? When will he recognize the
precontribution gain?
• What is Bob's basis and holding period for his partnership interest?
• Does Kate recognize any loss on the contribution of property in exchange for her
partnership interest? When will she recognize the precontribution loss? What will
the character of the loss be?
• What is Kate's basis and holding period for the partnership interest she received in
exchange for property?
• What basis and holding period does the partnership have in the property received?
• What are the Sec. 1250 ramifications for the building?
• What type of gain will the partnership and partners recognize on the sale of the
building?
• Did Kate receive any of her partnership interest for services?
• If so, what gain, loss, or deductions must the partnership recognize?
• What income must Kate recognize?
Bob must determine his basis in the partnership interest ($65,000 = $95,000 - $60,000 +
$30,000 share of liabilities) and his holding period for his interest in the partnership (begins with his
ownership of the office building). Because Bob recognizes no gain or loss, he does not have to be
concerned with any recapture potential under Sec. 1250. Also, Sec. 1250 recapture will not be a
concern if the parties have depreciated the property under straight-line MACRS rules. Bob,
however, will have to recognize precontribution gain on the office building at a future date. This
gain will be part Sec. 1250 gain subject to the 25% capital gains tax rate under Sec. 1(h)(l)(D) and
part Sec. 1231 gain subject to the 15% capital gains tax rate. As mentioned, if the building is
straight-line MACRS property, no ordinary depreciation recapture will occur.

C:9-4
Kate must determine her basis in the partnership interest ($105,000 = $75,000 + $30,000
share of liabilities) and her holding period for her interest in the partnership (begins with her
ownership of the land). (Also see discussion of services in the last paragraph of this solution.) Kate
recognizes no loss at the time of the partnership formation. If the land was a capital asset to Kate
and the partnership sells the land within five years of Kate's contribution, the loss will be a capital
loss up to $25,000, and that capital loss will be allocated to Kate as a precontribution loss. After five
years, the character of the loss will be determined by the character of the land to the partnership, but
Kate still will have to report any precontribution loss recognized. Guaranteed payments will be
reported as ordinary income.
The partnership must be concerned with the basis and holding period of the assets it receives
(carryover for both basis and holding period). The partnership can deduct from ordinary income the
guaranteed payments made to Kate.
An additional tax issue must be addressed. Bob contributed property with a net value of
$70,000 for a one-half interest in the partnership while Kate contributed property with a net value of
only $50,000 for a one-half interest in the same partnership. The total partnership has a net value of
$120,000 ($130,000 + $50,000 - $60,000 liability). One possibility is that Bob has made a $10,000
gift to Kate. If so, both partners’ bases must be adjusted to reflect the gift. Alternatively, the facts
suggest that Kate may be receiving some of her partnership interest in exchange for her services in
managing the business for the first year while receiving no guaranteed payment. If so, Kate must
recognize ordinary income and increase her basis for the value of the partnership interest she
received in exchange for services. If Kate is receiving some of her partnership interest for services,
the partnership must recognize gain or loss on the partnership assets she is deemed to receive and
must adjust the basis of the assets for her deemed recontribution. The partnership also must deduct
the guaranteed payment. (Note: The IRS is in the process of revising its rules concerning partners
who contribute services. See Notice 2005-43, 2005-24 C.B. 1221.) pp. C:9-5 through C:9-12, C:9-
28, and C:9-29.
C:9-20 • What items qualify as organizational expenditures, which are start-up expenditures,
and what items can be deducted currently?
• Does the partnership want to deduct (up to $5,000) and then amortize organizational
expenditures and/or start-up expenditures? If so, over what time period does the
amortization occur (if applicable)?
• When does the partnership business begin?
The partnership first must characterize each expenditure as an organizational expenditure, a

start-up expenditure (Chapter C:3), another expenditure to be capitalized, or a current period
expense. The costs of drawing up the partnership agreement and of establishing the accounting
system are organizational expenditures (totaling $3,200). The cost of searching for a retail outlet is a
start-up expenditure ($1,600), and the cost of having an income statement prepared is a current
period expense ($500).

C:9-5
The partnership then must decide how it wants to handle the organizational and start-up
expenditures. Because each of these items is less than $5,000, the partnership can elect to deduct the
expenditures currently under Sec. 195 for the start-up expenditures and under Sec. 709 for the
organizational expenditures. If the expenditures had exceeded $5,000 each, the partnership would
amortize the balances over 180 months.
Another issue the partnership must face is when is the partnership is considered to begin
business. Regulation Sec. 1.709-2(c) states that business begins when the partnership "starts the
business operation for which it was organized." Had the expenditures exceeded $5,000,
amortization of both the excess organizational expenditures and the excess start-up expenditures
would begin with the month in which business begins. p. C:9-12.
C:9-21 • Is the receipt of a profits interest in the ABC Partnership in exchange for Cara's
services a taxable event?
• If it is a taxable event, what is the amount and character of the income recognized?
• What is Cara's basis and holding period for her partnership interest?
The receipt of the partnership interest is not a taxable event. Under Rev. Proc. 93-27, 1993-2
C.B. 343, the receipt of a profits interest is taxable only under circumstances where the FMV of the
interest can be readily determined. This situation does not fit into one of the three exceptions
contained in the revenue procedure guidelines as being a taxable event. (Note: The IRS is in the
process of revising its rules concerning partners who contributed services. See Notice 2005-43,
2005-24 C.B. 1221.) pp. C:9-10 through C:9-12.
C:9-22 • What is George's basis in his partnership interest?

• Does the repayment of the partnership liability cause an adjustment to George's basis
in his partnership interest?
• Is the repayment of the nonrecourse liability a taxable event for George? If so, what
is the amount and character of the income reported?
Repayments of partnership liabilities are treated as distributions to the partners. A

distribution made to a partner that exceeds his or her basis for the partnership interest produces a
taxable gain. The gain can be calculated as follows:
Basis at the beginning of the year $15,000

Plus: George's share of income
(0.20 x $20,000) 4,000
George's basis before the distribution $19,000
Minus: George's deemed distribution from
repayment of partnership liability
(0.20 x $100,000) (20,000)
George's recognized gain $ 1,000

C:9-6
After these adjustments, George’s basis in the partnership interest is zero. Also, the gain is a capital
gain if the “distribution” is deemed proportionate (see Chapter C:10).
C:9-23 • What is Katie's deductible loss from her partnership investment?

• What is Katie's Sec. 704(d) basis in her partnership interest?
• What is Katie's at-risk basis in her partnership interest?
• Is the loss from the JKL Partnership a passive loss?
• Does Katie have passive income from this investment or other investments?
• If so, can she deduct her losses?
• If not, do the losses carryover to later years?
As a limited partner, Katie is presumed not to materially participate in the partnership.

Therefore, because the loss is from a passive activity, she cannot deduct it unless she has passive
income from other investments, or she terminates her interest in the limited partnership. If no such
income exists, the losses carry over to later years. pp. C:9-26 and C:9-27.
C:9-24 • Do the family partnership rules apply when no family relationship exists?
• Does reasonable compensation need to be paid to Daniel for his services?
• If so, what is reasonable compensation for Daniel's services?
• Does David need to be recognized as a partner in the CD Partnership?
• If so, what is David's allocable share of the partnership income?
• What is Daniel's allocable share of the partnership income?
The family partnership rules are written in terms of the donor-donee relationship.
Accordingly, they apply in this situation. Both Daniel and David would be allocated a reasonable
compensation amount. Then, the remainder of the income originally allocated to Daniel and David
would be reallocated to them based on their relative capital interests. p. C:9-30.
Problems
C:9-25 a. Neither partner recognizes gain or loss (Sec. 721).
b. Suzanne Bob
Basis of contributed property $59,000 $95,000
Minus: Partnership assumption
of individual liabilities (80,000)*
Plus: Share of partnership liabilities 40,000 40,000*
Basis in partnership $99,000 $55,000
*Alternatively, Bob reduces his basis by $40,000 ($40,000 - $80,000), which is the amount of his
liability assumed by the other partners.

C:9-7
c. The partnership takes a carryover basis in each asset: inventory (securities), $14,000;
land, $45,000; and building, $50,000.
d. The partnership’s initial book value is each asset’s FMV at the time of contribution:
inventory, $15,000; land, $40,000; and building, $100,000.
e. Amount realized $20,000
Minus: Adjusted basis ( 14,000)
Realized gain $ 6,000
Precontribution gain of $1,000 ($15,000 FMV at contribution - $14,000 basis) is allocated to

Suzanne. Bob and Suzanne share the remaining $5,000 gain equally. Thus, Suzanne reports $3,500
of gain, and Bob reports $2,500 of gain. The gain is ordinary (and not capital) because the property
was inventory to Suzanne and because the partnership sold the inventory within five years of its
contribution. pp. C:9-5 through C:9-10 and C:9-21 through C:9-24.
C:9-26 a. Fred recognizes ordinary income (compensation) of $15,000. Ed recognizes $89,000

(calculated in Part c below) of Sec. 1231 gain. The other partners recognize no gain or income.
b. The partnership recognizes no gain, loss, or income on the transfers.
c. Al: Cash contribution $ 15,000

Mortgage allocated to partner 19,500
Basis of partnership interest $ 34,500
Bob: Accounts receivable basis to Bob $ -0-

Clay: Equipment basis to Clay $ 13,000

Dave: Land basis to Dave $ 50,000

Ed: Building basis to Ed $ 15,000

Mortgage contributed to partnership* (130,000)
Mortgage allocated to partner* 26,000
Tentative basis (and amount of gain recognized) $ 89,000
Actual basis (basis cannot be less than zero) $ -0-
*Or minus $104,000 ($130,000 - $26,000) mortgage assumed

by other partners

C:9-8
Fred: Services contributed by Fred $ 15,000
d. Bases: cash, $15,000; accounts receivable, $0; equipment, $13,000; land, $50,000;
building, $15,000; and organizational expenditures, $15,000.
e. Book values: cash, $15,000; accounts receivable, $20,000; equipment, $15,000; land,
$15,000; building, $150,000; and organizational expenditures, $15,000.
f. The building has no depreciation recapture potential because straight-line MACRS
depreciation has been used. However, part or all of a subsequent gain will be classified as Sec. 1250
gain subject to the 25% capital gains tax rate under Sec. 1(h)(l)(D) at the partner level. The
depreciation recapture potential for the office equipment carries over to the partnership. The
partnership will recognize the recapture when it sells or exchanges the property in a taxable
transaction.
g. If Fred's profits interest had an ascertainable value, the result is unchanged. If the
profits interest has no ascertainable value at the time of the transaction, Fred recognizes no income,
and the partnership has no organizational expenditure for which an amortization deduction can be
claimed. Also, under Rev. Proc. 93-27, 1993-2 C.B. 343, the IRS will not treat receipt of a profits
interest as a taxable event unless one of the following events occurs: (1) the profits interest relates to
a substantially certain and predicable income stream, (2) the partner disposes of the interest within
two years of receipt, or (3) the interest is in a publicly traded partnership. (Note: The IRS is in the
process of revising its rules concerning partners who contributed services. See Notice 2005-43,
2005-24 C.B. 1221.)
h. Partnership: Amount realized on sale $ 9,000
Recognized loss ($41,000)
Dave: Fair market value when contributed $15,000

Minus: Adjusted basis 50,000
Precontribution loss ($35,000)
Total loss $41,000
Minus: precontribution loss ( 35,000)
Postcontribution loss $ 6,000
Precontribution loss $35,000
Plus: Share of postcontribution
loss (0.15 x $6,000) 900
Dave's distributive share of loss $35,900
Other Partners: Postcontribution loss allocated

to other partners ($6,000 - $900) $ 5,100
Each partner can claim his share of the $5,100 loss only when he has sufficient basis in his
partnership interest. pp. C:9-5 through C:9-12, C:9-18, C:9-24, and C:9-25.

C:9-9
C:9-27 a. Julie and Kay recognize no income on the partnership formation. Susan recognizes
ordinary income equal to the value of the partnership interest received, or $20,000. (Note: The IRS
is in the process of revising its rules concerning partners who contributed services. See Notice
2005-43, 2005-24 C.B. 1221.)
b.
Julie Kay Susan

Basis of property contributed $ -0- $75,000 N/A
Plus: Share of liabilities 16,200 32,400* $ 5,400
Minus: Liabilities assumed by partnership _______ (54,000)*
Plus: Income recognized (for services) $16,200 _______ 20,000
Basis in partnership $53,400 $25,400
*Or minus $21,600 ($54,000 - $32,400) liabilities assumed by other partners.
Basis Book Value
c. and d. Accounts receivable $ -0- $ 60,000

Land 30,000 58,000
Building 45,000 116,000
Organizational expenditure 20,000 20,000
e. All of Kay’s precontribution gain is allocated to her, and no postcontribution gain
remains to be allocated to other partners.
Kay’s gains are analyzed as follows: Land Building
Cash received $40,000 $ 80,000

Plus: Liability assumed by buyer 18,000 36,000
Amount realized $58,000 $116,000
Minus: Adjusted basis ( 30,000) ( 45,000)
Gain realized and recognized $28,000 $ 71,000
Character of gains:
Sec. 1250 gain* $ -0- $ 15,000
Sec. 1231 gain 28,000 56,000
Total $ 28,000 $ 71,000
*The Sec. 1250 property is not subject to depreciation recapture because of straight-line
depreciation, but to the extent of depreciation taken, the gain is Sec. 1250 gain subject to the 25%
capital gains tax rate under Sec. 1(h)(l)(D).
pp. C:9-5 through C:9-12, and C:9-19.

C:9-10
C:9-28 a. Sean reports $75,000 of ordinary income and has a $75,000 basis in his partnership
interest. The partnership deducts $75,000 as compensation, allocating the deduction to the old
partners (none to Sean). The partnership (and the remaining partners) also recognize gains and
losses as if 20% of each asset had been sold at its FMV to pay for Sean's services. The basis in each
asset having a gain (or loss) related to it will be adjusted upward (or downward) by the amount of
the gain (or loss) recognized. In addition, the $100,000 of current year ordinary income is allocated
as follows under the varying interest rule:
Old partners: (100% x 334/365 x $100,000) + (80% x 31/365 x $100,000) = $98,301

Sean: 20% x 31/365 x $100,000 = $1,699
b. Under Sol Diamond, 33 AFTR 2d 74-852, 74-1 USTC ¶9306 (7th Cir., 1974), if an
ascertainable FMV exists for the interest, such value must be reported as income by Sean and is
deductible by the XYZ Partnership. However, if the 20% interest has no ascertainable FMV, neither
Sean nor the XYZ Partnership has any current tax consequences except that the $100,000 ordinary
income is allocated as in Part a. In addition, under Rev. Proc. 93-27, 1993-2 C.B. 343, the IRS will
not treat receipt of a profits interest as a taxable event unless one of the following events occurs:
(1) the profits interest relates to a substantially certain and predicable income stream, (2) the partner
disposes of the interest within two years of receipt, or (3) the interest is in a publicly traded
partnership. (Note: The IRS is in the process of revising its rules concerning partners who
contributed services. See Notice 2005-43, 2005-24 C.B. 1221.) pp. C:9-10 through C:9-12 and
C:9-18.
C:9-29 Marjorie: Income: $15,000 ($20,000 FMV of interest - $5,000 cash)

Basis in partnership interest: $15,000 income recognized + $5,000 cash
contributed + Marjorie's share of partnership liabilities (not given in
problem).
Eldorado: Capitalizes the $15,000 as part of the capital raised by the partnership. This
amount is a syndication fee and cannot be deducted now nor amortized in the
future as an organizational expenditure. The $5,000 cash contribution
increases the partnership's assets. Marjorie's capital account includes
$15,000 + $5,000, or $20,000.
(Note: The IRS is in the process of revising its rules concerning partners who contributed services.
See Notice 2005-43, 2005-24 I.R.B. 1221.)

C:9-11
C:9-30 a.
Possible Tax Year-Ends
6/30 9/30 10/31
Partner Partnership Tax Months Months Months

Name Interest Year Deferred Total Deferred Total Deferred Total
Beta 1/3 6/30 0 .00 9 3.00 8 2.67

Chi 1/3 9/30 3 1.00 0 .00 11 3.67
Delta 1/3 10/31 4 1.33 1 .33 0 .00
2.33 3.33 6.34
The partnership must use a June 30 year-end, or with a Sec. 444 election, a tax year that ends
on March 31, April 30, or May 31.
b. The natural business year that ends on January 31.
c. The partnership would be required to use an October 31 year-end, or the tax year of
the majority partner. Alternatively, with IRS permission, the partnership could use a natural
business year-end (January 31), or with a Sec. 444 election, the partnership could use a tax year that
did not exceed a three-month deferral of income. pp. C:9-12 through C:9-15.
C:9-31 a. December 31. The tax year-end of majority partners Boris and Damien is December 31,
making this the required year-end for the partnership.
b. Yes. Possible year-ends are those that allow for no more than a three-month deferral
from the required December 31 year-end. These year-ends include September 30, October 31, and
November 30. pp. C:9-12 through C:9-15.
C:9-32 Solution appears on next page.

C:9-12
C:9-32 a. and b.
Mark Pamela
Partnership ordinary income items:
Sales $450,000
Minus: Cost of goods sold (210,000)
Gross profit $240,000
Plus: Sec. 1245 gain 33,000
Minus: Ordinary expenses:
Depreciation $27,000
Guaranteed payment 30,000
Business interest 42,000
Meals and entertainment (50%) 5,800 (104,800)
Partnership ordinary income $168,200 $ 84,100 $ 84,100
Separately stated items:

Dividend income $ 15,000 $ 7,500 $ 7,500
T-E interest income 4,000 2,000 2,000
Sec. 1231 gain 18,000 9,000 9,000
Net long-term capital gain ($12,000 - $10,000) 2,000 1,000 1,000
Short-term capital loss (9,000) (4,500) (4,500)
Investment interest expense (9,200) (4,600) (4,600)
Charitable contributions (5,000) (2,500) (2,500)
Nondeductible M&E expense (5,800) (2,900) (2,900)
Nondeductible interest on loan for T-E interest (2,800) (1,400) (1,400)
Guaranteed payment 30,000
c. Mark Pamela*
Beginning basis in partnership interest $150,000 $150,000

Plus: Partnership ordinary income 84,100 84,100
Dividend income 7,500 7,500
T-E interest income 2,000 2,000
Sec. 1231 gain 9,000 9,000
Net long-term capital gain 1,000 1,000
Minus: Distributions (40,000) (40,000)
Reduction in partnership liabilities (7,000) (7,000)
Short-term capital loss (4,500) (4,500)
Investment interest expense (4,600) (4,600)
Charitable contributions (2,500) (2,500)
Nondeductible M&E expense (2,900) (2,900)
Nondeductible interest on loan for T-E interest __(1,400) __(1,400)
Ending basis in partnership interest $190,700 $190,700
*Note: Pamela’s basis calculation does not reflect the guaranteed payment because the increase
for recognition and the decrease for payment net to zero. pp. C:9-16 through C:9-25.

C:9-13
C:9-33
(a) (b) (c) (d)

Financial Taxable Ordinary Separately
Transaction Income Income Income Stated Items
Income
Operating profit $ 94,000 $ 94,000 $ 94,000 $ 31,000
Rental income 30,000 31,000a 15,000
Interest on municipal bonds 15,000 3,000
Interest on corporate bonds 3,000 3,000 20,000
Dividend 20,000 20,000 66,000c
Gain on investment land 60,000 66,000b 10,000
LTCG 10,000 10,000 ( 7,000)
STCL ( 7,000) ( 7,000) 9,000
Sec. 1231 gain 9,000 9,000 44,000
Unrecaptured Sec. 1250 gain 44,000 44,000
Expenses (12,000)
Depreciation ( 39,000) ( 41,000)d ( 29,000)
Interest:
Mortgage ( 18,000) ( 18,000) ( 18,000)
Mun. bond loan ( 5,000) ( 5,000)
Guaranteed payment ( 30,000) -0-e ( 30,000) 30,000
Total $186,000 $ 211,000 $35,000
a
Prepaid rental income is reported for tax purposes when it is received.
b
For financial accounting purposes, the book value of the land was $15,000 and generated a book
gain of $60,000. The tax basis was $6,000 smaller, so the tax gain is $6,000 larger.
c
The precontribution gain of $6,000 ($15,000 - $9,000) must be specially allocated to Jim while the
postcontribution gain of $60,000 ($66,000 total gain - $6,000 precontribution gain) is allocated
ratably to all three partners.
d
MACRS depreciation is used for tax purposes.
e
The guaranteed payment has no net effect on taxable income. The guaranteed payment both
reduces ordinary income and increases separately stated income items that are taxable.
Each partner will be notified of his share of low-income housing expenditures qualifying for the
credit. pp. C:9-16 through C:9-21.

C:9-14
C:9-34 a.
Partner
Items Total Becky Chuck Dawn
Ordinary income $120,000 $24,000 $36,000 $60,000

Long-term capital gain 18,000 3,600 5,400 9,000
Short-term capital loss 6,000 1,200 1,800 3,000
Charitable contribution deduction 20,000 4,000 6,000 10,000
b.
Partnership Becky’s Becky's Chuck’s Chuck's

Total % Amount % Amount
1/1 through 6/30a

Ordinary income $59,507 20% $11,901 30% $17,852
LTCG 8,926 20% 1,785 30% 2,678
STCL 2,975 20% 595 30% 893
Charitable contribution 9,918 20% 1,984 30% 2,975
7/1 through 12/31b

Ordinary income $60,493 25% $15,123 25% $15,123
LTCG 9,074 25% 2,269 25% 2,269
STCL 3,025 25% 756 25% 756
Charitable contribution 10,082 25% 2,521 25% 2,521
a
1/1 through 6/30 is 181 days in a non-leap year.
b
7/1 through 12/31 is 184 days in a non-leap year.
pp. C:9-18 and C:9-19.
C:9-35 Patty:
Ordinary income: $ 3,200 (0.40 x $8,000)
Long-term capital gain:
Precontribution 6,000 ($10,000 - $4,000)
Postcontribution 1,600 [0.40 x ($14,000 - $10,000)]
Total income/gain $10,800
Dave reports $4,800 ($8,000 x 0.60) of ordinary income and $2,400 ($4,000 x 0.60) of long-term
capital gain. p. C:9-19.

C:9-15
C:9-36 As stated in text Example C:9-25, the allocation meets the first test of shifting because the
partners’ capital accounts increase by $10,000 whether with the special allocation or with an equal
allocation. The following calculations show the tax effects of the two allocations:
Special allocation: Andy Becky Total
Taxable interest income $ -0- $10,000

Tax-exempt interest income 10,000 -0-
Total allocation $10,000 $10,000
Taxable income $ -0- $10,000

Times: Tax rate 0.35 0.15
Tax liability $ -0- $ 1,500 $1,500
Equal allocation: Andy Becky Total
Taxable interest income $ 5,000 $ 5,000

Tax-exempt interest income 5,000 5,000
Total allocation $10,000 $10,000
Taxable income $ 5,000 $ 5,000

Times: Tax rate 0.35 0.15
Tax liability $ 1,750 $ 750 $2,500
Thus, shifting occurs because the special allocation does not alter the partners’ capital accounts and
because the special allocation reduces the partners’ total tax liability. Therefore, the special
allocation lacks substantiality. pp. C:9-19 through C:9-21.
C:9-37 a. No. This special allocation does not meet the test of having substantial economic
effect and will not be acceptable to the IRS. In particular, shifting occurs because the special
allocation does not alter the partners’ capital accounts, and the special allocation reduces the
partners’ total tax liability by shifting enough short-term capital gain to Clark to offset his entire
short-term capital loss.
b. The special allocation affects only the partners’ tax consequences and not the
economic consequences. Each partner's distributive share is still $100,000. Accordingly, the special
allocation will not be accepted, and the income must be allocated according to the partners' 50/50
interest in the partnership. The partners must report the following:
Total Clark Lois
Short-term capital gain $ 60,000 $30,000 $30,000

Ordinary income 140,000 70,000 70,000

C:9-16
C:9-38 a. The special allocation could have substantial economic effect in Year 1 but not in
Year 2 or Year 3 because Diane does not have an obligation to repay negative capital account
balances.
b. The special allocation will have substantial economic effect in all three years.
c. As in Part a, the special allocation will not have substantial economic effect in Year 2
or Year 3 because Diane will have a negative capital account balance in each year. The liability
increases basis but does not increase her capital account. pp. C:9-19 through C:9-21.
C:9-39 a. Carryover basis of contributed property $14,000

Minus: Debt assumed by other partners (0.80 x $10,000) ( 8,000)
Partnership interest basis $ 6,000
b. Carryover basis from friend $34,000

Plus: Share of partnership liabilities 20,000
Partnership interest basis $54,000
c. The interest's FMV used in valuing the estate ($120,000) is Kelly's basis. pp. C:9-21
through C:9-24.
C:9-40 a. The FMV of the partnership interest, or $25,000.

(Note: The IRS is in the process of revising its rules concerning partners who
contributed services. See Notice 2005-43, 2005-24 C.B. 1221.)
b. Land basis $ 6,000
Car basis 15,000
Cash contributed 2,000
Share of recourse liabilities (0.40 x $100,000) 40,000
Basis in partnership interest $63,000

C:9-17
C:9-41 a. Purchase price $ 50,000
Plus: Share of liabilities (0.40 x $200,000) 80,000
Distributive share of taxable items ($30,000 +
$10,000 - $1,000) 39,000
Distributive share of tax-exempt items ($8,000 - $2,000) 6,000
Minus: Change in liabilities (0.40 x $20,000) ( 8,000)
Basis on December 31 $167,000
b. Purchase price $ 50,000

Plus: Share of recourse liabilities (0.30 x $200,000) 60,000
Distributive share of taxable items 39,000
Distributive share of tax-exempt items 6,000
Increase in nonrecourse liabilities (0.40 x $80,000) 32,000
Minus: Reduction in recourse liabilities (0.30 x $100,000) ( 30,000)
c. Purchase price $ 50,000

Plus: Distributive share of taxable items 39,000
Distributive share of tax-exempt items 6,000
Increase in nonrecourse liabilities (0.40 x $80,000)* 32,000
*Tina has no economic risk of loss for the recourse liabilities
and therefore receives no basis for these liabilities.
C:9-42 a. and b.
Analysis of Outside Basis and At-Risk Basis:
Kerry City Corporation
Outside basis at January 1 $200,000 $200,000

Plus: Short-term capital gain 150,000 150,000
Partnership nonrecourse liability 50,000 50,000
Outside basis before losses $400,000 $400,000
Minus: Reduction for losses (see below) ( 400,000)a ( 400,000)
Outside basis after losses $ -0- $ -0-
At-risk basis before losses $350,000 N/A

Minus: Reduction for losses (350,000)
At-risk basis after losses $ -0-

C:9-18
Treatment of Losses: Kerry City Corporation
Losses:
Ordinary loss $450,000 $450,000
Long-term capital loss 50,000 50,000
Total $500,000 $500,000
Loss allowed $350,000a $400,000b
Character of losses allowed:

Ordinary loss (450/500 x loss allowed) $315,000 $360,000
Long-term capital loss (50/500 x loss allowed) 35,000 40,000
Total $350,000 $400,000
a
Kerry’s loss is limited to his at-risk basis. Nevertheless, his outside basis is reduced by $400,000.
b
City Corporation is not subject to the at-risk rules because it is not closely held. Thus, the
corporation’s loss is limited to its outside basis.
c. The qualified nonrecourse liability is considered to be at-risk. Therefore, both

partners can deduct a $400,000 loss and have a zero outside basis for their partnership interest after
the year’s operations. Thus, City Corporation’s results are the same as in Parts a and b, and Kerry’s
results are now the same as City’s. p. C:9-26.
C:9-43
Gary (General Partner-60%) Mary (General Partner-40%)

Tax Basis At-Risk Basis Tax Basis At-Risk Basis
Beginning basis without debt $ 42,000 $42,000 $28,000 $28,000

Recourse debt (accts. pay.) 18,000 18,000 12,000 12,000
Nonrecourse debt 60,000 -0- 40,000 -0-
Basis before losses $120,000 $60,000 $80,000 $40,000
Operating loss* (120,000) (60,000) (80,000) (40,000)
Ending basis $ -0- $ -0- $ -0- $ -0-
*Gary recognizes a $60,000 loss, and Mary recognizes a $40,000 loss, both limited by the at-
risk rules. Nevertheless, Gary and Mary reduce their partnership bases by the full amount of the
losses. They can deduct the disallowed losses in future years if they increase their at-risk bases.
p. C:9-26.

C:9-19
C:9-44 a.
Eve Tom
Beginning basis $46,000 $75,000

Plus: Share of LTCG 8,000 12,000
Basis before loss $54,000 $87,000
Share of loss $56,000 $84,000
Limitations on loss $54,000 $87,000

Sec. 704(d) limit 54,000 87,000a
At-risk limit N/A 12,000b
Passive activity limit
Deductible loss $54,000 $12,000
a
Because the partnership has no nonrecourse liabilities, the at-risk basis equals the
partnership basis for both partners. Thus, the at-risk rules do not limit the losses the partners
can deduct.
b
Eve materially participates in the partnership business, so the partnership's ordinary loss is
an active loss for her. Tom is a limited partner and does not materially participate, so his
deduction for losses is limited to the passive income he earns from this (and all other)
passive activities during this year. Because the problem states that he has no other income
except his salary, Tom can deduct the loss only to the extent of his share of income from this
partnership. This result assumes that the long-term capital gain relates to the partnership’s
operations and is not portfolio income. These rules determine the amount of loss Tom can
deduct. The character (and the treatment of Tom's income on the tax return) remains
$12,000 ordinary loss and $12,000 long-term capital gain.
b. The additional $100,000 recourse debt would increase both the Sec. 704(d) basis and
the at-risk basis for Eve, who has the economic risk of loss. This increase would give her enough at-
risk basis to deduct her full $56,000 distributive share of partnership losses. As a limited partner,
Tom would have a basis increase only if he had some agreement to assume an economic risk of loss
related to the recourse borrowings. Even if he had a basis increase (which is unlikely), Tom could
not deduct any additional loss because the passive activity loss rules still limit passive losses to
passive income.
pp. C:9-26 and C:9-27.

C:9-20
C:9-45 a.
Kate Chad Stan
Basis before gain and loss $100,000 $100,000 $50,000

Plus: Capital gain 20,000 20,000 10,000
Basis before loss $120,000 $120,000 $60,000
At-risk basis before lossa $ 70,000 $ 70,000 $35,000
Distributive share of loss $ 80,000 $ 80,000 $40,000

Character of loss Active Passive Passive
Deductible loss $ 70,000 $ 20,000b $10,000b
a
Basis before loss minus nonrecourse liability.
P
Passive losses are deductible to the extent of passive income earned during the year. This result
assumes the partners have no passive income from other sources that can be offset by the passive
loss and that the capital gain is not portfolio income.
b. Rental activities are passive activities, so Kate and Chad are limited to a $25,000 loss
deduction because their AGIs do not exceed $100,000. The deduction, however, would have to be
reduced if Kate’s and Chad’s AGIs were to exceed $100,000. Stan does not actively participate in
the rental activity, so he has the same deductible loss as in Part a. pp. C:9-26 and C:9-27.
C:9-46 a. & b. Analysis without the at-risk and passive activity loss (PAL) rules:
The following analysis shows the partnership’s gain or loss for the Years 1 through 5 and the
beginning of Year 6. The $82,000 gain at the beginning of year six is all ordinary income because of
Sec. 1245 depreciation recapture. The total tax savings without discounting are zero. However,
with discounting, the total tax savings are $4,563. Thus, without the at-risk and PAL rules, the
partners obtain a deferral advantage.
Year 1 2 3 4 5 Beg. 6
Lease income $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $82,000
Minus: Depreciation ( 40,000) ( 25,000) ( 15,000) ( 8,000) ( 8,000) ( 4,000)
Interest expense ( 7,000) ( 6,500) ( 6,500) ( 6,000) ( 6,000) -0-
Gain (loss) ($37,000) ($21,500) ($11,500) ($ 4,000) ($ 4,000) $78,000
Total
Tax (tax savings) (35%) ($12,950) ($ 7,525) ($ 4,025) ($ 1,400) ($ 1,400) $27,300 $ -0-
Present value (7%) ( 12,103) ( 6,573) ( 3,286) ( 1,068) ( 998) 19,465 ($4,563)
c. Analysis with at-risk and passive activity loss rules:

With the at-risk and PAL rules in effect, the deferral advantage disappears, and the partners
achieve no tax savings. The following table shows this result.

C:9-21
Year 1 2 3 4 5 Beg. 6
Lease income $ 10,000 $10,000 $ 10,000 $10,000 $10,000 $82,000
Minus: Depreciation ( 40,000) ( 25,000) ( 15,000) ( 8,000) ( 8,000) ( 4,000)
Interest expense ( 7,000) ( 6,500) ( 6,500) ( 6,000) ( 6,000) -0-
Gain (loss) ($37,000) ($21,500) ($11,500) ($ 4,000) ($ 4,000) $78,000
At-risk disallowance 35,000 21,500 11,500 4,000 4,000 (76,000)*
PAL disallowance 2,000 -0- -0- -0- -0- ( 2,000)*
Net gain (loss) $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
*The partners can deduct these amounts in Year 6 because, after the sale, they have at-risk basis and are
allowed to deduct the deferred passive active loss.
d. The following table shows the combined basis of both partners’ interests in the
partnership. Each partner will have half the amounts shown in this table. Note that the partners’
bases are always positive, so the Sec. 704(d) loss limitation does not apply.
Year 1 2 3 4 5 Beg. 6
Beginning basis $ -0- $60,000 $35,000 $20,000 $12,000 $ 4,000
Contributions 2,000 -0- -0- -0- -0- -0-
Debt 95,000 ( 3,500) ( 3,500) ( 4,000) ( 4,000) (80,000)
Gain (loss) (37,000) ( 21,500) ( 11,500) ( 4,000) ( 4,000) 78,000
Basis before distributions $60,000 $35,000 $20,000 $12,000 $ 4,000 $ 2,000
Final distribution ( 2,000)
Ending basis $ -0-
pp. C:9-26 and C:9-27.
C:9-47 a. Amount realized $40,000

Realized loss ($20,000)
Susan cannot recognize the loss because she is deemed to own 100% of the partnership. The
partnership has a $40,000 cost basis in the securities.
b. Amount realized $ 40,000
Susan recognizes the entire $10,000 loss because she owns only 15% of the partnership.
c. Amount realized $ 40,000
Realized gain $ 10,000
Susan recognizes the entire $10,000 as a capital gain, even though she owns directly and indirectly
65% of the partnership, because the property is a capital asset to the partnership.

C:9-22
d. The partnership reduces its gain realized by any previously disallowed loss ( Sec.
707(b)(1) and Sec. 267(d)). The reduction, however, cannot create or increase a loss. Thus, the
partnership’s results are as follows:
Case 1 Case 2 Case 3

Selling price $70,000 $55,000 $35,000
Minus: Partnership’s basis ( 40,000) ( 40,000) ( 40,000)
Gain (loss) realized $30,000 $15,000 ($ 5,000)
Reduction of gain for previously disallowed loss ( 20,000) ( 15,000) -0-
Gain (loss) recognized $10,000 $ -0- ($ 5,000)
pp. C:9-27 and C:9-28.
C:9-48 Other unrelated partners 37%

45%
Maura
15%
KLM KTV
35% Kara 45%
(Maura's Mother)
20%
3%
Lynn
Maura's interest in KTV is counted as indirectly owned by Kara. Therefore, KLM and KTV are
partnerships in which the same persons own directly or indirectly more than 50% of the capital or
profits interests.
a. Amount realized $50,000

The KTV Partnership does not recognize the $ 30,000 loss.
b. Amount realized $50,000
Realized gain $27,000
The KTV Partnership recognizes a $27,000 capital gain.
c. Amount realized $50,000
Realized gain $15,000
The KTV Partnership recognizes $15,000 of ordinary income.

C:9-23
d. The KLM Partnership reduces its gain realized by any previously disallowed loss (Sec.
707(b)(1) and Sec. 267(d)). The reduction, however, cannot create or increase a loss. Thus, KLM
Partnership’s results are as follows:
Case 1 Case 2 Case 3

Selling price $130,000 $70,000 $ 40,000
Minus: Partnership’s basis in stock ( 50,000) ( 50,000) ( 50,000)
Gain (loss) realized $ 80,000 $20,000 ($10,000)
Reduction of gain for previously disallowed loss ( 30,000) ( 20,000) ( -0-)
Gain (loss) recognized $ 50,000 $ -0- ($10,000)
pp. C:9-27 and C:9-28.
C:9-49
SD Allocation to Partner:
Partnership Scott Bob
Ordinary income before guaranteed payments $23,000

Minus: Guaranteed payments (10,000) $5,000 OI $5,000 OI
Partnership ordinary income $13,000 $6,500 OI $6,500 OI
Capital gain $14,000 $7,000 LTCG $7,000 LTCG
OI = Ordinary income LTCG = long-term capital gain.
pp. C:9-28 and C:9-29.
C:9-50 a.
AB Allocation to Partner:
Partnership Allen Bob
Ordinary income before guaranteed payment $160,000

Minus: Guaranteed payment ( 90,000) $ 90,000
Partnership ordinary income 70,000 $35,000 35,000
Total to partners $160,000 $35,000 $125,000

C:9-24
b.
Ordinary income before

guaranteed payments $160,000 $80,000 $ 80,000
Minus: Adjustment for
guaranteed payment* -0- ( 10,000) 10,000
Income allocation $160,000 $70,000 $ 90,000
*Guaranteed minimum $90,000

Minus: Bob’s distributive share (80,000)
Guaranteed payment $10,000
c.
LTCG $140,000 $70,000 $ 70,000

Guaranteed payment 80,000 80,000
Minus: Ordinary loss allocated* ( 80,000) (40,000) ( 40,000)
*$0 ordinary income before guaranteed payment - $80,000 guaranteed payment = ($80,000)
ordinary loss.
pp. C:9-28 and C:9-29.
C:9-51 a.
PS Allocation to Partner:
Partnership Pam Susan
LTCG $ 10,000 $ 3,000 $ 7,000

Guaranteed payment 40,000 40,000
Minus: Ordinary loss allocated (40,000)* (12,000) ( 28,000)
Total to partners $ 10,000 $31,000 ($ 21,000)
*$0 ordinary income before guaranteed payments - $40,000 guaranteed payment = ($40,000)
ordinary loss.

C:9-25
b.
Guaranteed payment $ 35,000 $35,000

Ordinary income allocated 45,000* 9,000 $36,000
Sec. 1231 gain 60,000 12,000 48,000
*$80,000 ordinary income before guaranteed payment - $35,000 guaranteed payment

= $45,000
c. Ordinary income before guaranteed payment $120,000

Times: Pam's distributive share of partnership income 0.40
Pam's distributive share $ 48,000
Plus: Pam's guaranteed payment ($60,000 - $48,000) 12,000
Pam's total payment (guaranteed minimum) $ 60,000
Guaranteed payment $ 12,000 $12,000

Ordinary income allocated 108,000* 48,000 $60,000
Total received $120,000 $60,000 $60,000
*$120,000 ordinary income before guaranteed payment - $12,000 guaranteed payment

= $108,000
pp. C:9-28 and C:9-29.
C:9-52 Assuming Son passes the tests for ownership of the partnership interest, Son is a partner
since capital is a material income producing factor. Allocation of the income would occur as
follows:
Dad (0.70 x $100,000) $ 70,000

Fred (0.10 x $100,000) 10,000
Son (0.20 x $100,000) 20,000
Total distributive shares $100,000
pp. C:9-30 and C:9-31.

C:9-26
C:9-53 Partnership income before guaranteed payment $160,000
Minus: Reasonable compensation for Steve ( 70,000)
Partnership ordinary income $ 90,000
Distributive shares: Steve (60%) $ 54,000

Tracy (20%) 18,000
Vicki (20%) 18,000
Total $ 90,000
In addition to his distributive share, Steve receives $70,000 of ordinary income from the
guaranteed payment, for a total of $124,000. pp. C:9-30 and C:9-31.
Comprehensive Problems
C:9-54 a. Rick’s distributive share of income is his 40% loss share because the partnership has
an overall loss. Specifically, Rick’s distributive share is:
Ordinary loss ($176,000)

Long-term capital gain 40,000
Sec. 1231 gain 60,000
b. What Rick can report on his tax return is restricted by loss limitation rules. In all
cases, he must report the $40,000 long-term capital gain and the $60,000 Sec. 1231 gain.
Sec. 704(d) Limit At-Risk Limit
Beginning basis $ 50,000 $ 20,000

Income (LTCG + Sec. 1231 gain) 100,000 100,000
Loss limitation $150,000 $ 120,000
Allowed loss (150,000) ( 120,000)
Ending basis $ -0- $ - 0-
Although the Sec. 704(d) limit would allow Rick to deduct $150,000, the at-risk rules limit
his loss to $120,000. (The $20,000 beginning at-risk amount is Rick’s beginning $50,000 basis in
the partnership less the $30,000 portion of the basis attributable to his share of the nonrecourse debt,
for which he is not at risk.) Further, the passive activity loss rules apply because Rick does no work
in this partnership. The passive activity loss rules limit his loss deduction to passive activity income.
He has $100,000 income from this activity (and no other investments). As long as the $100,000 is
passive (and not portfolio income), he can deduct $100,000 on this tax return.
c. Rick’s basis is zero as calculated above. Even though he can deduct only $100,000,
his partnership basis is reduced by the full $150,000.
pp. C:9-17, C:9-18, and C:9-24 through C:9-27.

C:9-27
C:9-55 a. Partnership ordinary income: Charles Mary
Total (40%) (60%)
Sales—Inventory A $60,000
Minus: COGS—Inventory A ( 35,000)
Gross profit—Inventory A $25,000
Minus: Precontribution profit ( 15,000)
Postcontribution profit $10,000
Sales—Inventory B $58,000
Minus: COGS—Inventory B ( 40,000)
Gross profit—Inventory B 18,000
Minus: Operating expenses (20,000)

Interest expense ( 500)
Depreciation ( 7,000)
Partnership ordinary income $ 500 $ 200 $ 300
b. Separately stated items: Charles Mary

Total (40%) (60%)
Short-term capital gain $ 1,000 $ 400 $ 600

Precontribution profit 15,000 15,000
c. Partners’ basis in partnership: Charles Mary

(40%) (60%)
Beginning basis (adjusted basis of original contributions) $ 70,000 $150,000

Plus: Partnership ordinary income 200 300
Short-term capital gain 400 600
Precontribution profit 15,000
Share of ending liabilities ($5,000 - $1,000) 1,600 2,400
Minus: Distributions ( 2,000) ( 3,000)
Ending basis $ 85,200 $150,300
d. Partners’ book capital accounts: Charles Mary

(40%) (60%)
Beginning balance (FMV of original contributions) $100,000 $150,000

Plus: Partnership ordinary income 200 300
Short-term capital gain 400 600
Minus: Distributions ( 2,000) ( 3,000)
Ending balance $ 98,600 $147,900

C:9-28
e. Analysis of cash:
Increases:
Mary’s contribution $150,000
Original loan amount 5,000
Cash from sales ($60,000 + $58,000) 118,000
Sale of ST Corporation stock (proceeds) 6,000
Total increase $279,000
Decreases:
Purchase of equipment $ 50,000
Purchase of Inventory B 80,000
Purchase of ST stock 5,000
Loan principal repayment 1,000
Operating expenses 20,000
Interest expense 500
Distributions 5,000
Total decrease ( 161,500)
Ending cash balance $117,500
f. Tax balance sheet: Beginning Post-Purchase Ending
Assets:
Cash $150,000 $ 20,000 $117,500a
Stock 5,000
Inventory 70,000 150,000 75,000b
Equipment (ending: $50,000 - $7,000) _______ 50,000 43,000
Total $220,000 $225,000 $235,500
Liabilities and Capital Accounts:

Liabilities $ -0- $ 5,000 $ 4,000
Charles’ tax capital account 70,000 70,000 83,600c
Mary’s tax capital account 150,000 150,000 147,900c
Total $220,000 $225,000 $235,500
a
See Part e.
b
Analysis of inventory:
Contribution of Inventory A (carryover basis) $ 70,000
Sale of inventory ($35,000 + $40,000) ( 75,000)
Ending balance $ 75,000
c
See Part c. Same as ending basis minus each partner’s share of partnership liabilities.

C:9-29
g. Book balance sheet: Beginning Post-Purchase Ending
Assets:
Cash $150,000 $ 20,000 $117,500a
Stock 5,000
Inventory 100,000 180,000 90,000b
Equipment (ending: $50,000 - $7,000) _______ 50,000 43,000
Total $250,000 $225,000 $250,500
Liabilities and Capital Accounts:

Liability $ -0- $ 5,000 $ 4,000
Charles’ book capital account 100,000 100,000 98,600c
Mary’s book capital account 150,000 150,000 147,900c
Total $250,000 $255,000 $250,500
a
See Part e.
b
Analysis of Inventory:
Contribution of Inventory A (FMV) $100,000
Sale of inventory ($50,000 + $40,000) ( 90,000)
Ending balance $ 90,000
c
See Part d.

C:9-30
Tax Strategy Problem
C:9-56 a. (1) Corporation’s taxable income and tax liability:
Sales $3,000,000
Beginning inventory $1,770,000
Plus: Purchases 2,100,000
Minus: Ending inventory (1,650,000)
Cost of goods sold (2,220,000)
Gross profit $ 780,000
Plus: Long-term capital gain $ 20,000
Dividends received 4,000
Total other income 24,000
Minus: Operating expenses $ 500,000
Deductible interest expense 30,000
Dividends-received deduction ($4,000 x 0.70) 2,800
Total deductions ( 532,800)
Taxable income $ 271,200
Income tax liability [$22,250 + (0.39 x $171,200)] $ 89,018
(2) Sarah’s and Rex’s AGI, taxable income, and tax liability (both are the
same, so only one computation follows based on 2012 schedules):
Dividend income (AGI) $ 50,000

Minus: Standard deduction ( 5,950)
Personal exemption ( 3,800)
Taxable income (all dividend income subject to reduced tax rates) $ 40,250
Income tax liability [(0.00 x $35,350) + (0.15 x $4,900)] $ 735

Times: Number of taxpayers 2
Total income tax liability for Sarah and Rex 1,470
(3) Total tax liability for the corporation and its owners $ 90,488
b. (1) Partnership ordinary income: Total Sarah Rex
Gross profit (same as Part a(1)) $780,000

Minus: Operating expenses ( 500,000)
Deductible business interest expense ( 30,000)
Partnership ordinary income $250,000 $125,000 $125,000

C:9-31
(2) Separately stated items: Total Sarah Rex
Long-term capital gain $ 20,000 $ 10,000 $ 10,000

Dividend income 4,000 2,000 2,000
Tax-exempt interest income 2,200 1,100 1,100
(3) Sarah’s and Rex’s AGI, taxable income, and tax liability
(Both are the same, so only one computation follows):
Partnership ordinary income $125,000

Plus: Long-term capital gain 10,000
Dividend income 2,000
Minus: One-half self-employment tax ( 7,500)
Adjusted gross income (AGI) $129,500
Minus: Standard deduction ( 5,950)
Personal exemption ( 3,800)
Taxable income $119,750
Minus: Long-term capital gain and dividend income ( 12,000)
Ordinary taxable income $107,750
Income tax liability on ordinary taxable income

{$17,442.50 + [0.28 x ($107,750 - $85,650)]} $ 23,631
Plus: Tax on long-term cap. gain and dividend income ($12,000 x 1,800
0.15)
Total income tax $ 25,431
Plus: Self-employment tax 15,000
Total tax liability $ 40,431
Total tax liability for Sarah and Rex $ 80,862
(4) Partners’ basis in their partnership interest

(both are the same, so only one computation follows):
Initial contribution to partnership $ 800,000

Plus: Share of partnership liabilities 200,000
Partnership ordinary income 125,000
Long-term capital gain 10,000
Dividend income 2,000
Tax-exempt interest income 1,100
Minus: Distribution ( 50,000)
Ending basis for each partner $1,088,100

C:9-32
c. Based on the analyses in Parts a and b, the partnership gives the better result in terms
of total tax liabilities, primarily because it avoids double taxation. However, the low tax rate on
dividend income lessens the impact of double taxation. A one-year analysis has two main
shortcomings, however. First, it does not take into account future operations, distributions, and tax
rates. Second, it does not factor in the shareholders’ taxes upon a final disposition or liquidation of
the corporation.
d. The corporation could reduce the overall tax liability by paying out the $50,000
amounts to each shareholder as salary rather than dividends. Assuming the $50,000 amounts are
reasonable, the salaries would be deductible. However, they would trigger payroll taxes and tax at
ordinary rates. The following calculation shows the total additional tax savings assuming the
corporation pays and deducts a 7.65% payroll tax on the salaries and that the shareholder-employees
pay a 5.65% payroll tax (in 2012) via a reduction of their paychecks. The revised total tax is
$72,520 ($90,488 from Part a - $17,968 net tax savings as calculated below), which now is better
than the partnership arrangement.
Deductible salary expense ($50,000 x 2) $100,000

Deductible payroll tax ($100,000 x 0.0765) 7,650
Total corporate deduction $107,650
Times: Corporate marginal tax rate 0.39
Corporate tax savings $ 41,984
Minus: Corporate payroll tax paid ( 7,650)
Employees’ payroll taxes ($50,000 x 0.0565 x 2) ( 5,650)
Additional individual tax* ( 10,716)
Net tax savings $ 17,968
*Tax on $40,250 of ordinary salary income $ 6,093

Total $ 12,186
Minus: Tax on $40,250 of dividend income for two taxpayers ( 1,470)
Additional individual tax $ 10,716
pp. C:9-16 through C:9-25 and Chapter C:3.
Tax Form/Return Preparation Problems
C:9-57 (See Instructor’s Resource Manual)
C:9-58 (See Instructor’s Resource Manual)

C:9-33
Case Study Problems
C:9-59 The points listed below are the major ones that should be covered in the presentation to be
made. Students should incorporate these points into a properly structured presentation and should be
encouraged to create the audio-visual aids needed to make an effective presentation.
The bases for Abe and Brenda's partnership interests on December 31 are as follows:
Abe Brenda
12/31 basis before income and liabilities $81,000 $104,000

Plus: Current income items 12,000 12,000
Basis before losses $93,000 $116,000
The tax year is a loss year (because losses exceed income), so the 50% - 50% loss interest
ratios are used to allocate both income and loss items. Income items of $24,000 ($10,000 Sec. 1231
gain and $14,000 municipal bond income) are evenly allocated to the two partners and reflected in
the above bases numbers.
Each partner is allocated one-half of each item of loss or deduction for a total of $125,000
each. The partners cannot reduce their basis below zero, so a pro rata portion of each loss item is
used to reduce basis.
Abe Brenda
Ordinary loss $37,200* $ 46,400**

LTCL 5,208* 6,496**
STCL 50,592* 63,104**
Total $93,000 $116,000
*93/250 x Loss item amount

**116/250 x Loss item amount
Abe, who is an active partner, reports the following amounts: $5,000 Sec. 1231 gain,
$37,200 ordinary loss, $5,208 LTCL, and $50,592 STCL. His losses are not limited further by the
passive activity rules. His $7,000 share of municipal bond income increases his basis in his
partnership interest but is not recognized as income. His basis at year-end is zero. He has losses of
$32,000 ($125,000 - $93,000), which he can deduct in future years when he again has basis in his
partnership interest.
Brenda is a passive partner, so she can deduct losses from this passive activity (her only
passive activity) up to the amount of income from this activity, the $5,000 Sec. 1231 gain. All other
losses will be suspended until she has passive income (from this or some other passive investment)
or until she disposes of her entire interest in the partnership. Her allocated share of losses reduces
her basis to zero even though she can deduct only $5,000.
C:9-34
The need to borrow money next year gives Abe (but not Brenda) the opportunity to deduct
some of the suspended loss from this year's operations. If the borrowings are recourse or qualified
real estate nonrecourse financing, they will increase both partners' partnership and at-risk bases.
Note that recourse loans will be allocated between the partners based on their economic risk of loss
while the nonrecourse debt would be divided on their 40% - 60% profit ratios. Abe will be able to
deduct his losses from the current year along with any losses from next year's operations up to the
extent of his basis at the end of next year.
Brenda's partnership and at-risk bases also will be increased by the borrowings, but her
passive losses will remain suspended until she has passive income. If the partnership earns money
next year, she will have passive income and can recognize some of her suspended passive losses. If
this partnership does not soon earn passive income, Brenda should consider adding investments to
her portfolio that will generate passive income.
C:9-60 Relevant facts:
Mr. Jones made an error last year in allowing the partnership return to be filed. Mr. Jones is
no longer with the firm, and the client already is unhappy about adjusting to a new accountant.
Filing as a partnership reduces the client's tax bill. The client is very important to the firm.
Some ethical issues:
1. Should Wise and Johnson prepare the Andres Partnership's tax return?
2. Should Wise and Johnson prepare an amended return for Dr. Andres for the prior year
including all the Andres Partnership's income in his personal return?
3. How should John respond to Ms. Watson's question about whether he is positive that the
arrangement does not qualify as a partnership?
4. If the firm decides to prepare the return and Ms. Watson tells John to prepare it, should he
prepare it?
5. How should the firm (and Ms. Watson and John) balance loyalty to the retired partner
against misgivings about compromising integrity?
Some possible alternatives:
For John:
1. Tell Ms. Watson he is not sure about his conclusion, and prepare the return if she wants to
give the client a partnership return.
2. Tell Ms. Watson he is sure about his conclusion, but prepare the return if she still wants to
give the client a partnership return.
3. Tell Ms. Watson he is sure about his conclusion, and ask to be taken off the assignment if
she still wants to give the client a partnership return.
4. Tell Ms. Watson he is sure about his conclusion, and talk to another partner in the firm if she
still wants to give the client a partnership return.
5. Resign, and let the firm work out its problem.

C:9-35
For Wise and Johnson:
1. Prepare the current partnership return, and say nothing to the client.
2. Refuse to prepare the current partnership return, but do nothing about correcting last year's
error.
3. Refuse to prepare the current partnership return, and tell the client that an amended return
must be filed for last year.
Examples of questions to be asked in discussing the ethics of the alternatives:
1. How much value should be placed on (a) maintaining the firm's reputation for quality work,
(b) keeping the client, (c) John's professional integrity, (d) Ms. Watson's professional
integrity, and (e) Mr. Jones's professional reputation?
2. What are the likely consequences of each alternative?
3. Which alternative would provide the greatest benefit to the greatest number of the people
involved?
4. Does John have the right to refuse to prepare the partnership return?
5. Does Ms. Watson have the right to insist that John prepare the partnership return?
6. Which alternative distributes the benefits and burdens of this situation most fairly?
7. What impact (if any) does the AICPA's Statements on Standards for Tax Services have on
the issues at hand (see Appendix E)?
8. Does the firm or an individual tax return preparer have any liability for penalties under the
tax return preparer rules (see Chapter C:15)?
9. Does the firm face any sanctions under Treasury Department Circular 230?
10. Does the firm have a responsibility for notifying the IRS about the error?
11. Do Dr. Andres and his sons have any penalty exposure under the substantial underpayment
provisions?

C:9-36
Tax Research Problems
C:9-61 Basis at Time of Contribution
Wally's basis in the property at the time of contribution:
Office furniture:
Cost $60,000
Minus: MACRS 7-year property ($60,000 x .1429 x 8/12) ( 5,716)
Basis at contribution (September 20, 2012) $54,284
Sources: Sec. 168(e)(1), Sec. 168(k), and Rev. Proc. 87-57, 1987-2 C.B. 687, Table 1. (Also
see Table 1 in Appendix C of the text.)
Building:
Cost $100,000
Prior years' depreciation (MACRS 39-
year straight-line depreciation):
2008 (0.01391 x $100,000) $1,391
2009 (0.02564 x $100,000) 2,564
2010 (0.02564 x $100,000) 2,564
2011 (0.02564 x $100,000) 2,564
2012 (0.02564 x $100,000 x 8/12) 1,709 ( 10,792)
Basis at contribution (September 20, 2012) $ 89,208
Sources: Sec. 168(c)(1) and IRS Publication 946, Table A-7a. (also see Table 9 in Appendix C
of the text.)
Land: Cost basis $ 8,000
Partnership Depreciation
The partnership continues the depreciation method used by the related party prior to the contribution
(Sec. 168(i)(7)). The partnership is assumed to have held the property for the entire month in which
the property is transferred (Prop. Reg. Secs. 1.168-5(b)(4)(i) and 1.168-5(b)(2)(i))(B)). Accordingly,
the current year depreciation is:
Office furniture ($60,000 x 0.1429 x 4/12) $ 2,858
Building (0.02564 x $100,000 x 4/12) $ 855

C:9-37
Allocation of Depreciation to the Partners
Section 704(c)(1) requires that depreciation on contributed property be allocated to take into account
the difference between the basis and FMV amounts at the time of contribution. Treasury
Regulations describe three alternatives for allocating depreciation between the partners. Regulation
Sec. 1.704-3(b), and especially Reg. Sec. 1.704-3(b)(2) Example 1, illustrates the traditional method
of allocation between the partners.
For book purposes, the partnership records contributed property at its FMV at the time of
contribution (Reg. Sec. 1.704-1(b)(2)(iv)(d)). Caitlin is treated as though she purchased a one-half
interest in this book value. Consequently, she has an allocable right to tax depreciation in an amount
that equals one-half the book depreciation. According to Reg. Sec. 1.704-1(b)(2)(iv)(g)(3), book
depreciation is based on the following ratio:
Book depreciation = Tax depreciation x (Book value / Adjusted basis)
Thus, for the year of transfer, book depreciation is calculated as follows:
Office furniture: $2,858 x ($66,000 / $54,284) = $3,475

Building: $855 x ($120,000 / $89,208) = $1,150
The $66,000 and $120,000 book values in the above calculations are the FMVs at the time of
contribution. Caitlin, then, is allocated tax depreciation equal to one-half these book amounts, and
Wally receives any remaining tax depreciation. The following table summarizes the allocation of
tax depreciation.
Partnership Caitlin Wally
Office Furniture $2,858

($3,475 x 0.5) $1,738
($2,858 - $1,738) $1,120
Building: $ 855
($1,150 x 0.5) $ 575
($855 - $575) $ 280
Treasury Regulations provide two other methods of allocating depreciation on contributed

property among the partners: the traditional method with curative allocations and the remedial
method. These elective methods are used only if the traditional method cannot give the
noncontributing partner (in our case, Caitlin) tax depreciation equal to her share of book
depreciation because the partnership's tax depreciation on the contributed asset is less than the book
value depreciation to be allocated to the noncontributing partner. One of these two methods would
be used if partnership tax depreciation on the office furniture was less than $1,738 or if the
partnership depreciation on the building was less than $575. Neither of these methods applies to our
situation because the traditional method already gives Caitlin tax depreciation equal to her share of
book depreciation.
C:9-38
Depreciation Recapture and Unrecaptured Sec. 1250 Gain
Both the office furniture and the building are Sec. 1231 property at the time of the contribution. The
building is technically subject to Sec. 1250 recapture but only to the extent that accelerated
depreciation claimed exceeds straight-line depreciation (Sec. 1250(a)). Because MACRS mandates
straight-line depreciation, no Sec. 1250 depreciation recapture potential exists for the building.
However, the building is subject to the unrecaptured Sec. 1250 gain rules of Secs. 1(h)(1)(D) and
1(h)(7), which tax such gain at a 25% rate.
At the time of the contribution, the office furniture is subject to Sec. 1245 recapture for the
full $5,716 depreciation that Wally has claimed (Sec. 1245(a)). However, the contribution of the
office furniture to the partnership triggers recapture only if gain must be recognized (Sec.
1245(b)(3)), and Wally recognizes no gain on this contribution. The recapture potential carries over
to the partnership (Reg. Sec. 1.1245-2(c)(2)).
At the time of contribution, the building has potential unrecaptured Sec. 1250 gain of
$10,792, the amount of depreciation that Wally has claimed. However, because the contribution
triggers no gain recognition, the unrecaptured Sec. 1250 gain potential carries over to the
partnership.
Note for instructors: The problem did not request the allocation of recapture upon sale of the
furniture by the partnership. However, students may ask, and the answer is not the expected one.
The allocation of Sec. 1245 recapture at the time of the sale of the office furniture by the
partnership will not necessarily allocate all the precontribution recapture amounts to Wally.
Regulation Sec. 1.1245-1(e)(2) specifies that the recapture is to be "allocated to the partners in the
same proportion as the total gain is allocated" if the partnership agreement does not specifically
allocate the Sec. 1245 recapture. This pro rata allocation may or may not allocate the full
precontribution recapture to the contributing partner depending on the amount and allocation of
postcontribution gain. Similar treatment probably also applies to unrecaptured Sec. 1250 gain.
C:9-62 For financial accounting purposes, the asset transfer will be reported in the same manner as
the corporate formation transaction described in Tax Research Problem C2-64. Lisa will recognize
no gain on the transfer of the $50,000 in cash to the Lima General Partnership. Matthew will report
a $15,000 gain for financial accounting purposes on the land transfer to the partnership. Again, as
mentioned in the solution to Tax Research Problem C2-64, the actual financial accounting reporting
for the two transferors may be immaterial because neither of the two individuals may maintain
financial accounting records for their personal transactions. However, Lima will report the cash at
its $50,000 face amount and will report a $50,000 carrying value for the land.
For tax purposes, Lisa will report no gain or loss on the cash contribution (Sec. 721(a)).
Lisa’s basis for her partnership interest is $50,000 (Sec. 722). The holding period for the partnership
interest begins on the day after the contribution. The partnership’s basis for the cash is $50,000
(Sec. 723(a)). The partnership’s holding period for the cash is irrelevant. For tax purposes,
Matthew will report no gain or loss on the land contribution (Sec. 721(a)). Matthew’s basis for his
partnership interest is $35,000 (Sec. 722). The holding period for the partnership interest includes
C:9-39
Matthew’s holding period for the land (Sec. 1223(1)). The partnership’s basis for the land is
$35,000 (Sec. 723(a)). The partnership’s holding period for the land includes the Matthew’s holding
period for the land (Sec. 1223(2)).
C:9-63 Under prior law, partnerships with large losses could admit a new partner near the end of the
partnership's tax year and allocate a substantial portion of the entire year's losses to that new partner.
Congress then enacted Sec. 706(d)(1), which requires that a partnership allocate losses and income
based on the partner's varying interest during the year, seemed to close this loophole.
Soon, however, creative taxpayers decided to use a cash method partnership, which could
incur expenses during the tax year while deferring their payment as late in the year as feasible. A
new partner was admitted near the end of the tax year, and the unpaid items were then paid and
expensed. The Tax Court's decision in Cecil R. Richardson, 76 T.C. 12, aff'd. 51 AFTR 2d 83-418,
83-1 USTC ¶9109 (5th Cir., 1982), established the precedent that allowed this technique to be used
and essentially permitted a retroactive allocation of losses. Subsequently, however, Congress closed
off much of this technique by adding Sec. 706(d)(2), which requires that a partnership using the cash
method of accounting accrue four types of expenses (interest, taxes, payments for services or for the
use of property, and any other appropriate item specified by Treasury Regulations) for purposes of
determining distributive shares. (The Treasury Department has not yet issued related regulations.)
Thus, the current Sec. 706 rules prevent the retroactive allocation of certain partnership losses.
Using the Sec. 706 rules, Raj can gain no benefit from the use of the cash method of
accounting for the interest or the utilities. It is not clear whether the partnership would be allowed to
use the cash method of accounting for the maintenance that has been pushed into December, but
current law contains no prohibition against it. Under these rules, Raj would be allocated 25% of the
December loss from the partnership of:
($12,000) = 0.25 x [$33,000 revenue - ($20,000 interest + $1,000 utilities + $60,000 maintenance)]
In the Tax Court decision in Mary K.S. Odgen, 84 T.C. 871 (1985), rev'd. 57 AFTR 2d 86-
1333, 86-1 USTC ¶9368 (5th Cir., 1986), a partner who was admitted late in the tax year received a
one-time special allocation of the partnership's loss that accrued during the period of time after her
admission to the partnership. The Tax Court accepted the special allocation as meeting the tests for
substantial economic effect and, in effect, allowed this method of achieving a disproportionate
allocation of loss to a new partner. On appeal, the Fifth Circuit Court of Appeals ruled that the
allocation lacked substantial economic effect because, by agreement, partners with deficit accounts
did not have to restore the deficit nor receive smaller distributions on termination of the partnership.
Even though the Ogden allocation was not valid, the technique still may be valid if (1) partnership
agreements are drawn so that the requirements for special allocations are met and (2) the loss that is
being specially allocated accrued after the new partner joined the partnership.
With a carefully drawn partnership agreement, Raj might be allocated the entire $48,000 loss
that the partnership sustains in December. The technique, however, remains controversial.

C:9-40
C:9-64 Upon forming the partnership, neither the partners nor the partnership recognized any gain or
loss under Sec. 721(a). Under Sec. 722, Alice and Beth each took a $100,000 basis in their
partnership interests, and Carl took a $160,000 basis in his partnership interest. Under Sec. 723, the
partnership took a $160,000 adjusted basis in the land. However, see discussion below concerning
Sec. 704(c)(1)(C).
Under Sec. 704(c)(1)(A) and Reg. Sec. 1.704-3(a)(1), the partnership must take into account
the difference between the land’s FMV and adjusted basis at the time of contribution. Thus, if Carl
had remained a partner when the partnership sold the land, the partnership would have allocated the
$60,000 precontribution loss to him. Regulation Sec. 1.704-3(a)(7) states that, if a contributing
partner sells his or her partnership interest, any precontribution gains and losses must be allocated to
the incoming partner as they would have been allocated to the selling partners. This rule, however,
opens the possibility of transferring losses from one partner to another and possibly doubling losses.
For example, if this regulation applies as stated, Carl recognizes a $60,000 capital loss on the sale of
his partnership interest, and Dan recognizes a $60,000 capital loss when the partnership sells the
land. (Note, however, that Dan’s partnership basis decreases to $40,000 so that he would recognize
a $60,000 capital gain should the partnership subsequently liquidate and distribute $100,000 to him.
Thus, the loss recognition by Dan is a timing issue.) Nevertheless, to prevent transferring a loss to
the new partner, Congress enacted Sec. 704(c)(1)(C). This section states that any built-in loss on
contributed property can be allocated only to the contributing partner. Furthermore, for purposes of
allocating items to other partners, the partnership must treat the built-in loss property as if its
adjusted basis equals the property’s FMV at the time of contribution. Accordingly, no built-in
precontribution loss from the property contributed by Carl can be allocated to Dan. Therefore, Dan
recognizes no loss when the partnership sells the property, and his basis in the partnership remains at
$100,000.
“What Would You Do In This Situation?” Solution
Ch. C:9, p. C:9-14. A Contribution to a Partnership In a Different Form?
The IRS almost certainly will consider this transaction a part-sale, part-contribution. The
IRS is likely to say that Bob sold land with a FMV of $150,000 (basis of $15,000) to the partnership
and contributed land with a FMV of $150,000 (basis of $15,000) to the partnership. Their position
is buttressed by the fact that Tom contributed $150,000 cash for his 50% interest while Bob is trying
to claim a contribution of land worth $300,000 for an identical 50% interest. The payment to Bob
was not made out of partnership profits, so it would be difficult to argue that Bob's receipt of the
payment was contingent on partnership performance. Accordingly, you should advise Bob to report
this as a part-sale, part-contribution.

C:9-41
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In dem kleinen Atelier des Malers Felix Altwirth herrschte
indessen eine schwüle Luft. Es war ein einfaches, schlichtes, fast
ärmliches Zimmer, das sich Felix als seinen Arbeitsraum eingerichtet
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Bilder und Zeichnungen, flüchtige Skizzen und Entwürfe hingen
teilweise an den Wänden, teilweise waren sie in einer Ecke
aufgestapelt. Ein Vorhang von hellgelbem, grobem Leinen verdeckte
nur den obersten Teil des Doppelfensters. Der Flügel des einen
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Noch immer lagerte der Schnee auf Weg und Halde. Aber im Tal
hatten die wärmenden Sonnenstrahlen ihn schon da und dort zur
Schmelze gebracht. Es tropfte von den Bäumen und Dächern, und
die kleinen, braunschwarzen, feuchten Zweige und Äste sahen
dunkel und sehnsüchtig aus und reckten sich erwartungsvoll dem
nahen Lenz entgegen.
Sophie Rapp saß in einem Lehnsessel in der Nähe des Fensters,
leicht und bequem. Es war eine fast liegende Stellung. Ihren rechten
Arm hatte die junge Frau als Stütze unter ihren Kopf geschoben, und
ihre Augen hielt sie geschlossen, als verspüre sie ein
unüberwindliches Ruhebedürfnis. In Wahrheit aber wollte sie mit
Ruhe den Eindruck genießen, den sie auf Felix Altwirth machte.
Die einstige Neigung zu Felix war in Sophie wieder mächtig
aufgelodert. Sie gab sich auch gar keine Mühe, diese neu erwachte
Leidenschaft zu bezwingen. Im Gegenteil freute sie sich darüber wie
über eine neue Sensation, nährte ihre Leidenschaft und tat alles,
was sie konnte, um die Sinne des Mannes aufzustacheln. Sie wollte
ihn reizen, bis er ihr verfallen war. Wie alle die andern, deren Liebe
sie ersehnt hatte.
Felix Altwirth kämpfte tapfer gegen den Zauber, mit dem ihn
Sophie umgarnte. Und mehr als einmal widerstand er den
Lockungen der Sirene. Er wollte sich überwinden und seinem Weibe
die Treue halten.
Trotz allen seinen Launen, trotz allen Vorwürfen, mit denen er
Adele in schweren Stunden gequält hatte, war er sich ihres Wertes
vollkommen bewußt. Hing mit achtungsvoller Liebe an ihr. War ihr
dankbar für die Nachsicht, die sie mit ihm hatte.
Jedoch mit der sensibeln Empfänglichkeit des Künstlers war Felix
Altwirth schon in ganz kurzer Frist dem Sinnenreiz erlegen, den Frau
Sophie Rapp auf ihn ausströmte. Ihre Gegenwart wirkte auf ihn wie
schwerer Wein, der ihm die Sinne zu umnebeln drohte.
Sie fühlte sein Beben und wußte, daß er sich nur mit dem
Aufgebot seiner ganzen Kraft bezwang, um sie nicht an sich zu
reißen. Und je stärker er sich zeigte, desto heißer entflammte sie,
desto mehr begehrte sie ihn zu besitzen.
Es war ein stummer Kampf zwischen den beiden. Ein Kampf, in
dem das Weib mit Bestimmtheit wußte, daß der Mann unterliegen
würde ...
Wie Frau Sophie jetzt nachlässig in dem Lehnstuhl saß, öffnete
sie ab und zu leicht die Augen und sah hinüber zu dem Manne, der
anscheinend ganz vertieft in seine Arbeit war und nur den prüfenden
Blick des Künstlers für sie übrig hatte. Aber Sophie sah die hektische
Röte in seinem Gesicht und sah die leise bebenden Lippen, die er
fest wie im Schmerz aufeinander preßte. Seine großen blauen
Augen leuchteten in unnatürlichem Glanz, und das Herz klopfte ihm
zum Zerspringen.
Da plötzlich dehnte sich Sophie langsam und müde. Dehnte die
halb entblößten, vollen Arme und reckte ihre Glieder weich und
biegsam und mit den geschmeidigen Bewegungen eines schönen
Raubtieres.
„Ach, Felix, wenn nit Sie’s wären ...“ sagte sie dann träge, „ich tät’
wirklich nit so lang da herhalten. Es wird wirklich schon a bissel fad’.
Gehen’s, kommen’s zu mir da her a bissel! Gönnen’s mir a Ruh!“ bat
sie mit leiser Stimme.
Felix warf seinen Pinsel beiseite und kam zögernd näher.
„Wir müssen das Licht ausnützen, gnädige Frau ...“ sagte er
stockend und sah sie mit unsicherem Blick an.
„Ja, freilich! Ich weiß schon.“ Sophie tat, als ob sie schlafen
wollte, und schloß die Augen. Dann sagte sie weich: „Ich will auch
gleich wieder brav sein. Nur ein bissel plauschen!“ bat sie. „Ich
schlaf’ sonst ein.“
Felix holte sich einen Hocker, den er in der Nähe stehen hatte,
und setzte sich in einiger Entfernung der jungen Frau gegenüber.
Da richtete sich die Sophie empor, sah Felix mit einem seltsam
aufleuchtenden Blick in die Augen und lächelte. „Daß Sie mir ja nicht
zu nahe kommen ...“ sagte sie fast flüsternd.
Der laue Wind vom offenen Fenster her bewegte das weiße
Spitzengeriesel, das den Ausschnitt ihres Kleides leicht verhüllte. Sie
trug ein hellblaues Seidenkleid, das Hals und Nacken offen ließ. In
feinem Farbenton vermischte sich das zarte Blau mit ihrer
sametweichen braunen Haut.
Felix Altwirth biß sich auf die Lippen. Sophie sah, wie er leicht die
Farbe wechselte. Sie lehnte sich noch behaglicher zurück, wandte
ihm ein wenig ihr Gesicht zu und schloß dann abermals die Augen.
„Felix ...“ sagte sie leise über eine Weile.
Der Maler hatte die Blicke gewaltsam auf den Boden gerichtet,
um sie nicht ansehen zu müssen.
„Gnädige Frau!“
„Wie wollen Sie mich denn dann eigentlich malen? Dann ...
wissen Sie, wenn dieses Bild fertig ist.“ Sie legte eine eigene
Betonung auf das Wort „dann“.
„Ich will Sie gar nicht malen!“ stieß Felix erregt hervor. Seine
Stimme erschien ihr etwas heiser.
„So? ...“ sagte Sophie mit einem raschen Blick auf Felix.
„Ich k a n n Sie nicht malen. Ich ...“
„Nicht, Felix? ...“ frug sie weich.
„Nein!“ kam es rauh zurück.
„Felix! ...“ bat das Weib, und ihre Stimme hatte einen
schmelzenden Klang. „Und wenn ich Sie bitte, wenn ich ...“
„Sophie ... spiel’ nicht mit mir!“ sagte der Maler drohend. Er hatte
sich, seiner Erregung kaum mehr mächtig, erhoben und war wieder
zu seiner Staffelei gegangen.
Auch Sophie war von ihrem Sitz aufgesprungen. Blitzartig, wie
eine Natter, schnellte sie empor und hinüber zu dem Mann. Mit
festem Druck ergriff sie seine beiden Hände. Sie drängte sich an ihn
... so nahe, daß ihr heißer Atem ihm wie eine verzehrende Flamme
entgegenschlug. Ihre Augen senkten sich verlangend in die seinen,
und ihr üppiger, nach Küssen lechzender Mund näherte sich dem
seinen.
„Ich spiel’ nit mit dir, Mann!“ stieß sie erregt hervor. „Ich liebe
dich!“
„Sophie!“ Wie ein Schrei kam es über die Lippen des Mannes.
„Sophie!“
„Felix!“
„Du ... du ...“ stöhnte er.
Da umschlang sie ihn mit ihren kräftigen Armen.
„Ich hab’ dich ja gern ... du ...“ jubelte sie. „So gern!“
Seiner Sinne nicht mehr mächtig riß Felix Altwirth das Weib mit
so rasender Glut an sich, daß es aufschrie vor Schmerz.
Sophie küßte ihn in wilder, gieriger Freude. Und unter seinen
ungestümen Küssen, die ihr fast weh taten, flüsterte sie keuchend:
„Ich hab’ dich lieb, Felix! Noch nie hab’ ich einen Mann so gern
gehabt.“ Die Glut ihrer Leidenschaft loderte auf ihn über. Entfesselte
seine Sinne, wie sie niemals entfesselt worden waren ...
Nun folgten selige Wochen für Felix und Sophie. Ein schönes,
mächtiges Gefühl zufriedenen Glückes erfüllte den Künstler. Wie in
einem Taumel lebte er. Lebte nur für Sophie und in Sophie. Sie war
sein ganzes Denken und Empfinden, sein Begehren und seine
Leidenschaft. Und in diesem Gefühl, das ihn zur höchsten
Arbeitskraft anspornte, schuf er, wie er noch nie geschaffen hatte in
seinem Leben.
Gleich einer Siegerin, stolz und frei und glückselig betrat Frau
Sophie Rapp jetzt täglich am frühen Nachmittag das kleine
Häuschen droben bei der Weiherburg. Auch in ihr war eine
Wandlung vorgegangen. Was sie zum Spiel angezettelt hatte als
einen neuen Zeitvertreib, das ergriff sie nun übermächtig. Erweckte
ein neues, nie gekanntes Gefühl in ihr und erfüllte sie mit stillem,
seligem Glück.
In dem Egoismus der Glücklichen, die nur noch für einander
lebten, achteten Felix und Sophie nicht darauf, daß Adele und ihr
Töchterchen jetzt stets das Haus verlassen hatten, noch ehe Sophie
zu Besuch kam.
Die einsame blonde Frau begleitete nun oft stundenlang den
alten Rat Leonhard auf seinen stillen Wegen. Er sprach nicht viel mit
ihr, der alte Herr. Aber er gab sich alle Mühe, gut und freundlich zu
sein. Es berührte ihn ganz eigentümlich, daß er, der wunderliche alte
Junggeselle, in dem Leben eines andern Menschen noch so viel
bedeuten sollte. Er fühlte es, daß er der jungen, fremden Frau ein
Halt geworden war. Der einzige Halt in ihrer Not.
Ruhig und anscheinend zufrieden schritt die hohe blonde Frau
neben dem kleinen alten Herrn. Sie achtete nicht auf seine
Schrullen, tat, als bemerke sie dieselben gar nicht. Sie war nur
zufrieden darüber, daß sie einen Menschen gefunden hatte,
schweigsam wie sie selber war und doch voll warmer, echter
Teilnahme.
Adele erzählte dem alten Herrn nichts von den täglichen
Besuchen der Frau Sophie Rapp, und sie sprach ihm nichts von dem
Kummer, der sie drückte. Nur einmal sagte sie ihm, daß sie daran
denke, fortzuziehen. Sie und die kleine Dora. Fort nach München.
Sie würde sich glücklicher fühlen in der alten Heimat, meinte sie.
Da blieb der Rat Leonhard plötzlich stehen auf seinem Weg und
stieß die Spitze des grauen Regenschirmes heftig in die von der
Sonne erweichte Erde.
„So? Fort wollen Sie?“ fragte er, und sein Gesicht bekam einen
ganz verbissenen Ausdruck. „Davonlaufen!“ Er sah die junge Frau
scharf an. „Davonlaufen ist keine Kunst. Das kann a jed’s. Aber
aushalten, das ist die Kunst. Das kann nit a jed’s!“
Adele Altwirth war noch ein wenig bleicher geworden, als sie
sonst war. Sie wußte es nun, der alte Herr erwartete von ihr, daß sie
um ihres Kindes willen bei dem Gatten bleibe. Nicht ihr Glück stellte
er voran, sondern das Glück des Kindes.
Der Rat Leonhard hatte ihr öfters aus den Erfahrungen seiner
gerichtlichen Praxis erzählt. Sie kannte die hohen moralischen
Anforderungen, die er an ernste Menschen stellte. Für ihn gab es
nur eines: die Pflicht, Pflichterfüllung bis zum äußersten.
„A Kind, das ohne Vater aufwachst, ist für die Gesellschaft halb
verloren!“ hatte er einmal gesagt. „Es braucht den Vater und die
Mutter. Der Zusammenhang muß da sein. Sonst ist’s g’fehlt.“
Nach reiflicher Überlegung mußte Adele dem alten Rat
beistimmen. So sehr sich auch ihr Innerstes aufbäumte, so sehr sie
sich gedemütigt und entehrt fühlte, sie mußte aushalten ... aushalten
um ihres Kindes willen.
Vierzehntes Kapitel.
D ie materielle Lage bei den Altwirths hatte sich schon nach ganz
kurzer Zeit gebessert. Sophie Rapp hatte recht behalten. Das
Porträt, das Felix von ihr gemalt hatte, war zur Ausstellung
gekommen und fand bei der Kritik und beim Publikum so viel Beifall,
daß es seinem Schöpfer gleich einige neue Aufträge brachte.
Daß das alles so rasch gegangen war, dazu hatte allerdings
Sophie das Wesentlichste beigetragen. Sie verstand es meisterhaft,
eine Sache zu vertreten, deren sie sich einmal angenommen hatte.
So sprach sie neben andern auch mit Max Storf und äußerte ihm
den dringenden Wunsch, daß er und seine Frau sich gleichfalls bei
Felix malen ließen. Nicht ohne Ironie fragte sie der Arzt, woher denn
plötzlich ein so reger Kunstsinn bei ihr komme?
„Das will ich dir schon sagen!“ hatte die Sophie ihm ohne die
geringste Verlegenheit geantwortet. „Ich versteh’ nix von Kunst. Da
hast recht!“ meinte sie. „Aber was ich versteh’, ist das, daß man
einem Menschen aufhelfen soll, wenn er strebsam ist, nicht ihn noch
niederdrücken!“
Max Storf war mit dieser Antwort zufrieden. Er lebte noch zu sehr
unter dem Einfluß dieser Frau, als daß er ihr einen Wunsch hätte
versagen können. Noch dazu, wo es sich um eine so vernünftige
Sache handelte. Der Argwohn, der in ihm aufgetaucht war, verlor
sich rasch wieder.
Der Arzt glaubte nicht an die unbedingte Treue von Sophie. Er
verlangte sie auch nicht. Er wußte genau, daß es wider ihr Naturell
war, einem Manne Treue zu halten. Er liebte sie, hing an ihr, weil sie
ihm das bot, was er so lange entbehrt hatte. Mehr wollte er nicht von
ihr und gab ihr auch nicht mehr.
Sophie hatte dem Arzt alles, was sie von Felix Altwirth wußte,
erzählt. Und Max Storf fühlte ein gewisses Schuldbewußtsein gegen
den einstigen Freund, um den er sich in den letzten Jahren so gut
wie gar nicht mehr gekümmert hatte. Er empfand es nun als eine
Ehrensache, den Künstler wenigstens jetzt überall zu fördern, wo er
konnte. So kam es, daß sich nicht nur der Arzt und dessen Frau,
sondern auch seine Verwandten und Bekannten bei dem plötzlich in
Aufnahme geratenen Maler um ein Porträt bewarben.
Felix Altwirth hatte bald so viel zu tun, daß ihm sein
bescheidenes kleines Atelier nicht mehr genügte und er sich nach
einer größeren Wohnung umsehen mußte. Die neue Wohnung
müsse elegant und schön sein, riet ihm Sophie. Denn nur dann
könne er darauf rechnen, daß ihm die Gunst des Publikums erhalten
bleibe.
„Weißt, Felix, jetzt geht’s ja. Jetzt kommst du in die Mode. Das
muß ausgenützt werden. Ich kenn’ meine Leut’. Wenn die merken,
daß du noch immer ein armer Teufel bist, dann ziehen sie sich
zurück von dir. Aufdrahn heißt’s da! Zeigen, daß du zu an Geld
kommen bist!“
Sophie hatte recht geraten. Mit dem Einzug in das neue Heim
kehrte auch der Wohlstand bei den Altwirths ein. Aber nicht das
Glück. Wenigstens nicht für Frau Adele. Sie blieb die einsame,
fremde Frau, die sie stets gewesen war. Und blieb es jetzt durch ihre
eigene Schuld.
Die Damen der Gesellschaft, die nun nach und nach alle zu Felix
Altwirth kamen, um sich von ihm malen zu lassen, waren wie
umgewandelt in ihrem Benehmen gegen des Künstlers Frau. Adele
empfand jedoch keine Zuneigung zu den Frauen, die sie einmal aus
ihrem Kreis gestoßen hatten. Jetzt wollte sie nicht mehr eine von
ihnen sein, wollte allein bleiben und nur sich und ihrem Kinde leben.
Mit der Familie des Doktor Storf hatte sich in dieser Zeit wieder
ein mehr herzlicher Verkehr angebahnt. Die kleine Dora kam oft, um
mit Fritz und Klara, den beiden Kindern des Arztes, zu spielen.
Dadurch kamen auch die beiden Frauen einander näher und lernten
sich besser kennen, als bei den kühlen Anstandsbesuchen, die sie
früher einander abgestattet hatten. Frau Adele fühlte es, daß sie in
der kleinen verschüchterten Arztensgattin eine Leidensgefährtin
besaß.
Freundliche Menschen hatten es Frau Hedwig zugetragen, daß
ihr Gatte sie mit der Frau des Advokaten Rapp hinterging. Und ihre
Schwester, die Frau Baurat Goldrainer, war mit aller Energie bei dem
Arzt vorstellig geworden. Das hatte den Erfolg gehabt, daß Doktor
Storf sich jede Einmischung in seine Privatangelegenheiten verbat
und drohte, mit den Verwandten seiner Frau gänzlich zu brechen,
wenn so etwas noch einmal geschehen sollte.
Frau Goldrainer hatte der ruhige Ernst ihres Schwagers einen
ganz gewaltigen Respekt eingeflößt. Am meisten imponierte es ihr,
daß sich Max gar nicht aufs Leugnen verlegte. Ihr eigener Mann
pflegte in solchen Fällen stets so lange zu lügen, bis er überführt
war. Da Max Storf gar keinen Versuch zu seiner Rechtfertigung
unternahm, war die Frau Baurat fast geneigt zu glauben, daß alles
wirklich leeres Gerede von den Leuten sei.
Schließlich hatte man bis jetzt weder den Arzt noch Sophie
ertappen können. Kein Mensch hätte es beschwören können, ob die
Beziehungen, in denen diese beiden zueinander standen, mehr als
ein bloßer Flirt waren.
In diesem Sinne sprach die Frau Baurat auch zu ihrer Schwester.
Sie sprach gut zu ihr und vernünftig. „Weißt Hedwig,“ meinte sie,
„mach dir nix draus, wenn er auch a bissel außigrast, dein Mann.
Solang er gut ist mit dir und den Kindern, geht’s schon. Laß ihm jetzt
sei’ Ruh’! Er kommt schon wieder zu dir z’rück. Kümmer’ dich nit!“
riet sie ihr. „Was du nit weißt, macht dir nit heiß.“
Die Frau Baurat sprach aus dem Schatze einer reichen
Erfahrung, nur daß sie jene Weisheit, die sie jetzt der Schwester
vortrug, selber nicht befolgt hatte. Aber auch Frau Hedwig tat nicht,
wie ihr die Schwester riet.
Etwas wie Eifersucht war in der kleinen Frau rege geworden.
Jetzt, nachdem sie den Gatten verloren hatte, nachdem sie es
wußte, daß er nicht mehr ihr, sondern einer andern zu eigen war,
empfand sie den brennenden Schmerz eines erlittenen schweren
Unrechtes. Sie forschte nicht der Ursache nach, die Max Storf in die
Arme einer andern Frau getrieben hatte. Sie dachte nicht mehr an
sein ehrliches Streben, ihr nahe zu kommen, sondern sie fühlte nur
die Kränkung, die für sie in seiner Untreue lag.
Und aus diesem Gefühl heraus tat sie wiederum das Gegenteil
von dem, was sie hätte tun müssen. Sie verfolgte den Gatten mit
ihrem Argwohn. Sie schlich ihm nach, heimlich in der Nacht, bis an
die Villa des Rechtsanwaltes. Dort sah sie, wie er durch die
unverschlossene Gartentür ging, wie die Haustür leise von innen
geöffnet wurde und sich hinter ihrem Gatten ebenso unhörbar wieder
schloß ...
Nun hatte Frau Hedwig die Gewißheit, und sie trug ihr Leid nicht
aufrecht und schweigend wie Adele Altwirth, sondern weinte um ein
Glück, das sie in Wahrheit nie besessen hatte.
Aus der schüchternen kleinen Frau Hedwig war eine
schwermütige Kranke geworden. Und wie eine Kranke behandelte
sie auch ihr Gatte. Er hörte geduldig und mit Nachsicht auf ihre
Klagen und auf die sich fortwährend wiederholenden bitteren
Vorwürfe. Hörte sie an ohne Widerrede, wie der Arzt die
Stimmungen seines Patienten erträgt.
Max Storf ließ sich nicht auf Erörterungen ein. Er wußte, daß sie
zu nichts anderem führen würden, als zu peinlichen Auftritten. Frau
Hedwig aber weinte ... weinte und litt. Sie sehnte den Tod herbei, der
sie von einem Leben befreien sollte, das für sie nie einen wirklichen
Wert gehabt hatte.
Einmal war es zur Aussprache gekommen zwischen Hedwig und
Adele. Das geschah, als Adele die kleine Dora vom Spiel abholte.
Da traf sie wie jetzt fast immer die Arztensfrau mit verweinten und
ganz verschwollenen Augen.
Mit warmem Mitleid ergriff Adele die Hand der kleinen Frau und
drückte die zarte Gestalt mit sanfter Energie auf die weichen Kissen
einer Ottomane, die in dem behaglich eleganten Wohnzimmer des
Arztes stand. Dann setzte sie sich neben Hedwig. Der matte Schein
einer großen Hängelampe, die mit einem rosafarbenen
Seidenschirm verhüllt war, fiel auf die blassen Gesichter der beiden
Frauen. Färbte ihre Wangen mit zartem Rot, machte das fahle
Gesicht Frau Hedwigs lebhaft und milderte die ernsten, fast strengen
Züge der blonden Adele.
„Frau Hedwig,“ fing Adele nun mit ihrer vollen, weichen Stimme
zu reden an, „ich will nicht aufdringlich sein, will Sie nicht fragen um
den Kummer, der Sie drückt. Aber ich will und muß einmal reden mit
Ihnen. So oft ich Sie sehe, haben Sie verweinte Augen. Immer
weinen Sie. Das ist nicht recht! Und mag Ihr Leid auch noch so groß
sein, Frau Hedwig, glauben Sie mir, auch das schwerste Leid gibt
Kraft, macht stark! Man k a n n es tragen, wenn man nur will.“
Hedwig Storf hatte bei der Rede Adelens leise und still in sich
hinein geweint und ihr Gesicht mit beiden Händen verdeckt.
„Ich kann mir nicht helfen!“ sagte sie jetzt schluchzend. „Ich muß
weinen, es drückt mich so! Wie eine Zentnerlast drückt’s mich!“
gestand die kleine Frau zaghaft.
„Was drückt Sie so?“ frug Adele und fuhr ihr mit leichter Hand
über das dunkle Haar.
Es lag etwas mütterlich Liebkosendes in der Art, wie sie die
kleine, schüchterne Frau zu trösten versuchte. Sie hatte das
bestimmte Gefühl, daß es Frau Hedwig gut tun würde, wenn sie sich
einmal aussprechen könnte. Und deshalb frug sie.
Hedwig schluchzte laut auf. „Es ist das Schlimmste, das eine
Frau treffen kann, wenn der Mann keine Lieb’ nit hat!“ stieß sie
erregt hervor.
„Hat er das nicht, Frau Hedwig?“ frug Adele weich.
„Nein!“ Hedwig schüttelte traurig den Kopf. „Die andere, die
Sophie Rapp, die Person ...“ fing sie jetzt in krankhafter Erregung zu
schimpfen an, „die ist’s! Ich hab’ ihn selber zu ihr gehen sehen. Ich
...“
Da nahm Adele die Hand der kleinen Frau tröstend in die ihrige.
Die beiden so ungleichen Frauen saßen jetzt ganz eng aneinander
gedrückt. Hedwig blaß und schüchtern und trostsuchend. Die andere
gerade und aufrecht, selbstbewußt und voll Würde. Eine lange,
lange Pause entstand. Keine der beiden Frauen sagte ein Wort. Und
so still war es in dem dämmerig beleuchteten Zimmer, daß es
Hedwig vorkam, als könnte sie von der Frau, die ihr zur Seite saß,
den lauten, kräftigen Schlag des Herzens hören.
Da plötzlich frug Adele, und ihre Stimme klang leise, fast
flüsternd: „Glauben Sie, daß nicht auch andere Frauen das gleiche
Leid erdulden müssen?“
Frau Hedwig sah erstaunt zu ihr auf.
„Sie sagen das so seltsam, Frau Altwirth ...“ sprach sie. Dann
über eine Weile fuhr sie nachdenklich fort: „Ich hab’ g’hört ... sollt’ es
wahr sein ... daß die Frau Rapp ...“ Mit großen, fragenden
Kinderaugen sah sie zu der blonden Frau auf. „Aber das kann ja nit
wahr sein. Da müßten Sie ja schrecklich unglücklich sein!“ sagte
Hedwig naiv.
Und wieder herrschte tiefes Schweigen in der dämmerigen
Stube.
„Wer sagt Ihnen, daß ich es nicht bin?“ frug Adele kaum hörbar.
„Ja ... aber ... aber ...“ stotterte Frau Hedwig verwirrt. „Ich begreif’
nit ... Ich begreif’ Sie nit ...“
„Begreifen nicht, daß ich nicht auch weine und mich aufreibe wie
Sie?“ sagte Adele mit wehmütigem Lächeln. „Nicht wahr?“
Frau Hedwig nickte stumm und sah noch immer ganz verwundert
und bekümmert zu der andern empor.
„Weil ich mehr Lebensmut besitze, als Sie, Frau Hedwig!“ fuhr
Adele in bestimmtem Ton fort. „Mehr Mut und ... verzeihen Sie ...
mehr Stolz!“
„Stolz?“ frug Frau Storf verständnislos.
„Ja, auch das merken Sie sich, Frau Hedwig! In dem Augenblick,
wo die Frau aufgehört hat, für den Mann als Weib zu existieren, in
jenem Augenblick muß ihre Würde einsetzen. Man weint und bettelt
nicht um eines Mannes Liebe. Man trägt es ... fügt sich drein, und
dann steigt man im Wert. Und das ist auch etwas, Frau Hedwig!
Glauben Sie mir!“
Frau Hedwig Storf ließ ihr zierliches, schön geformtes Köpfchen
hängen. Wie ein kleines, trauriges Vogerl, so kam sie der jungen
blonden Frau vor. Es war etwas Rührendes, kindlich
Vertrauensvolles in dem Wesen der kleinen Frau, als sie zu Adele
aufblickte in stummer Bewunderung.
Sie konnte den Sinn der Rede nicht ganz erfassen. Dafür war sie
innerlich zu unklar und zu verwirrt. Aber fortwährend hatte sie nur
den einen Gedanken ... wenn die Sophie wirklich den Maler Altwirth
liebte, dann ... dann ... konnte doch noch alles gut werden in ihrer
Ehe. Dann konnte ihr eigener Mann wieder zurückfinden zu ihr.
Dann ... Und aus diesem Gedankengang heraus bat sie jetzt Adele,
sie möge die Vermittlerrolle übernehmen zwischen ihr und dem
Gatten.
„Denn wissen’s, Sie sind g’scheit. Sie packen die Sach’ sicher
besser an wie meine Schwester ...“ bat sie leise.
Es lag so viel vertrauensvolle Zuversicht in ihrer Bitte, daß Adele
nicht ablehnen mochte. Sie freute sich über den guten Erfolg, den
ihre Worte bei der jungen Arztensfrau gehabt hatten. Und sie
bemerkte es auch mit Befriedigung, daß Frau Storf von jener Zeit an
mehr an sich hielt und viel ruhiger und gefaßter wurde ...
Frau Adele Altwirth zerbrach sich nicht lange den Kopf darüber,
auf welche Art sie die übernommene Mission zur Ausführung
bringen sollte. Sie überließ es dem Zufall. Der würde ihr schon
helfen.
Felix Altwirth und Max Storf waren einander auch etwas näher
gekommen. Der Arzt suchte den ehemaligen Jugendfreund auf, so
oft er konnte. Er zeigte sich bei jeder nur möglichen Gelegenheit
öffentlich mit ihm und versuchte es redlich, das alte, innige
Freundschaftsverhältnis, das die beiden einmal vereint hatte, wieder
herzustellen.
Aber trotz aller Bemühungen schien es, als ob der Riß, den diese
Freundschaft erlitten hatte, nicht wieder gut zu machen sei. Felix
konnte es nicht verwinden, daß auch Storf zu jenen gehört hatte, die
ihn in den Zeiten der Not ruhig seinem Schicksal überließen. Dann
war noch ein Grund vorhanden, der ein vollständiges Vertrauen bei
Felix nicht aufkommen ließ. Und dieser Grund war Sophie.
Max Storf hatte sich in seinem Innern schon längst damit
abgefunden, daß er nicht der einzige war, der sich Sophiens Gunst
erfreuen durfte. Ihm war es gleichgültig, ob Felix oder ein anderer
ihre Liebe genoß. Er hegte deshalb auch keinen Groll gegen Felix,
und Sophie war rasch in seinen Gedanken vollständig
ausgeschaltet, wenn er sich in Gesellschaft des Malers befand.
Bei Felix Altwirth jedoch stand die Sache anders. Er wußte es
noch immer nicht mit Bestimmtheit, wie die Beziehungen zwischen
Sophie und Max Storf eigentlich beschaffen waren.
Als er Sophie einmal deswegen zur Rede stellte, lachte sie ihn
aus. „Aber Felix, Schatz! Was glaubst du denn? Jetzt, wo ich dich
hab’!“ sagte sie und nestelte sich zärtlich an ihn. „Da gibt’s doch
überhaupt keinen andern Mann mehr für mich auf der Welt!“ log sie
ihm dreist ins Gesicht.
Felix jedoch, der mißtrauisch geworden war, gab nicht nach. Für
ihn war Sophie bald wieder zu jenem hohen Ideal geworden, das sie
in seinen Jugendjahren gewesen war. Er hörte wohl das Gerede der
Leute. Aber alles in ihm sträubte sich, daran zu glauben. Nur ab und
zu tauchten Zweifel über ihre Treue in ihm auf. Der Gedanke, daß
dieses Weib, das er mit so verzehrender Glut liebte, auch einem
andern zu eigen sein könnte, machte ihn rasend.
„Du darfst niemandem gehören, Sophie, nur mir!“ forderte er im
drohenden Tone. „Ich ertrag’s nicht. Hörst du?“
„Aber Schatz!“ lachte die Sophie ausgelassen. „So eifersüchtig
bist du! Da könnt’ man sich ja völlig fürchten vor dir!“ sagte sie
schmeichelnd und zog ihn mit sanfter Gewalt zu sich nieder.
In dem Atelier des Malers standen jetzt weiche Polstermöbel,
tiefe Lehnsessel, in die man sich versenken konnte. In einem dieser
wohlig weichen Sessel hatte Sophie Platz genommen und Felix
zärtlich zu sich gezogen, so daß er vor ihr auf den Knien zu liegen
kam. Dann bettete sie seinen Kopf in ihren Schoß und zauste ihm
mit ihren beiden Händen spielerisch das volle blonde Haar.
Felix machte sich gewaltsam los von ihr. „Fürchten, ja, das
kannst du dich auch, wenn ...“ rief er leidenschaftlich.
„Wenn? ...“ frug sie innig und hielt ihm ihre vollen Lippen zum
Kusse hin.
„Weib!“ sagte Felix schwer atmend. „Du ... du hast mich ja ganz
in deiner Hand! Du ...“
Sophie hielt nun den Kopf des Malers in ihren Armen, so daß er
das erregte Klopfen ihres Herzens hören konnte.
„Ich mach’ mit dir, was ich will ...“ sagte sie leise und flüsternd.
„Du bist mein ... ganz mein!“ Fest und innig hielt sie den Mann
umschlungen und küßte ihn lange und mit heißer Glut.
Völlig betäubt erhob sich Felix über eine Weile. Er hatte das
bestimmte Gefühl, Wachs zu sein in den Händen dieses Weibes ...
alles tun zu müssen, was sie wollte ... als Sklave ihrer Liebe, als ein
unfreier Mensch in seinen Handlungen.
„Sophie, spiel’ nicht mit mir ...“ bat er sie jetzt fast schüchtern. „Es
könnt’ ein Unglück geschehen. Du bist mir alles! Mein Gott und mein
Schicksal! Mein Leben und meine Kunst!“
Und Sophie verstand es, ihn so zu beruhigen, daß er alle seine
Zweifel über Bord warf und auf ihre Treue geschworen hätte.
In den Stunden, in denen sich Felix der Verwirklichung seiner
großen Arbeiten widmete, da war es immer und immer wieder
Sophie, die ihm den Ansporn gab. Sie war ihm Modell geworden.
Ohne sie konnte er sich keines seiner Werke denken.
Er malte sie so, wie e r sie kannte. Ihre Glut, ihre Leidenschaft
und die Rätsel ihres Wesens, die sie ihm auferlegte, alles fand sich
in seinen Studien wieder. Und wenn er eine blonde, helle Frau malte,
so gab er den Augen die zehrende, verlockende Sehnsucht ihres
Blickes. Es war sie, ihr Körper, ihr Gesicht und ihre Seele, die ihn
stets aufs neue fesselten ...
Doktor Storf war wieder einmal zu Felix gekommen und hatte
diesen nicht angetroffen. Das Dienstmädchen führte ihn, wie sie das
stets zu tun pflegte, in das Atelier des Malers. Herr Altwirth müsse
bald kommen, sagte sie.
Der Arzt hatte Platz genommen und blätterte interessiert in den
zahlreichen Skizzenbüchern, die verstreut auf den Tischen
herumlagen. Max Storf sah, daß es fast durchwegs dieselbe
Frauengestalt war, die den Künstler begeistert hatte. Er glaubte
diese Frau gut zu kennen, und unwillkürlich mußte er lächeln über
die schwärmerische Bewunderung für sie, die ihm aus den
künstlerischen Entwürfen entgegenglühte.
Max Storf saß bequem mit übereinander geschlagenen Beinen in
einem der weichen Polsterstühle und hatte sich so sehr in ein
Skizzenbuch vertieft, daß er es gar nicht bemerkte, wie Adele
Altwirth schon seit einiger Zeit das Atelier betreten hatte und ihn mit
ruhigem Blick beobachtete.
Als er zufällig aufschaute, sah er die junge Frau in der Mitte des
Raumes stehen. Der fahle Schein des Tageslichtes fiel durch die
hohen Fenster, fiel auf ihre schlanke Gestalt und ließ ihr weiches,
aschblondes Haar hell aufleuchten.
Adele Altwirth trug ein schlichtes, weißes Kleid, das, so einfach
es auch war, doch so sonnig und freudig wirkte, daß Doktor Storf
einen Augenblick wie geblendet auf die junge Frau starrte. Dann
erhob er sich leicht verwirrt, um sie zu begrüßen.
Frau Adele und Doktor Storf kannten sich nur ganz flüchtig.
Wenn sie sich sahen, war die Begegnung bloß oberflächlich
gewesen. Max Storf hatte sich auch nie sonderlich für die junge
Künstlersfrau interessiert. Sie war ihm zu ernst und zu gemessen. Er
liebte nicht die stolze Würde bei den Frauen. Seiner Ansicht nach
sollten die Frauen heiter sein; denn sie waren dazu ausersehen, den
Ernst des Mannes mit ihrem Frohsinn zu vertreiben.
Auch Adele hatte für den Arzt erst seit ihrer Unterredung mit
Hedwig mehr Interesse gewonnen. Und eingedenk der Zusage, die
sie Hedwig gegeben hatte, wollte sie jetzt die Gelegenheit benützen,
um mit Doktor Storf zu sprechen. Vielleicht würde ein solcher Anlaß
nicht so bald wiederkehren.
Sie trat mit raschem, leichtem Schritt auf den Arzt zu und bat ihn,
Platz zu behalten, Felix müsse jeden Augenblick kommen,
versicherte sie. Einstweilen müsse Max Storf sich eben mit ihrer
Gesellschaft begnügen.
Ein feines Lächeln begleitete ihre Worte. Adele erriet es mit dem
sichern Empfinden der sensitiven Frau, daß Max Storf nicht viel von
ihr hielt. Daher lächelte sie jetzt, da sie seinen verwunderten Blick
bemerkte, und dieses ironische Lächeln verwirrte den Arzt und
machte ihn unsicher in seiner Haltung gegen sie.
Mit erzwungener Höflichkeit, die nicht ohne Verlegenheit war,
sagte er daher: „Aber ich bitte, gnädige Frau, es ist mir doch eine
Auszeichnung.“
Adele lehnte sich leicht in den Stuhl zurück, auf dem sie sich
ihrem Gast gegenüber niedergelassen hatte, und meinte in
gleichgültigem Ton: „Ich habe Sie eigentlich bei einer großen
Unterhaltung gestört, Herr Doktor. Nicht wahr? Sie sahen vorhin so
vergnügt aus, als ich ins Atelier kam.“
Max Storf schaute überrascht zu der jungen Frau hinüber, und
sein schönes, stark gebräuntes Gesicht verfinsterte sich für einen
Augenblick.
„Wie meinen gnädige Frau?“ frug er höflich. Er hatte ein
unbehagliches Gefühl, als ob sich Adele über ihn lustig machen
wollte.
„Ich meine, daß Sie das Original dieser Studien eigentlich gut
kennen müßten ...“ steuerte nun Adele geradewegs auf ihr Ziel los.
„Allerdings, die meisten dieser Damen scheinen Bekannte zu
sein ...“ antwortete Storf ausweichend.
„Scheinen, Herr Doktor? Nur scheinen ...“ fragte Adele mit leisem
Spott.
Doktor Storf hatte sich ärgerlich erhoben und machte ein paar
Schritte gegen eines der beiden Fenster, das offen stand.
Die schöne Wohnung der Altwirths lag jetzt droben in Wilten, in
der Nähe der beiden großen Kirchen, deren ernstes Glockengeläute
Adele damals in den ersten Tagen ihres Innsbrucker Aufenthaltes so
traurig gestimmt hatte. Von den beiden Fenstern des geräumigen
Ateliers hatte man den Blick auf einen großen, parkähnlichen Garten
und über die Bäume der Gärten hinweg auf das Mittelgebirge mit
seinen dichten Bergwäldern, verstreuten Wiesen und Häusern und
auf den dicken, behaglichen Kugelkopf des Patscherkofels.
Max Storf sah hinaus auf die kleine Straße, die unten vor dem
Park vorüber führte. Dann wandte er sich plötzlich um und richtete
seinen forschenden Blick auf Frau Adele ... Was wollte diese Frau
eigentlich von ihm? Warum machte sie sich lustig über ihn? ... frug er
sich selbst in unangenehmer Stimmung.
„Sie kennen Frau Doktor Rapp doch sehr gut ...“ fuhr Adele nach
einer Weile ungezwungen zu plaudern fort. „Und sie ist so
unverkennbar in allen diesen Skizzen, so meisterhaft in der
Wiedergabe ...“
„Ja, meisterhaft ist das richtige Wort!“ stimmte jetzt Doktor Storf
eifrig bei. Er war froh, daß er einen Ausweg gefunden hatte, um sich
geschickt aus der Affäre zu ziehen. „Ganz richtig, es ist seltsam, wie
viele feine Details Felix an dieser Frau entdeckt hat. Mit ganz andern
Augen sieht man sie da auf einmal ...“
„Künstler idealisieren!“ unterbrach ihn Adele schroff. „Sie sehen
vieles anders als wir.“
Durch ihren kalten, abweisenden Ton aufmerksam gemacht, kam
Doktor Storf, der sich, während er sprach, mit dem Rücken gegen
das Fenster gelehnt hatte, wieder näher und sah interessiert auf die
blasse, schlanke Frau mit den strengen Zügen.
„Das heißt,“ widersprach er scherzhaft, „die gnädige Frau räumen
dem Gatten mehr Recht ein ... weil er Künstler ist?“
Adele fühlte den Stachel, der trotz des scherzhaften Tones in
dieser Rede verborgen war.
„Es liegt eine gewisse Rechtfertigung in diesem Titel!“ sagte sie
ernst. „Man kann eine Sache, die unbegreiflich scheint, eher
verstehen.“
„Und diese ...“ frug Max Storf zögernd, „diese erscheint Ihnen
unbegreiflich, gnädige Frau?“
Adele neigte zustimmend ihr Haupt. „Ja!“ sagte sie einfach und
sah ihm dabei fest in die Augen.
Max Storf hatte sich wieder auf seinen Platz gesetzt und blätterte
nachdenklich in den Skizzenbüchern. „Warum sprechen Sie so zu
mir?“ frug er dann über eine Weile, ohne Adele anzusehen.
„Weil ich Mitleid habe mit Ihrer Frau!“
„Und Sie ... Haben Sie mit sich selber kein Mitleid?“ frug der Arzt
sehr ernst.
„Nein!“ sagte sie leise. „Ich kann es tragen. Das ist anders.“
Nun trat eine große Pause ein. Adele saß schweigend da, in ihrer
leichten, nachlässigen Haltung, den Kopf gesenkt und die Arme auf
die Knie gestützt. Max Storf betrachtete sie jetzt mit einer Art
neugierigen Interesses. Sie kam ihm mit einem Male anders vor.
Nicht kalt und verschlossen, sondern weich, nachsichtig und
verstehend.
„Dann lieben Sie Felix nicht!“ unterbrach Max Storf unvermittelt
das Schweigen. Er sagte es in einem so bestimmten Ton, als gebe
es keinen Widerspruch.
Adele war jäh zusammengezuckt. Wie ein plötzliches Erkennen
kam es über sie. Sie gab keine Antwort und starrte fest vor sich hin.
Max Storf sah, daß sie noch blässer geworden war und daß sie ihre
schmalen, streng geschlossenen Lippen noch mehr aufeinander
preßte.

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Prentice Halls Federal Taxation 2013

Corporations Partnerships Estates and

Partnership Formation and Operation

C:9-1 Advantages of a partnership for Yvonne and Larry include:

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

C:9-7 a, b, and d. p. C:9-12.

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Issue Identification Questions

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The partnership first must characterize each expenditure as an organizational expenditure, a

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C:9-22 • What is George's basis in his partnership interest?

Repayments of partnership liabilities are treated as distributions to the partners. A

Basis at the beginning of the year $15,000

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pp. C:9-21 through C:9-25.

C:9-23 • What is Katie's deductible loss from her partnership investment?

As a limited partner, Katie is presumed not to materially participate in the partnership.

C:9-25 a. Neither partner recognizes gain or loss (Sec. 721).

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Precontribution gain of $1,000 ($15,000 FMV at contribution - $14,000 basis) is allocated to

C:9-26 a. Fred recognizes ordinary income (compensation) of $15,000. Ed recognizes $89,000

c. Al: Cash contribution $ 15,000

Bob: Accounts receivable basis to Bob $ -0-

Clay: Equipment basis to Clay $ 13,000

Dave: Land basis to Dave $ 50,000

Ed: Building basis to Ed $ 15,000

*Or minus $104,000 ($130,000 - $26,000) mortgage assumed

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Dave: Fair market value when contributed $15,000

Other Partners: Postcontribution loss allocated

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Julie Kay Susan

*Or minus $21,600 ($54,000 - $32,400) liabilities assumed by other partners.

Basis Book Value

c. and d. Accounts receivable $ -0- $ 60,000

Kay’s gains are analyzed as follows: Land Building

Cash received $40,000 $ 80,000

pp. C:9-5 through C:9-12, and C:9-19.

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Old partners: (100% x 334/365 x $100,000) + (80% x 31/365 x $100,000) = $98,301

C:9-29 Marjorie: Income: $15,000 ($20,000 FMV of interest - $5,000 cash)

pp. C:9-5 through C:9-12.

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Possible Tax Year-Ends

6/30 9/30 10/31

Partner Partnership Tax Months Months Months

Beta 1/3 6/30 0 .00 9 3.00 8 2.67

C:9-32 Solution appears on next page.

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Separately stated items:

Beginning basis in partnership interest $150,000 $150,000

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(a) (b) (c) (d)

Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Items Total Becky Chuck Dawn

Ordinary income $120,000 $24,000 $36,000 $60,000

Partnership Becky’s Becky's Chuck’s Chuck's

1/1 through 6/30a

7/1 through 12/31b

pp. C:9-18 and C:9-19.

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