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Honeymooner is a calendar year general partnership whose partners, Kramden and Norton, share equally in the profits, losses and capital. Kramden and Norton founded the partnership several years ago and funded the partnership with cash contributions. As of December 31, 2003, the partnership had the following balance sheet:
| Description | Tax Basis | Fair Market Value |
| Cash | $30,000 | $30,000 |
| Inventory | $10,000 | $50,000 |
| Equipment | $20,000 | $70,000 |
| Land Held for Investment | $120,000 | $10,000 |
| Totals | $180,000 | $160,000 |
| Capital | ||
| Kramden | $90,000 | $80,000 |
| Norton | $90,000 | $80,000 |
| Totals | $180,000 | $160,000 |
| The partnership is liquidated by the following distributions:Description | Tax Basis | Fair Market Value |
| To Kramden: Cash | $30,000 | $30,000 |
| Inventory | $10,000 | $50,000 |
| Totals | $40,000 | $80,000 |
| To Norton Equipment: | $20,000 | $70,000 |
| Land | $120,000 | $10,000 |
| Totals | $140,000 | $80,000 |
1) If Norton sells the equipment and land for their respective fair market values soon after receiving the property, what is the amount of gain or loss recognized on each sale and what is the character of each gain or loss?
2)For this question and question number 7 only, assume that the distributions were current distributions and not liquidating distributions, do Kramden, Norton or the partnership recognize any gain or loss on such distributions and what is the character of such gain or loss, if any?
3) Assuming that such distributions were current distributions, what are Kramden and Norton’s tax basis in the property received?
4) For this question only, assume that Honeymooner redeems an 18.75% interest from Kramden for $30,000, thereby leaving Kramden with a 31.25% interest after the redemption; what are the tax consequences to Kramden and Honeymooner as a result of this transaction (assume that Honeymooner does not have an IRC Section 754 election in place)?
5) For this question and question number 10 only, assume that instead of a liquidation of Honeymooner or a redemption of Kramden’s interest, Kramden sells his entire partnership interest to Alice for $80,000; what gain or loss does Kramden recognize and what is the character of such gain or loss assuming that the purchase price was allocated based on the above values under arm’s length negotiations?
6) What is Alice’s tax basis in her partnership interest and if Honeymooner has an IRC Section 754 election in effect, what basis adjustments must Honeymooner make on the sale of the interest from Kramden to Alice and to what assets are such adjustments allocated?
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