Carla,Marla,and Yancy are equal partners in the CMY Partnership.The partnership balance sheet reads as follows on December 31 of the current year.

Partner Yancy has an adjusted basis of $35,000 for his partnership interest.If Yancy sells his entire partnership interest to new partner Paula for $60,000 cash,how much can the partnership step-up the basis of Paula's share of partnership assets under §§ 754 and 743(b)?
A)$17,000.
B)$25,000.
C)$35,000.
D)$60,000.
E)None of the above.

Question

Carla,Marla,and Yancy are equal partners in the CMY Partnership.The partnership balance sheet reads as follows on December 31 of the current year.

Partner Yancy has an adjusted basis of $35,000 for his partnership interest.If Yancy sells his entire partnership interest to new partner Paula for $60,000 cash,how much can the partnership step-up the basis of Paula's share of partnership assets under §§ 754 and 743(b)?
A)$17,000. 
B)$25,000. 
C)$35,000. 
D)$60,000. 
E)None of the above.

Quizplus · Accepted Answer

The amount of § 743(b)adjustment is $25,000 ($60,000 purchase price for the interest - $35,000 share of the inside basis of partnership assets).The fact that the fair value of Paula's share of the stated assets is only $52,000 is not relevant.The extra $8,000 is probably paid for partnership goodwill.The payment is reflected in Paula's basis in her partnership interest,and it should similarly be reflected in the step-up under § 754.

Carla,Marla,and Yancy Are Equal Partners in the CMY Partnership