Question

Allison, Keesha, and Steven each own equal interests in KAS Partnership, a calendar year-end, cash-method entity. On January 1 of the current year, Steven’s basis in his partnership interest is $32,500. During January and February, the partnership generates $37,260 of ordinary income and $6,216 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $57,100. The partnership has the following assets and no liabilities at the sale date:

		Tax Basis		FMV
Cash	$	41,000		$	41,000
Land held for investment		41,000			82,000
Totals	$	82,000		$	123,000

a. Assuming KAS’s operating agreement provides for an interim closing of the books when partners’ interests change during the year, what is Steven’s basis in his partnership interest on March 1 just prior to the sale?

c. What is Juan’s initial basis in the partnership interest?

d. What is the partnership’s basis in the assets following the sale?

Answer 1

a)	Outside basis as of January 1:	$32,500
	Plus: distributive share of income Ordinary ($37,260 /3)	12,420
	Tax exempt (6,216/3)	2,072
	Outside basis as of March 1:	46,992
c)	Juan’s basis in his partnership interest is his cost of	$57,100
d)	The partnership has a basis in its assets equal to the assets before the sale. The sale does not affect the partnership’s basis in its assets.

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