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ANSWERS TO SUPPLEMENTARY PROBLEMS—CHAPTER 16Viewing the transaction in its entirety, Alex should be treated as having sold the securities to the partnership. 133. Accordingly, his gain on the “sale- contribution” of $20,000 will increase his taxable income and not increase his basis in the partnership. The loan obtained by the partnership, $40,000, will increase his basis in his partnership interest by $10,000. The distribution of the loan proceeds has no effect on his partnership interest as it is merely the payment of the sales price. Thus, Alex’s basis should be $60,000 ($50,000 + $10,000). Partner E’s basis in LIFE is $60,000. Partner E’s basis at the beginning of 2010 is decreased by the 134. cash withdrawn ($10,000), increased by a distributive share of the income ($200,000/4 = $50,000), and decreased by the entire $5,000 Partner E spent on qualified travel, meals and entertainment ($25,000 - $10,000 + $50,000 - $5,000). Andy can claim a $22,000 loss. He can only deduct his loss to the extent of the adjusted basis including 135. his share of the partnership liabilities. Even though his loss is 20 percent of the $300,000 loss ($60,000), he can deduct only $22,000 ($10,000 basis + $12,000 liability share). His adjusted basis to begin the next calendar year will be $0. (a.) Lemuel will recognize no gain on the distribution as he did not receive cash in excess of the basis of 136. his partnership interest. (b.) His basis in the unrealized receivables will be the same as the partnership basis, i.e., zero. (c.) His basis for the land is his basis for his partnership interest reduced by the cash received, i.e., $20,000, notwithstanding the fact that the land is not worth that amount and it had a $30,000 basis to the Hotshot partnership. (a.) Pamela has transferred property with a total adjusted basis of $40,000, subject to liability of $80,000.