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Case Study. FDR Partners is a large regional partnership. This year, Rusty acquired an interest in the firm by purchasing it from an existing...

65. Case Study. FDR Partners is a large regional partnership. This year, Rusty acquired an interest in the firm by purchasing it from an existing partner. The firm’s balance sheet just prior to Rusty’s acquisition was as follows:
Basis FMV
Cash 30,000 30,000
Accounts Receivable 0 151,000
Building 150,000 200,000
Land 32,000 50,000
TOTAL ASSETS 212,000 431,000
Liabilities 125,000 125,000
Partners’ capital 87,000 306,000
TOTAL LIABILITIES & CAPITAL 212,000 431,000
Rusty paid $50,000 for the newly purchased interest, which represented a ten percent interest in the firm. The partnership does not currently have a Section 754 election in effect. Our firm has advised Rusty that the partnership should make a Section 754 election for his benefit. Review Reg. §1.754-1 and prepare a memorandum explaining how the Section 754 election is made and when it must be made in order to benefit Rusty. Also illustrate to Rusty the different tax consequences for him if the election is made vs. if it is not made.

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Memorandum regarding Section 754 Election: How 754 election is made? The election under Section 754 is made by the... View the full answer

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