Answer the following statements true (T) or false (F)
1. The basis of a partnership interest is equal to the sum of money contributed plus the FMV of the property transferred to the partnership.
2. A contribution of services to a partnership will result in recognition of compensation to the contributing partner equal to the fair market value of the services as well as an increase in partnership basis to the extent of the income recognized.
3. If a partner contributes property to a partnership, and that property is subject to a liability, the noncontributing partners increase the basis of their partnership interests by their share of the partnership liabilities that were transferred to the partnership.
4. The partnership's assumption of a liability from a partner is treated as a cash distribution to the partner whose liability is assumed, which decreases his basis in the partnership.
1. FALSE
The basis is equal to the money contributed plus the adjusted basis of the property transferred to the partnership.
2. TRUE
Transfer of property to a partnership is a mere change in ownership form, but provision of services in exchange for a partnership interest will generally cause income recognition.
3. TRUE
The increase in a partner's share of liability is treated as a cash contribution.
4. TRUE
Any reduction in a partner's share of liability is treated as a cash distribution.
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On January 5, the Rolland Corporation sent a letter offering to sell a new line of above-ground pools to Tibbets, the owner of Tibbets Leisure Center, at a considerably reduced introductory price. The letter stated that the offer would be good until January 20 . When Tibbets received the letter on January 10, he immediately sent a telegram of acceptance. However, because an employee of the
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