George and James are forming the GJ Partnership. George contributes $600,000 cash and James contributes non-depreciable property with an adjusted basis of $400,000 and a fair market value of $750,000. The property is subject to a $150,000 liability, which is also transferred into the partnership and is shared equally by the partners for basis purposes. George and James share in all partnership profits equally except for any pre-contribution gain, which must be allocated according to the statutory rules for built-in gain allocations.

Show your calculations where applicable in order to receive any possible partial credit. Be SURE to label each answer very clearly.

a. How much gain is recognized by each of the following upon formation of the partnership:

George?

James?

GJ Partnership?

b. What is James’s adjusted tax (outside) basis for his partnership interest immediately after the partnership is formed?

c. What is the partnership's adjusted (inside) basis for the property contributed by James?

d. If the partnership sells the property contributed by James for $850,000:

1. Show the calculation of the total gain or loss on the sale.

2. Show the calculation of the built-in-gain.

3. Show the calculation of the amount of total gain allocated to each partner. Be sure to label how much gain to EACH partner.