Question

Tim, Al, and Pat contributed assets to form the equal TAP Partnership. Tim contributed cash of 40,000 and land with a basis of 80,000 (fair market value of 60,000). Al contributed cash of 60,000 and land with a basis of 50,000 (fair market value of 40,000). Pat contributed cash of 60,000 and a fully depreciated property (0 basis) valued at 40,000. Which of the following tax treatments is not correct?

1) Al realizes and recognizes a loss of 10,000.
2) Tim's basis in his partnership interest is 120,000.
3) TAP has a basis of 80,000, 50,000, and 0 in the land and property (excluding cash) contributed by Tim, Al, and Pat, respectively.
4) Pat realizes a gain of 40,000 but recognizes 0 gain.
5) All of these statements are correct.

Answer 1

The incorrect statement from the options given is that Al realizes and recognizes a loss of 10,000 dollars. In taxation of partnerships, the contribution of property to a partnership generally does not trigger recognition of gains or losses, meaning that Al's loss would not be recognized for tax purposes.

Step-by-step explanation:

The question revolves around the tax implications and basis calculations for contributions made by three individuals to form the TAP Partnership. In tax law, a partner's contribution of property to a partnership does not usually result in recognition of gain or loss, which means that neither gains nor losses are realized unless the contribution includes a relief of liability that exceeds the basis of the assets transferred. Here are the corrected statements Based on these principles, the incorrect statement from the choices given is option 1) Al realizes and recognizes a loss of 10,000 dollars. Al may realize this loss, but it is not recognized for tax purposes in this context.