We'll then allocate the remaining amount of the

$55,000 that's left but just to write it out formally,

it would be the $17,000

interim basis that we calculated in Step 2 that

proportion of the total basis of the two assets at

this step or 13,955.

So we now see that we've adjusted

for all the required decrease.

So to summarize our answer,

to label the final adjusted basis of each asset,

cash would be 256,000,

inventory item A would be 8,955

which is the 50,000 minus the

$41,045 that we computed in Step 3,

and then for inventory item B,

it would be $3,045

which is the interim basis from Step 2 of

$17,000 less the 13,955 from Step 3.

Just to check it, we see it's

$268,000 and we add all that up which

matches our initial starting point

and then overall there's no gain or loss recognized.

Assume Sunchaser Shakery partnership

distributes the following to Nicholas and

liquidation of his ownership interests: cash of $242,000,

accounts receivable with a fair market value of

$12,000 and adjusted basis of zero,

inventory with a fair market value of a

$120,000 and adjusted basis $74,000.

Nicholas is outside basis is $334,000

including his share of $66,000 of Sunchaser debt.

We want to determine the tax effects

of the liquidation for Nicholas.

Condition 4 is applicable here

because we have a distribution of money

and hot assets and the outside basis

is less than the inside basis of the distributed assets.

So like before, we need to determine how much of

basis do we need to allocate to the assets.

So we start with the basis before

the distribution which is $334,000.

We factor in the debt relief