My clients, Lisa and Matthew, plan to form Lima General Partnership. Lisa will contribute $50,000.00 cash to Lima for a 50% interest in capital and profits. Matthew will contribute land having a $35,000.00 adjusted basis and a $50,000.00 FMV to
Lima for the remaining 50% interest in capital and profits. Lima will borrow additional funds of $100,000.00 from a bank on a recourse basis and then will subdivide and sell the land. Prepare a draft memorandum for your tax managers signature outlining the tax treatment for the partnership formation transaction. As part of your memorandum, compare the reporting of this transaction on the tax and financial accounting books. References: IRS Sec. 271 & Accounting Standards Codification (ASC) 845 (Nonmonetary Transactions)