Irregular Distribution Question

[Corduroy Frog]

I'm showing my ignorance, but in seminars I have been taught two different methods for the following, and they are in conflict.

Many of us have a mortal fear of partners where one partner doesn't have any money. Let's say three men form a partnership, Adam contributes $50,000, Bill contributes $50,000, and Cecil contributes no cash but contributes a bulldozer that the partners agree is worth $50,000. Cecil's basis in the bulldozer is only $15,000.

For tax purposes, the bulldozer must continue to depreciate out over its remaining life and rate, using the $15,000 as basis. However, the "book" depreciation has $50,000 as its basis and the the Capital Accounts for all partners must remain in Synch.

I've been told by some that a "special allocation" is made for the book vs. tax difference to Cecil, because HE is the one who CONTRIBUTED the bulldozer. I've been told by others that the difference is attributable to the other two partners because they are the partners who have actually INVESTED in the difference.

And then there may also be a school of thought where no special allocation is made to ANY partner because the book depreciation is not deductible anyway and the capital balances must remain in synch in the 33-33-33 ratio.

Any help here?

[BHoffman]

Assignment of Income Doctrine

See this:

http://www.irs.gov/businesses/partnerships/article/0,,id=134691,00.html

I liked this article and thought it explained the book vs. tax difference for contributed property in a way that was pretty easy to read and understand.

See "IRC Section 704(c) and Depreciable Property" for a more complicated overview:

http://www.irs.gov/businesses/partnerships/article/0,,id=134692,00.html#8

The allocation can be done in any reasonable way as long as it follows the "Assignment of Income Doctrine".