Jim and Marta Created the JM Partnership by Contributing $60,000

Jim and Marta created the JM Partnership by contributing $60,000 each.The $120,000 cash was used by the partnership to acquire a depreciable asset.The partnership agreement provides that the partners' capital accounts will be maintained in accordance with Reg.§ 1.704-1(b) (the "economic effect" Regulations) and that any partner with a deficit capital account will be required to restore that capital account when the partner's interest is liquidated.The partnership agreement provides that MACRS will be allocated 10% to Jim and 90% to Marta.All other items of partnership income,gain,loss,deduction,and credit will be allocated equally between the partners.If the first year MACRS is $20,000 and no other operating transactions occur,which of the following statements satisfies the economic effect test of the Regulations?

A) If the property is sold at the end of the year for $100,000 and the partnership is liquidated immediately thereafter, cash will be distributed $58,000 to Jim and $42,000 to Marta.
B) Because each partner's profit and loss sharing ratio is 50%, a sale of the property for $108,000 at the end of the year, followed by an immediate liquidation of the partnership, will result in both partners receiving $54,000 cash.
C) MACRS cannot be allocated to the partners in a 90/10 ratio since Regulations require that the allocation of MACRS must follow the relative capital contributions of the partners. Therefore, MACRS must be allocated equally between Jim and Marta.
D) If the property is sold at the end of the first year for $120,000 and the partnership liquidated immediately thereafter, $60,000 cash would be distributed each to Jim and to Marta.
E) None of the above.

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