The accrual basis Four Winds Partnership owned and operated three storage facilities in Milwaukee, Wisconsin. The partnership did not have a section 754 election in effect when partner Suzanne sold her 25% interest to Paul for $250,000. The partnership has no debt. There are no section 197 assets, and no depreciation recapture potential exists on the storage facility buildings. At the time of the transfer, the partnership's assets bases and fair market values were as follows Cash $50,000-Basis $50,000-FMV Accounts Receivable $150,000-Basis $150,000-FMV Storage facility #1 $500,000-Basis $200,000-FMV Storage facility #2 $400,000-Basis $500,000-FMV Storage facility #3 $300,000-Basis $100,000-FMV Total assets $1,400,000-Basis $1,000,000-FMV The value of two of the properties is less than the partnership's basis because of downturns in the real estate market in the area. Paul's share of the inside basis of partnership assets is $350,000, and his share of the fair market value of partnership assets is $250,000.

a. What adjustment is required regarding Paul's purchase of the partnership interest? Must a section 754 election be made? b. Using the basis allocation rules of section 755 and the Regulations there under, calculate the amount of the total adjustment to be allocated to each of the partnership's assets. c. Would an adjustment be required if the partnership was a venture capital firm and, instead of storage facilities, its three primary assets were equity interests owned in target firms? What requirements would have to be satisfied in order to avoid making a basis adjustment?