Shannon and Art are each 10% partners in the Such-A-Deal Partnership. Due to several years of partnership operating losses, both Shannon and Art have a zero basis in their partnership interests. For the current year, the partnership is incurring a loss of $100,000. When he hears the news about the loss, Shannon tells Art he wishes the partnership management would go to the local bank and borrow "a couple of hundred thousand dollars." Art does not understand why Shannon would want the partnership to go into debt. The concept of debt makes Art very nervous; Art personally does not borrow money. In fact, Art does not even use credit cards. Explain to Art why Shannon wants the partnership to incur more debt. Also, comment on why Art's general concerns about debt have merit, specifically focusing on the partnership debt.

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The Answer of Shannon and Art are each 10% partners in the Such-A-Deal Partnership. Due to several years of partnership operating losses, both Shannon and Art have a zero basis in their partnership interests. For the current year, the partnership is incurring a loss of $100,000. When he hears the news about the loss, Shannon tells Art he wishes the partnership management would go to the local bank and borrow "a couple of hundred thousand dollars." Art does not understand why Shannon would want the partnership to go into debt. The concept of debt makes Art very nervous; Art personally does not borrow money. In fact, Art does not even use credit cards. Explain to Art why Shannon wants the partnership to incur more debt. Also, comment on why Art's general concerns about debt have merit, specifically focusing on the partnership debt.

Shannon and Art Are Each 10% Partners in the Such-A-Deal