Question - Samantha decides to leave the SRK Partnership after owning the interest for many years. She owns a 52% capital, profits, and loss interest in the general partnership (which is not a service partnership). Samantha's basis in her partnership interest is $ 60,000 just before she leaves the partnership. The partnership agreement does not mention payments to partners who leave the partnership. The partnership has not made an optional basis adjustment election ( Sec. 754). All partnership liabilities are recourse liabilities, and Samantha's share is equal to her loss interest. When Samantha leaves the partnership, the assets and liabilities for the partnership are as follows:
|
Assets
|
Partnership's Basis
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FMV
|
|
Cash
|
$120,000
|
$120,000
|
|
Inventory
|
12,000
|
12,000
|
|
Receivables
|
0
|
32,000
|
|
Land
|
30,000
|
50,000
|
|
Total Assets
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$162,000
|
$214,000
|
|
Liablities
|
30,000
|
30,000
|
Analyze the following two alternatives, and answer the associated questions for each alternative.
a. Samantha could receive a cash payment of $ 110,000 from the partnership to terminate her interest in the partnership. Does Samantha or the partnership have any income, deduction, gain, or loss? Determine both the amount and character of any items.
b. Rook already owns a 30% general interest in the SRK partnership prior to Samantha's departure. Rook is willing to buy Samantha's partnership interest for a cash payment of $ 110,000. What income, gain, loss, or deduction will Samantha recognize on the sale? What are the tax implications for the partnership if Rook buys Samantha's interest?