The Whitewater LLP is equally owned by three partners and has the following bala

Question

The Whitewater LLP is equally owned by three partners and has the following balance sheet at the end of the current tax year:

Partner Petula is an active (i.e., “general”) partner retiring from the service-oriented partnership. She receives $60,000 cash, none of which is stated to be for goodwill.

a. How much of the payment is for “unstated goodwill?”
The distribution results in "unstated goodwill" of $ .

b. How is the $60,000 allocated between a § 736(a) income payment and a § 736(b) property payment?

The $60,000 cash payment is allocated as follows:
§ 736(a) income payment: $  
§ 736(b) property payment: $

Basis FMV Cash $60,000 $60,000 Unrealized receivables $0 $15,000 Land $15,000 $45,000 $75,000 $120,000 Petula, capital $25,000 $40,000 Prudence, capital $25,000 $40,000 Primrose, capital $25,000 $40,000 $75,000 $120,000

Explanation / Answer

Answer:

A. Partner Petula is General partner retiring from the service oriented partnership. She receives $ 60,000 Cash.

Petula's share of the three recorded assets is only $ 40,000

                                 FMV = 120,000 * 1 / 3 = $ 40,000

      The 60,000 - 40,000 = 20,000 excess payment is for unstated Goodwill.

B.

$ 60,000 allocated between a ) Income Payment   = $ 60,000 * 1 / 3 due to 3 partner = $ 20,000

and excess payment as a unstated Goodwill $ 20,000.

Income Payment = $ 20,000 + $ 20,000 = $ 40,000

Property payment = $ 45,000 * 1/ 3 = $ 15,000 and excess payment as a unstated Goodwill is $ 20,000

here, property Payment = $ 15,000 + $ 20,000 = $ 35,000

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