A partnership has assets with a total FMV of $50,000 and basis to that partnersh

Question

A partnership has assets with a total FMV of $50,000 and basis to that partnership of $30,000.

There are four partners who each hold a 25% share whose basis is $5,000.

Partner Amy wants to liquidate her interest, and Partner Brett decides to buy her out for $12,500, which will bring his share up to 50%.

Soon after this transaction completes, the three partners decide to sell the partnership assets for $50,000 cash and distribute it according to their interests.

The partnerships elects a Section 754 adjustment.

Explain how to arrive at the correct adjustment for Amy, and whether or not she should recognize any ordinary income. Why or why not?

Explanation / Answer

FMV of partnership = $50000

Amy share FMV = 50000/4 = $12500

Thus, Amy didn't get any ordinary income. But she actually realised the past income of increase in FMV of partnership.

That is (30000/4 = $7500) 12500-7500 = $5000 gain realized

After the Amy all partners liquidate partnership by selling assets. So, all get realised the gain, All 3 will gain $5000 As increase in market value

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.