Question

Samantha decides to leave the srk partnership after owning the interest for many years. sheowns a 52% capital, profits, and loss interest in the general partnership (which is not a servicepartnership). samantha’s basis in her partnership interest is $ 60,000 just before she leaves thepartnership. the partnership agreement does not mention payments to partners who leave thepartnership. the partnership has not made an optional basis adjustment election ( sec. 754). allpartnership liabilities are recourse liabilities, and samantha’s share is equal to her loss samantha leaves the partnership, the assets and liabilities for the partnership are as follows:assets partnership’s basisfmvcash$120,000$120,000inventory12,00012,000receivables032,000land30,00050,000 total assets$162,000$214,000liablities30,00030,000analyze the following two alternatives, and answer the associated questions for eachalternative.a.samantha could receive a cash payment of $ 110,000 from the partnership to terminateher interest in the samantha or the partnership have any income,deduction, gain, or loss? determine both the amount and character of any already owns a 30% general interest in the srk partnership prior to samantha’sdeparture. rook is willing to buy samantha’s partnership interest for a cash payment of $110, 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?

Answer 1

Samantha will recognize a capital gain of $50,000 whether she receives a cash payout from the partnership or sells her interest to Rook, based on her initial $60,000 basis and a $110,000 cash transaction. In both scenarios, there are no immediate tax implications for the partnership itself.

Step-by-step explanation:

The scenario involves Samantha, who is leaving a partnership and has two potential options for doing so: receiving a cash payment from the partnership or selling her interest to another partner. In both scenarios, the tax implications for Samantha and the partnership must be analyzed based on the information provided about the partnership's assets and liabilities, as well as Samantha's basis in her partnership interest.

Option A: Cash Payment from Partnership

If Samantha receives a cash payment of $110,000 from the partnership, the tax consequences depend on her outside basis (her investment in the partnership) versus the distribution she receives. Her outside basis is initially $60,000. Since the distribution is in cash and exceeds her basis, Samantha will recognize a gain. Specifically, the gain would be the difference between the cash received ($110,000) and her basis in the partnership ($60,000), resulting in a $50,000 gain. This will be a capital gain, assumed to be long-term based on her many years of ownership.

For the partnership, there would be no immediate income, gain, loss, or deduction as a result of the cash payment to Samantha.

Option B: Sale of Partnership Interest to Rook

If Rook buys Samantha's partnership interest for $110,000, Samantha will also recognize a gain. This will be a capital gain calculated in the same way as Option A. From the partnership's perspective, the sale of an interest between partners does not create a taxable event for the partnership itself. However, there might be secondary effects depending on future activities and elections made by the partnership, such as a Section 754 election, but this was not exercised in the given scenario.