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Elaine and Andy are each 40% partners in the XYZ Partnership. On May 1, 2022, Elaine sold her interest to Tommy, who was already a 20% partner. On May 15, 2022, Andy sold his interest to Jenna. When does the partnership terminate for tax purposes?

A. May 1, 2022.
B. May 15, 2022.
C. December 31, 2022.
D. The partnership does not terminate.

User Goblin
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1 Answer

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The partnership terminates for tax purposes on May 15, 2022, as both Elaine and Andy, holding a combined 80% interest, sold their interests within a 12-month period. Option B) is correct.

The termination of a partnership for tax purposes occurs when there is a sale or exchange of 50% or more of the total interest in partnership capital and profits within a 12-month period. In this scenario, both Elaine and Andy, who together held an 80% interest in the XYZ Partnership, sold their interests within the 12-month period.

Elaine sold her 40% interest on May 1, 2022, and Andy sold his 40% interest on May 15, 2022. Since both sales occurred within the 12-month period, the partnership undergoes a termination for tax purposes.

On May 15, 2022, when Andy sold his interest to Jenna, the partnership experiences a termination for tax purposes due to the cumulative effect of both Elaine and Andy selling their interests within the 12-month period.

Therefore, the correct option is: B. May 15, 2022.

User Eduardo Vargas
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