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.