Homework Help is Here – Start Your Trial Now!
Business
Accounting
Research Problem 3. The IRS is auditing your client, Artis, on the tax treatment of disposition of an interest in the ABC Partnership. Here's the background: Partner Artis received $100,000 of cash from ABC Partnership on July 1, 2023, to retire her entire interest in ABC (ABC continues to operate). ABC is a service provider (consulting services), and Artis was a general partner. The ABC General Partnership agreement, which was drafted in 2018, did not explain how a retiring partner would be paid for their share of partnership goodwill. In 2022, the partnership executed an "Amendment of General Partnership Agreement," which provided that Partner Artis was to receive $100,000 cash from the partnership on July 1, 2023, to retire the partnership interest. It continued to state that $30,000 of that amount was "in return for Artis's one-third interest in the fair market value of the net assets of the partnership, and the other $70,000 was a guaranteed payment or a payment for goodwill." Saying that the "Amendment of General Partnership Agreement” is not clear, the IRS wants to treat the payment for goodwill as ordinary income to Artis and deductible by the partnership. (This approach maximizes the tax revenue for the government.) Your manager recalls that a Tax Court case from several years ago addresses partnership agreements and goodwill. (The manager said "maybe it's 'Jordan' or 'Jackson' or something.") Use Checkpoint to research this issue. Can you find such a case? If so, does it help Artis's position that she should receive a return of basis and capital gain treatment for the "goodwill" portion of the payment? Describe whether and how any subsequent cases have modified this ruling. Use internet tax resources to address the following questions. Look for reliable websites and blogs of the IRS and other government agencies, media outlets, businesses, tax professionals, academics, think tanks, and political outlets.

Research Problem 3. The IRS is auditing your client, Artis, on the tax treatment of disposition of an interest in the ABC Partnership. Here's the background: Partner Artis received $100,000 of cash from ABC Partnership on July 1, 2023, to retire her entire interest in ABC (ABC continues to operate). ABC is a service provider (consulting services), and Artis was a general partner. The ABC General Partnership agreement, which was drafted in 2018, did not explain how a retiring partner would be paid for their share of partnership goodwill. In 2022, the partnership executed an "Amendment of General Partnership Agreement," which provided that Partner Artis was to receive $100,000 cash from the partnership on July 1, 2023, to retire the partnership interest. It continued to state that $30,000 of that amount was "in return for Artis's one-third interest in the fair market value of the net assets of the partnership, and the other $70,000 was a guaranteed payment or a payment for goodwill." Saying that the "Amendment of General Partnership Agreement” is not clear, the IRS wants to treat the payment for goodwill as ordinary income to Artis and deductible by the partnership. (This approach maximizes the tax revenue for the government.) Your manager recalls that a Tax Court case from several years ago addresses partnership agreements and goodwill. (The manager said "maybe it's 'Jordan' or 'Jackson' or something.") Use Checkpoint to research this issue. Can you find such a case? If so, does it help Artis's position that she should receive a return of basis and capital gain treatment for the "goodwill" portion of the payment? Describe whether and how any subsequent cases have modified this ruling. Use internet tax resources to address the following questions. Look for reliable websites and blogs of the IRS and other government agencies, media outlets, businesses, tax professionals, academics, think tanks, and political outlets.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
Research Problem 3. The IRS is auditing your client, Artis, on the tax treatment of disposition of an interest in the ABC Partnership. Here's the background: Partner Artis received $100,000 of cash from ABC Partnership on July 1, 2023, to retire her entire interest in ABC (ABC continues to operate). ABC is a service provider (consulting services), and Artis was a general partner. The ABC General Partnership agreement, which was drafted in 2018, did not explain how a retiring partner would be paid for their share of partnership goodwill. In 2022, the partnership executed an "Amendment of General Partnership Agreement," which provided that Partner Artis was to receive $100,000 cash from the partnership on July 1, 2023, to retire the partnership interest. It continued to state that $30,000 of that amount was "in return for Artis's one-third interest in the fair market value of the net assets of the partnership, and the other $70,000 was a guaranteed payment or a payment for goodwill." Saying that the "Amendment of General Partnership Agreement” is not clear, the IRS wants to treat the payment for goodwill as ordinary income to Artis and deductible by the partnership. (This approach maximizes the tax revenue for the government.) Your manager recalls that a Tax Court case from several years ago addresses partnership agreements and goodwill. (The manager said "maybe it's 'Jordan' or 'Jackson' or something.") Use Checkpoint to research this issue. Can you find such a case? If so, does it help Artis's position that she should receive a return of basis and capital gain treatment for the "goodwill" portion of the payment? Describe whether and how any subsequent cases have modified this ruling. Use internet tax resources to address the following questions. Look for reliable websites and blogs of the IRS and other government agencies, media outlets, businesses, tax professionals, academics, think tanks, and political outlets.
Transcribed Image Text:Research Problem 3. The IRS is auditing your client, Artis, on the tax treatment of disposition of an interest in the ABC Partnership. Here's the background: Partner Artis received $100,000 of cash from ABC Partnership on July 1, 2023, to retire her entire interest in ABC (ABC continues to operate). ABC is a service provider (consulting services), and Artis was a general partner. The ABC General Partnership agreement, which was drafted in 2018, did not explain how a retiring partner would be paid for their share of partnership goodwill. In 2022, the partnership executed an "Amendment of General Partnership Agreement," which provided that Partner Artis was to receive $100,000 cash from the partnership on July 1, 2023, to retire the partnership interest. It continued to state that $30,000 of that amount was "in return for Artis's one-third interest in the fair market value of the net assets of the partnership, and the other $70,000 was a guaranteed payment or a payment for goodwill." Saying that the "Amendment of General Partnership Agreement” is not clear, the IRS wants to treat the payment for goodwill as ordinary income to Artis and deductible by the partnership. (This approach maximizes the tax revenue for the government.) Your manager recalls that a Tax Court case from several years ago addresses partnership agreements and goodwill. (The manager said "maybe it's 'Jordan' or 'Jackson' or something.") Use Checkpoint to research this issue. Can you find such a case? If so, does it help Artis's position that she should receive a return of basis and capital gain treatment for the "goodwill" portion of the payment? Describe whether and how any subsequent cases have modified this ruling. Use internet tax resources to address the following questions. Look for reliable websites and blogs of the IRS and other government agencies, media outlets, businesses, tax professionals, academics, think tanks, and political outlets.
Expert Solution
steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS