Retiring partner A is to receive $120,000 for his partnership interest spread over a 4-year period and paid in installments of $30,000 per year. If A's basis is $64,000 and the payments are considered to be Section 736(b) payments, how much must A report in Year 1 if no election is made?
Retiring partner A is to receive $120,000 for his partnership interest spread over a 4-year period and paid in installments of $30,000 per year. If A's basis is $64,000 and the payments are considered to be Section 736(b) payments, how much must A report in Year 1 if no election is made?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Retiring partner A is to receive $120,000 for his partnership interest spread over a 4-year period and paid in installments of $30,000 per year. If A's basis is $64,000 and the payments are considered to be Section 736(b) payments, how much must A report in Year 1 if no election is made?
Expert Solution
Step 1
According to the special Rule of Section 736 (b)(2), unrealised receivables and goodwill are not considered as partnership property. The payment received in the year 2 by exchanging with interest in partnership property will not be included and it is considered as unrealized receivables.
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