TAX 9900 Study Guide - Final Guide: General Partnership, Capital Asset

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21 Apr 2020
Unit IV Transfers of Partnership Interests
1. Sam, Carla, and Norm are one-third partners in a calendar-year, cash-method
partnership. Cliff would like to become a partner. On July 1, Norm sells his entire
one-third interest to Cliff. If the partnership earned $300,000 during the first six
months of the year, and during the last six months, it broke even, what is each
partner’s distributive share of the partnership’s income for the year of the sale?
As ⅓ partners, the $300,000 income earned is split among the partners for
$100,000 each
If the partnership closed its books on July 1 then the $100,000 income will still be
allocated to Norm and Cliff wouldn’t recognize any of that income
However, if income was spread throughout the year, then the income would be
prorated 50/50 because of the mid-year sale from Norm to Cliff.
2. Monica and Rachel are partners in a general partnership that operates a business.
Monica is a 40% partner, and Rachel is a 60% partner. They formed the
partnership in 1990. The partnership agreement complies with the three
requirements in Treas. Reg. § 1.704-1(b)(2)(ii)(b).
a. Chandler purchases Monica’s interest for $160.
(i) What are the consequences to Monica, Chandler, and the
partnership if Monica has a zero basis in her partnership interest
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