Partnership Taxation Liquidation and Goodwill Discussion

Computation question

The Rascals Company is a general partnership with four partners: Felix, Eddie, Gene, and Dino. Felix is planning to retire. Its balance sheet is:

Tax Basis

FMV

Cash

160,000

160,000

Accts. Rec.

1,000,000

Equipment

0

100,000

Intangible

130,000

0

Unrecorded goodwill

0

Unknown

Total

290,000

Unknown

Accts Payable

0

501,000

Loan ( not guaranteed)

110,000

110,000

Other Liabilities

17,000

17,000

127,000

628,000

Capital- Felix (25%)

33,000

359,000

Capital- Eddie, Gene & Dino (75%)

130,000

Unknown

Total

290,000

Unknown

Felix is retiring from the partnership. The partnership pays him $359,000 in cash as complete liquidation of his partnership interest. Determine the fair market values of the unknown numbers above, determine Felix’s gain or loss and character thereof in two situations:

  • The partnership agreement provides for an allocation to goodwill upon liquidation of a partner’s interest; and
  • The partnership agreement does not provide for an allocation to goodwill.
 
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