This is because several disbursements are made to one partner. Secondly, there are installment payments to partners prior to the complete realization of assets. This involves a worksheet preparation for each partner. This computation has two disadvantages. First of all it does not provide partners with any information as to what each may expect from a given amount of cash proceed. Secondly, it does not assist the liquidator to schedule appropriate payments to partners. During liquidation, only those partners whose proprietary interest exceeds their split of potential future losses can safely be paid any cash. It is also worthy to note that the partnership public image would be dented in the event that it is revived since most people will lack confidence with it.
Partnership Interest Acquisition
Basically, a partner can opt to dispose a partnership interest by sale to one or more of the other partners. Secondly, through selling it to a third party, thirdly, swapping or exchanging of the partnership interest for other property. Fourthly, a partner can transfer back to the partnership. In return s/he is expected to receive at least one liquidating distribution culminating to entire liquidation of the partnership interest. Fifthly, if he opts to retire, then he can dispose of his/her interest to any of the remaining partners. S/he may also choose to offer his/her interest as a gift or a donation. Lastly s/he can surrender it through desertion, penalty or even due to unworthiness of the partnership (Stephen, 2008, p.3).
A to Z. is a two-member partnership for tax purposes. A to Z. has merely long-term capital assets and no liabilities. The basis of a to Z's assets is $100,000 and the fair market value is $200,000. The two partners Joel and Chris each own 50% of a to Z, and they each have a basis of $50,000 in their partnership interests. Chris purchases Joel's 50% interest in AB for $100,000 and continues to run a to Z. As a partnership. With regards to the general partnership tax rules, Joel's sale of her partnership interest in a to Z. To Chris could be taken to imply, firstly, Joel's sale and Chris's buying of a partnership interest, secondly, the lapsing of a partnership. It may also imply the allotment of partnership operating assets to Chris. Fourthly, it could imply contribution of the business running assets to Chris's to a sole business owner.
Similarly, it could also imply that Joel will be able to identify a $50,000 profit on the sale of her partnership interest. Moreover it signifies that Chris would take a $100, 000 basis that is the sum of money he paid to Joel in the new interest. Thirdly, Chris will identify no profit or loss on the insolvent in the distribution of property from the partnership. Fourthly, Chris would take a $50,000 basis in fifty percent of the property obtained in the liquidating distribution. Lastly it would imply Chris's holding period of all the property obtained in the distribution would comprise the time the property was held by partnership.
To elaborate further the above matter, when Chris buys all of Joel's partnership for $100,000, the partnership is believed not to exist for the federal tax purposes. For state laws however, Chris carries on with the operation of the partnership. Chris ends up with one hundred percent of the partnership property. The fifty percent of this property came to him through the partnership liquidating distribution and fifty per cent through the acquisition of Joel's share of partnership assets. In the deemed liquidating distribution, Chris should encounter no gain or loss on the distribution. Chris's basis in the partnership property deemed disseminated would be the $50,000 basis of his partnership interest directly prior to the distribution (Micheal et al., 1996, p. 10).
From the above discussion, it is apparent that quite a number of problems do exist during the transfer of an interest from one partner to another. First and foremost in the event that one partner passes on; disagreements may erupt on the best method of doing this. Secondly a transfer of an interest of one partner to another reduces the ownership of this particular partner. Thirdly, queries may arise as to whether the transferor partner was responsible for recourse arrears, and if s/he is responsible for the arrears after the transference of the partnership interest. Fourthly, queries may also arise as to whether the degree to which the transferor partner's allocation of partnership non-recourse liabilities were presumed by or allotted to the partner who has purchased the interest. Lastly, another query would be whether the transferee took the partnership interest matter to recourse debt. Moreover their may also be misunderstanding as regards…