DeVry Partnership Termination and Liquidation of Non Cash Assets Discussion

Need this one Wednesday Evening:

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MAIN 1, 1. Why would the members of a partnership decide to elect to terminate business operations and liquidate all noncash assets?

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This is the instructor’s post to reply to.

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2. Partnership terminations triggered by a change in form

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Class, here is a brief article from the Journal of Accountancy that discusses some of the reasons how and why partnerships terminate and the accounting issues related to them:

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https://www.thetaxadviser.com/issues/2019/oct/partnership-terminations-change-form.html (Links to an external site.)

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And elaborate on this one also instructor post.

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3. What are the Tax Rules when a Partnership Interest is Liquidated?

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According to Smalley (2019), there are a number of potential tax consequences of a partnership that accountants (and their clients, the partners) need to be aware of such as:

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• To the extent that the payment represents the partner’s interest in the fair market value of the partnership’s assets, it is treated as a distribution to the partner under the normal distribution rules.
• To the extent that the payment represents the partner’s interest in unrealized receivables, the partner will have ordinary income or loss.
• To the extent that the payment is guaranteed, it is governed by the rules applicable under Code § 707(c).
• A partnership is ordinarily treated as terminating for tax purposes (regardless of whether it actually terminates) if it stops doing business as a partnership or if 50 percent or more of the total interest in the capital and profits changes hands by sale or exchange within 12 consecutive months. Contributions of property in exchange for partnerships and gifts, bequests, inheritances and liquidations are not counted for purposes of this 50 percent test, even if the result is an even higher change.

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Smalley, C. (2019). What are the Tax Rules when a Partnership Interest is Liquidated? Retrieved from: https://www.accountingweb.com/tax/business-tax/what-are-the-tax-rules-when-a-partnership-interest-is-liquidated (Links to an external site.)

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