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Partner is Bought Out


Edsel

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A partner is bought out effective 01/01/18.  The partner receives $XXXX dollars and has a basis of $XXXX as of 12/31/17.

What is the partnership's responsibility to trigger the partner to show disposition of his interest?

  1. On the K-1 section reporting the basis, leave the basis as it was.  I've been told before on another post that if there is no remaining interest, the basis (or capital) should show zero.
  2. Issue a 1099B for the gross payment to the partner upon selling his interest.  Enter the basis in the proper place.
  3. Same as above, except do not enter anything in the box for basis.  It is the partner's responsibility to track his own basis.
  4. The partnership has no responsibility to issue an information statement to force the partner to report the sale.
  5. Some other idea.  Y'all can roll yer own chew...
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2 hours ago, Edsel said:

What is the partnership's responsibility to trigger the partner to show disposition of his interest

None. It's totally on the partner.

2 hours ago, Edsel said:

On the K-1 section reporting the basis, leave the basis as it was.  I've been told before on another post that if there is no remaining interest, the basis (or capital) should show zero

K1 doesn't show basis, just capital and share of liabilities. If you're referring to a basis worksheet, the distribution (buy out amount) will reduce the basis, but not below zero. Not being liable for the liabilities anymore also reduces basis.

 

2 hours ago, Edsel said:

Y'all can roll yer own chew

No I can't because I have no clue what that means. 😶

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Geographical idioms only - Abnormal and Judy don't live here.  Tennessee, Kentucky, Virginia, North and South Carolina in particular.

Tobacco farmers grow tobacco during the growing season, and it is harvested in late August early September.  From that time until November, it hangs in a barn and undergoes a chemical process called "curing out" by simply hanging in a dry barn with some bit of air circulation.  After it "cures out" it is ready to be sent to market to be crushed and diced into cigarettes.

A farmer who has the nicotine habit can during October/November take a big leaf of cured tobacco, roll it up into paper, light up, and smoke instead of going to the store and paying huge money for cigarettes.  Hence, they "roll their own chew".

Translated into vernacular, "When a solution doesn't exist, the person comes up with one of their own design," per Judy.

 

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On 10/4/2018 at 4:08 PM, jklcpa said:

If any part of the buyout involved unrealized receivables or inventory, the partnership is required to file form 8308.  Also, if this is more than a 50% change in ownership, you have a technical termination.

Judy, there are in fact unrealized receivables and inventory, thus the 8308 will be required.  What is the impact on the partner?

Also, I've never understood what the IRS means by "unrealized receivables."  Does this mean unbilled revenue that should have been recorded but not yet billed, or simply receivables on the books which have not yet been paid?

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