GHI Partnership is owned 60% by Greg and 20% each by Howard and Isaac. Greg wants to dispose of his partnership interest for $100,000, including $20,000 for partnership goodwill. A goodwill payment to a retiring partner is not provided for in the partnership agreement). The partnership owns no hot assets. Greg will have the same tax result if he sells his interest to Howard and Isaac for $50,000 each $100,000 total), or if GHI redeems Greg's
interest by distributing $100,000 of cash to Greg.

Question

Quizplus · Accepted Answer

The tax results of selling a partnership interest to the other partners versus a partnership redeeming the interest can differ due to how the Internal Revenue Code treats each transaction. A sale to other partners is treated as a sale of an individual's partnership interest, potentially resulting in capital gains or losses. A redemption by the partnership may have different tax implications, especially regarding the treatment of hot assets and the potential for ordinary income treatment on certain portions of the payment, such as unrealized receivables and inventory items, even though the question states there are no hot assets. Additionally, the treatment of goodwill and its allocation can differ between a sale and a redemption.

GHI Partnership Is Owned 60% by Greg and 20% Each