Tom, Tina, Tatum, and Terry are equal owners treated as general partners) in the 4-Ts LLC, a cash basis service entity. 4-Ts has unrealized receivables of $400,000 basis of $0) and no other hot assets. A goodwill payment of $50,000 per partner is provided for in the LLC's operating agreement. If 4-Ts distributes cash of $300,000 to Tom in liquidation of his LLC interest, which of the following statements is correct?
A) This is a proportionate distribution with respect to hot assets.
B) The $50,000 payment that relates to LLC goodwill cannot be deducted by the LLC.
C) The partnership treats the $100,000 payment for Tom's share of unrealized receivables as part of Tom's § 736b) payment.
D) The $150,000 § 736a) payment will result in a capital gain to Tom.
E) The $200,000 § 736b) payment will be taxed to Tom as ordinary income.

Question

Quizplus · Accepted Answer

The $50,000 payment that relates to LLC goodwill cannot be deducted by the LLC because it is considered a capital expenditure.

Tom, Tina, Tatum, and Terry Are Equal Owners Treated as General