How is the cash payment treated

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Reference no: EM133279693

Case: Damon owns a 20% interest as a general partner in the Vermillion Partnership, which provides consulting service. The partnership distributes $60,000 cash to Damon in complete liquidation of his partnership interest. Damon's share of partnership unrealized receivables immediately before the distribution is $20,000. The partnership has no other hot assets. Assume that none of the cash payment is for goodwill. Damon's basis for his partnership interest immediately before the distribution is $30,000.

Question 1: How is the cash payment treated under S 736?

Question 2: How much gain or loss must Damon recognize on the distribution?

Question 3: How does the partnership treat the distribution to Damon?

Question 4: What planning opportunities might the partnership want to consider?

Question 5: How would you answer to part a, b and c) change if Damon had been a limited partner? Would the partnership be more likely to prefer Damon's treatment as a general or limited partner? Which type of partner clasification would Damon likely prefer?

Reference no: EM133279693

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