Reference no: EM133335522

Assignment:

Isabella decides to leave the HIJ Partnership after owning the interest for many years. She owns a 52% capital, profits, and loss interest in the general partnership (which is not a service partnership). Isabella's basis in her partnership interest is $ 120,000 (before accounting for her share in liabilities) just before she leaves the partnership. The partnership agreement does not mention payments to partners who leave the partnership. The partnership has not made an optional basis adjustment election ( Sec. 754). All partnership liabilities are recourse liabilities, and Isabella's share is equal to her loss interest. When Isabella leaves the partnership, the assets and liabilities for the partnership are as follows:

Assets	Partnership's Basis	FMV
Cash	$240,000	$240,000
Inventory	24,000	24,000
Receivables	0	64,000
Land	60,000	100,000
Total	$324,000	$428,000
Liablities	60,000	60,000

Analyze the following two alternatives, and answer the associated questions for each alternative.

1. Isabella could receive a cash payment of $ 220,000 from the partnership to terminate her interest in the partnership. Does Isabella or the partnership have any income, deduction, gain, or loss? Determine both the amount and character of any items.
2. Marco already owns a 30% general interest in the HIJ partnership prior to Isabella's departure. Marco is willing to buy Isabella's partnership interest for a cash payment of $ 220,000. What income, gain, loss, or deduction will Isabella recognize on the sale? What are the tax implications for the partnership if Marco buys Isabella's interest?