George Is Planning to Retire from the GDP LLC, Where

question 44

Multiple Choice

George is planning to retire from the GDP LLC, where he is an active managing member owning a 60% interest. Capital is not a material income-producing factor to GDP. The LLC can either redeem his interest under § 736 or he can sell his interest to Dale, who currently owns a 20% interest. The LLC's operating agreement is silent regarding treatment of goodwill. As to George's alternatives, which one of the following statements is true?

• A)Either the sale or the redemption would terminate the partnership.
• B)Payments to George for his share of GDP's goodwill would be treated the same for either a sale or redemption.
• C)George will report ordinary income related to his share of "hot assets" under either the sale or the redemption scenario.
• D)If GDP/Dale negotiate payments over several years, either an installment sale or a redemption over time would result in the same tax situation to George.
• E)All of the above statements are true.

---

Definitions:

Volume-Based Measures

Metrics that quantify outcomes or activities based on the amount or volume of production, sales, or other business operations.

Activity Rate

A ratio used to allocate costs to products or services based on the activities that are required to produce them.

Cost Pool

A grouping of individual costs in accounting, typically by department or service center, from which costs are allocated to products or services based on a relevant allocation base.

Overhead Costs

Expenses associated with the day-to-day running of a business that are not directly linked to the production or selling of goods and services.