Julie Is an Active Owner of a 52% Interest in the JIR

question 84

Essay

Julie is an active owner of a 52% interest in the JIR LLP, a consulting company service provider). Her basis in the partnership interest is $100,000, and her share of the partnership's inside basis in assets is $120,000. Julie can sell her interest in the LLP on the first day of the tax year to Irene and Rachel the other partners) for $100,000 each $200,000 total). Alternatively, the LLP can distribute $200,000 of cash to redeem Julie's interest.
Assume the following: $10,000 of the redemption payment would be for the LLP's goodwill which is not provided for in the partnership agreement); Julie's share of JIR's unrealized receivables is $40,000; and JIR has a § 754 election in effect. What are the advantages and disadvantages of the sale versus the redemption from Julie's and JIR's perspective? What is your recommendation? Explain.

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Definitions:

Cortex to Hippocampus

Describes the neural pathway or connection between the cortex, the outer layer of the brain involved in complex functions, and the hippocampus, a region critical for memory formation.

Perirhinal Cortex

A region of the brain associated with memory and recognition of familiar objects.

Entorhinal Cortex

A cortex located in the medial temporal lobe that functions as a hub in a widespread network for memory, navigation, and the perception of time.

Orbitofrontal Cortex

The part of the frontal lobe situated above the orbits or eye sockets, involved in decision making and processing of rewards and punishments.