Tom, Tina, Tatum, and Terry Are Equal Owners in the 4-Ts

question 73

Multiple Choice

Tom, Tina, Tatum, and Terry are equal owners 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 will terminate.
• D)The $150,000 § 736(a) payment will result in a capital gain to Tom.
• E)The $200,000 § 736(b) payment will be taxed to Tom as ordinary income.

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Definitions:

Craft Lines

Specific types of skilled work or trades, often involving handmade goods or artisanal production methods.

Industrial Lines

The categorization of businesses based on their primary industrial activity or the product they manufacture or sell.

AFL Split

The division within the American Federation of Labor, a major U.S. labor union, often relating to disputes over union strategies or policies.

Collective Bargaining

The process of negotiation between employers and a group of employees aimed at agreements to regulate working salaries, working conditions, benefits, and other aspects of workers' compensation and rights.