Jeremy Is an Active Partner Who Owns a 30% Interest

question 102

Essay

Jeremy is an active partner who owns a 30% interest in the JS LLP (in which capital is not a material income-producing factor). Partnership assets consist of land (fair market value of $200,000, basis of $140,000), accounts receivable (fair market value of $200,000, basis of $0), and cash of $400,000. JS distributes $220,000 of the cash to Jeremy in liquidation of his interest. In addition, Jeremy is relieved of his $40,000 share of the LLP's liabilities. The total payment includes $20,000 for Jeremy's share of JS goodwill (for which the agreement does not provide). Jeremy's basis in the partnership interest (including his share of the partnership's liabilities) is $120,000 immediately before the distribution. How much gain or loss does Jeremy recognize and what is its character? How much can the partnership deduct?

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Definitions:

Legislator

An elected official who is involved in the process of making or enacting laws.

Persuade

The action of convincing someone to do or believe something through reasoning or the use of temptation.

Facts

Information that is verifiable, objectively true, and supported by solid evidence.

Johnson Amendment

A provision in U.S. tax code prohibiting 501(c)(3) nonprofit organizations from endorsing or opposing political candidates.