Jeremy Is an Active Partner Who Owns a 30% Interest

question 39

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 (not stated in the partnership agreement). 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? Are any planning opportunities available to the LLP?

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Definitions:

Neophobia

The fear of anything new, often seen as an aversion to novelty or changes.

Fussy Eater

Refers to individuals, often children, who are very selective about the foods they eat, often resisting new foods or having a limited range of foods they will consume.

Basal Metabolic Rate

The speed at which energy is burned by the body to sustain crucial life functions including breathing and warmth preservation during rest.

Leptin

A hormone produced by fat cells that helps to regulate energy balance by inhibiting hunger, thereby contributing to the regulation of body weight.