On July 1, George Is Planning to Retire from the GDP

question 130

Multiple Choice

On July 1, 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) Under either alternative, on July 1, the partnership closes its books and starts a new tax year.
• B) Payments to George for his share of GDP's goodwill would be treated the same for either a sale or a 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.

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Definitions:

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