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:

Mixed Fraction

A mathematical expression combining a whole number and a fraction, used to represent quantities greater than one.

Fraction

A mathematical expression representing the division of one quantity by another; a part of a whole.

Fraction

A fractional amount that signifies a portion of a whole, distinguished by not being an integer.

Per Hundred

A phrase used to denote or calculate rates, statistics, or proportions out of a hundred.