Bud Has Devoted His Life to His Business, the BK

question 63

Essay

Bud has devoted his life to his business, the BK Partnership, in which he owns an 85% capital and profits interest. Because he has worked so hard all his life, he never married and has no children. He has decided to give a 25% capital and profits interest to Berry, a close friend, if Berry will work in the business for five years. Berry will receive guaranteed payments for his work. Bud devotes all his time to the partnership, but he takes no salary. What tax issues should Bud and Berry consider with respect to the gift of the partnership interest and Bud's employment arrangement with the partnership?

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Definitions:

Property Rights

Legal rights that delineate the ownership and utilization of resources, including the right to transfer, use, or exclude others from use.

Profit Maximization

The process by which a business seeks to achieve the greatest possible profit with the least possible cost and risk.

Industrial Waste

Waste produced by industrial activities, including chemicals and by-products that can be hazardous to the environment and human health.

Property Rights

Legal rights to possess, use, and dispose of assets freely. Property rights secure ownership and encourage investment by protecting and enforcing the legal ownership of resources.