George Is Planning to Retire from the GDP LLC, Where

question 44

Multiple Choice

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)Either the sale or the redemption would terminate the partnership.
• B)Payments to George for his share of GDP's goodwill would be treated the same for either a sale or 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:

Measurement Technique

Methods used to determine the monetary values of assets and liabilities in financial reporting.

Basis For Conclusions

A document accompanying various accounting and financial reporting standards, explaining the reasoning behind the decisions made during their development.

Exit Price

The estimated amount that could be received from selling an asset or transferring a liability in an orderly transaction between market participants.

Arm's Length Transaction

A transaction in which the parties involved act independently and have no relationship with each other, ensuring that the transaction is conducted on market terms.