Question

The Oswego Lumber LLP is equally owned by two partners and shows the following balance sheet at the end of the current tax year. Basis FMV Cash $1,200,000 $1,200,000 Unrealized receivables $0 $1,800,000 Long-term securities $2,500,000 $2,700,000 Land $2,700,000 $6,500,000 $6,400,000 $12,200,000 Blue, capital $3,200,000 $6,100,000 Ben, capital $3,200,000 $6,100,000 $6,400,000 $12,200,000 Partner Blue is an active (i.e., "general") partner retiring from the service-oriented partnership. He receives $6,800,000 cash, none of which is stated to be for goodwill. a. How much of the payment is for "unstated goodwill?" The distribution results in "unstated goodwill" of $._______ b. How is the $6,800,000 allocated between a § 736(a) income payment and a § 736(b) property payment? The $6,800,000 cash payment is allocated as follows: § 736(a) income payment: $ _____ § 736(b) property payment: $____

Answer 1

	Basis	FMV
Cash	$1,200,000	$1,200,000
Unrealized receivables	$0	$1,800,000
Long term securities	$2,500,000	$2,700,000
Land	$2,700,000	$6,500,000
total	$6,400,000	$12,200,000
Blue, capital	$3,200,000	$6,100,000
Ben, capital	$3,200,000	$6,100,000
Total	$6,400,000	$12,200,000
The distribution result in unstated goodwill of $700000 (6800000-6100000)
The $6800000 cash payment is allocated as follows:
Sec 736 (a) income payment $1600000 ($900000 for Unrealised receivables, $700000 for unstated goodwill)
Sec 736 (b) property payment $5200000

Allocation of payment:
The total amount paid for partnership property (Section 736(b)) is determined based on the fair market value of the
partnership property and section 736 (a) payment is the total amount of all payment less the section 736(b) payment.