At the end of last year, June, a 30% partner in the four-person BJJM Partnership, had...

At the end of last year, June, a 30% partner in the four-person BJJM Partnership, had an outside basis of $75,000 in the partnership, including a $60,000 share of partnership debt. June’s share of the partnership’s § 1245 recapture potential was $40,000. All parties use the calendar year. Describe the income tax consequences to June in both of the following independent situations that take place in the current year.

a. On the first day of the tax year, June sells her partnership interest to Marilyn for $120,000 cash and the assumption by Marilyn of the appropriate share of partnership liabilities.

b. June dies after a lengthy illness on April 1 of the current year. June’s brother immediately takes June’s place in the partnership.

Solutions

Expert Solution

ANSWER TO PART NO B:

In terms of Section 31 of the Indian Partnership Act, 1932, a new person can be introduced as a partner into a firm with the consent of all the existing partners subject to the execution of a fresh Partnership Deed. At the time of execution of fresh partnership deed presence of all the existing partners along with the new partner and witnesses is essential. All the partners are required to carry the original copy of their respective Permanent Account Number (PAN) as well as residence proofs.

The date when the fresh partnership deed is executed the previous partnership deed shall stand superseded. However, a person who is introduced as a partner into the firm does not become liable for any act of the firm done before he became a partner.

Cross-holding in new partners firm

Cross holding across firms do not have any material effect on the ability of a particular firm; each firm being a distinct legal entity; except from competing businesses prospective

ANSWER TO PART NO A :

The partnership interest recieved on the maturity is exempt from capital gain tax. rather a partnership firm is liable to pay tax on individual profit share. partners are exempted from doing so. No amount of profit or capital gain is taxed in the hands of June as per Income tax act 1961. But the most important condition is that Partnership firm has to pay the tax on individual partners profit and others income

ekkarill92 answered 1 year ago

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