Question

In each of the problems below, the ABC partnership has three equal partners A, B and C and the following balance sheet:

Assets                                             Partners’ Capital

                                                    A.B.           F.M.V.                                             A.B.            F.M.V.

                  Cash              $60,000    $60,000             A             $30,000        $45,000

                  Receivables             0        15,000             B               30,000          45,000

                 Inventory          15,000       30,000              C               30,000         45,000

                 Goodwill           15,000       30,000             

                 Total                $90,000      135,000                             $90,000       $135,000

Problem

A partner A dies on the first day of the current year and in an agreement arranged prior to his death, Services Partnership liquidates A’s general partnership interest for $45,000 of cash. What result to A’s estate

There is a specific provision in the agreement that $10,000 is for A’s interest in the goodwill and either a § 754 for a § 732(d) election is in effect?

Same as (a) above but neither a § 754 nor a   732(d) election is in effects

The agreement is silent as to goodwill but either a § 754 or a § 732(d) election is in effect?

The agreement is silent as to goodwill and neither a § 754 nor a § 732(d) election effect?

Answer 1

A. If there is a specific provision in the agreement regarding goodwill then the executors of A will receive $10,000 as goodwill and also the basis of A will be valued according to sec 754 or in absence of 754 sec 732(d) whichever is in effect.

B. If there is a specific provision for goodwill in agreement then executor of A will receive goodwill $10,000 and the basis of A will be calculated as normal valuation. There will be no reconciliation in the basis.

C. If the agreement is silent as to goodwill but either sec 754 or 732(d) is in effect, then the valuation need to be done as per sec 754 or 732(d). However we will first check for availability of sec 754 election.

In both the cases the basis of the partnership property shall be adjusted as prescribed in sec 743.

D. In absence of the 754 election or sec 732(d) the partnership basis will be calculated as it was mentioned in agreement, there will be no revaluation of the partner's basis.