PLLC_Chapter8_Solutions.pdf - Practical Guide to...

Practical Guide to Partnerships and LLCs—Instructor’s Guide Solutions 1
Chapter 8 – Other Limitations on Partnership Allocations
Reading:
Paragraph 801.
1. Partner A owns a 10% interest in the ABCD partnership. If partner A sells her
partnership interest, will the partnership taxable year have to close on that date? If A
only sells ½ of her interest in the partnership, will the partnership taxable year have to
close on that date? Is there any effect on the timing of the partnership income to A if
there is a sale of only part, versus all, of A’s partnership interest?
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2. What are the two methods of income allocation with respect to the income of a
partner who sells all or part of his partnership interest?

Practical Guide to Partnerships and LLCs—Instructor’s Guide Solutions 2
3. On September 30 Partner C buys ½ of partner A’s interest in the equal AB calendar-
year partnership, so A and C each own 25% after the sale. For the year, the
partnership earns income of $2,000 a month for January through August, and $6,000
a month for September through December. How much income will A and C each
have from the partnership under (a) the interim closing method and (b) the proration
of partnership income method?
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