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Practical Guide to Partnerships and LLCs—Instructor’s Guide ProblemsChapter 8 – Other Limitations on Partnership AllocationsReading: 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 partnershipinterest? 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?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) theproration of partnership income method?