The basis of the receivables will increase from 0 to

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The basis of the receivables will increase from 0 to $40,000 with the full adjustment allocated to Z. When the receivables are collected, Y will have $60,000 of income and Z will have none. The basis of the real property will increase by $28,000 to $58,000, so that Z's share of the basis will be $40,000 (i.e., $12,000 + $28,000). Terminations The termination of a partnership requires the closing of the partnership books. Termination requires a closing of the partnership 1. Termination requires a closing of the partnership tax year. 2. Termination results in a deemed distribution of assets to the partners. A partnership terminates for tax purposes if either of the following events occur: 3. No part of the business continues to be carried on by any partner in the partnership form. Example
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In a two-person partnership, one partner sells his or her interest to the other partner. This sale terminates the partnership for tax purposes, because it will no longer have two owners (it is now a proprietorship). Generally, partnerships are contracts between the partners that are terminated with the death or withdrawal of any partner. However, the death or withdrawal of a partner doesn't necessarily terminate partnerships for tax purposes. The partnership only determines the share for the decedent partner. A partnership and its taxable year will terminate for all partners if there is a sale or exchange of 50% or more of the total interests in partnership capital and profits within a 12-month period. Sales or exchanges of at least 50% during any 12-month period cause a termination. Example The calendar-year ABC Partnership has three equal partners, A, B, and C. B sold his interest to D on November 1, 2016, and C sold his interest to E on April 1, 2017. The ABC Partnership is considered terminated on April 1 because at least 50% of the total interests have been sold within a 12-month period. If the same partnership interest is sold more than once during a 12-month period, the sale is counted only once. Example The calendar-year RST Partnership has three equal partners, R, S, and T. T sold her interest to X on December 1, 2016, and X sold her interest to Y on May 1, 2017. The RST Partnership is not terminated because multiple sales of the same partnership interest are counted only once. Mergers and Divisions Partnerships can merge with or divide from the original partnership continuing as the reporting entity. In a merger of partnerships, the resulting partnership is a continuation of the merging partnership whose partners have a more than 50% interest in the resulting partnership. Example Partnerships AB and CD merge on April 1, forming the ABCD Partnership in which the partners' interests are as follows: Partner A, 30%; B, 30%; C, 20%; and D, 20%. Partnership ABCD is a continuation of the AB Partnership. The CD Partnership is considered terminated and its taxable year closed on April 1.In a division of a partnership, a resulting partnership is a continuation of the prior partnership if the resulting partnership's partners had a more than 50% interest in the prior partnership.
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  • Spring '17
  • Wendy Achiles
  • partner

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