Della retires from the BCD General Partnership when her basis in her partnership interest is $70,000 including her $10,000 share of liabilities. The partnership is in the business of providing house cleaning services for local residences. At the date of Della€™s retirement, the partnership€™s balance sheet is as follows:

Della will receive payments of $20,000 cash plus 5% of partnership ordinary income for each of the next five years. The partnership agreement specifies that goodwill will be paid for when a partner retires. Bruce, Celia, and Della agree that the partnership has $21,000 in goodwill when Della retires and that she will be paid for her one-third share.
Required: 
A tax manager in your firm has asked you to determine the amount and character of the income Della must report for each of the next five years. In addition, he wants you to research the tax consequences of the retirement on the partnership for the next five years. (Assume the partnership earns $100,000 of ordinary income each year for the next five years.) Prepare an oral presentation to be made to Della explaining the tax consequences of the payments she will receive.

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Partnership's Basis FMV Assets: Cash S 50,000 S 50,000 Receivables 30,000 Equipment3 40,000 50,000 Building 90,000 100,000 Land Total $210,000 5270,000 Liabilities and capital Liabilities S 30,000 S 30,000 Capital-Bruce 60,000 80,000 -Celia 60,000 80,000 -Della Total 270,000 aIf the equipment were sold for S50,000, the entire gain would be recaptured as Sec. 1245 ordinary income. The building has been depreciated using the straight-line method.