It is important to understand your options in liquidation in order to complete your final project. In completing this discussion, provide your rationale based on tax research, code, and regulation.

Several years ago, Amy, Bob, and Carol formed a partnership that operates a marina in Florida. Carol is ready to retire. Three options are being considered:

• Option 1: Sell the business and distribute part of the proceeds to each partner.
• Option 2: Borrow money to pay for Carols interest in the business.
• Option 3: Ask Carol to find an outside buyer for her interest in the business.

Pick one of these options and describe the tax consequences for the partnership and the partners for the option selected. If Carol should die before the plan is executed, how would this option be affected?