Problem 11-37 (LO. 2, 8) BDD Partnership is a service-oriented partnership that has three equal general partners. One of them, Barry Evans, sells his interest to another partner, Dale Allen, on December 31 (the last day of the current tax year) for $90,000 cash and the assumption of Barry's share of partnership liabilities. (Liabilities are shared equally by the partners.) Immediately before the sale (after reflecting operations for the year), the partnership's cash basis balance sheet was presented as shown below. The capital accounts before the sale reflect the partners' bases in their partnership interests, excluding liabilities. The payment exceeds the stated fair market value of the assets because of goodwill that is not recorded on the books. Basis FMV Basis FMV Cash $120,000 $120,000 Note payable $30,000 $30,000 Accounts receivable 0 90,000 Capital accounts Capital assets 30,000 75,000 Barry 40,000 85,000 David 40,000 85,000 Dale 40,000 85,000 Total $150,000 $285,000 Total $150,000 $285,000 f. How would Barry's tax result differ if, instead, BDD distributed $90,000 of its cash in liquidation of Barry's interest (with the remaining partners assuming Barry's share of partnership debt)? Why is this result different from Barry's result when the interest is sold? The LLC's operating agreement does not address payment of goodwill to the partner. Barry's gain would be $ 50,000. It would be classified as $ 50,000 X of ordinary income and $ 50,000 X of capital gain. Because the payment for partnership goodwill is not provided for in the partnership agreement, Barry will report the amount as a guaranteed payment . The partnership may deduct the 736(a) payment of $ 50,000 X