Questions:

1.A, B, C, and D are members of the ABCD Partnership, a calendar-year, cash-method, general partnership. Each has a one-fourth interest in capital, profits, and losses in return for an initial contribution of $20,000 to ABCD. Unless otherwise stated, assume that the partnership does not revalue its property in connection with partner retirements and has not made a Section 754 election. ABCD's balance sheet is as follows:

TaxFair Market Value

Assets

Cash$30,000$30,000

Accounts Receivable020,000

Real Property58,00062,000

Total$88,000 $112,000

Liabilities

Mortgage (recourse)$8,000$8,000

Capital

A20,00026,000

B20,00026,000

C20,00026,000

D20,00026,000

Total Liabilities and Capital$88,000$112,000

A retires and, pursuant to the partnership agreement, receives a lump-sum payment of #30,000 in complete liquidation of his partnership interest.

a.What are the tax consequences to A and to ABCD if capital is a material income-producing factor for ABCD?

b.What are the tax consequences to A and to ABCD if capital is not a material income-producing factor for ABCD?

c.Same as b. above, except that the partnership agreement provides that all payments in excess of the fair market value of the retiring partner's share of partnership assets are a "premium."

d.Same as b. above, except that the partnership agreement provides that all payments in excess of the fair market value of the retiring partner's share of partnership assets are either a guaranteed payment or goodwill?

e.Same as b. above, except that the partnership agreement provides that all payments in excess of the fair market value of the retiring partner's share of partnership assets are considered received in exchange for goodwill?

f.Same as b. above, except that the partnership agreement provides that the partnership will revalue its property (including intangible assets such as goodwill) and adjust the capital accounts accordingly in connection with the retirement of any partner. Such revaluation causes goodwill in the amount of $16,000 to be placed on the partnership's books immediately prior to A's retirement?

g.Same as b. above, expect that the partnership agreement provides that A will receive a lump-sum distribution of $25,000, plus 20 percent of the gross income of ABCD for the year. ABCD's gross income for the year, irrespective of any payments to A, is $80,000?

h.Same as a. above, expect that ABCD has no goodwill?

i.Same as b. above, expect that ABCD has no goodwill?

j.Same as a. above, expect that ABCD has made a Section 754 election?

k.Same as b. above, expect that ABCD has made a Section 754 election?

2.Assume that the ABCD Partnership in 1. above is established as a limited liability partnership (LLP) under state law, and that ABCD is a service partnership for which capital is not a material income-producing factor. ABCD's balance sheet is the same as in 1. above and its agreement does not provide for the revaluation of partnership property in connection with partner retirements. A retires on December 31, Year 1, and pursuant to the partnership agreement receives a lump-sum payment of $21,000 on that date. A is also entitled to receive a cash payment of $1,000 on December 31 in each of Years 2 through 6, representing his share of the value of ABCD's accounts receivable on A's retirement date. These deferred payments bear interest at five percent. What are the tax consequences to A and to ABCD?