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.
• Option3:AskCaroltofindanoutsidebuyerforherinterestinthebusiness.

Describe the tax consequences for the partnership and the partners. If Carol should die before the plan is executed, how would each option be affected?