Siegfried is a 50 percent partner in the Jutland Partnership and has decided to terminate his partnership interest. Siegfried is considering two options as potential exit strategies. The first is to sell his partnership interest to the two remaining 25 percent partners, Sigmund and Sieglinde, for $125,000.00 cash and the assumption of Siegfrieds share of Jutlands liabilities. Under this option, Sigmund and Sieglinde would each pay $112,500 for half of Siegfrieds interest. The second option is to have Jutland liquidate Siegfrieds partnership interest with a proportionate distribution of the partnership assets. Siegfrieds basis in his partnership interest is $140,000 including Siegfrieds share of Jutlands liabilities. Jutland reports the following balance sheet as of the termination date:

Assets			Tax Basis		FMV
Cash			$100,000		$100,000
Receivables			$60,000		$60,000
Inventory			$70,000		$100,000
Land			$70,000		$80,000
Totals			$300,000		$340,000
Liabilities and capital
		Liabilities		$70,000
		Capital Siegfried		$105,000
		Sigmund		$62,500
		Sieglinde		$62,500
	Totals			$300,000

If Sigfried sells his partnership interest to Sigmund and Sieglinde for $125,000, what are the amount and character of Sigfrieds recognized gain or loss?

Sigmund and Sieglinde each has a basis in Jutland of $62,500.00 before any purchase of Sigfrieds interest. What are Sigmunds and Sieglindes bases in their partnership interests following the purchase of Sigfrieds interest?

If Jutland liquidates Sigfrieds partnership interest with a proportionate distribution of the partnership assets ($35,000 deemed cash from debt relief, $25,000 of actual cash, and half of the remaining assets), what are the amount and character of Sigfrieds recognized gain or loss?

If Jutland liquidates Sigfrieds interest, what is Sigfrieds basis in the distributed assets?

Compare and contrast Sigfrieds options for terminating his partnership interest. Assume that Sigfrieds marginal tax rate is 35 percent and his capital gains rate is 15 percent.