partnership issue

[oceanlovin'ea]

Scenario - one partner buys the other partner out, therefore the partnership is terminating. The partner doing the buyout will pay off the other partner on the installment basis. How do you report the income of the buyout?

Linda, EA

[JG EA]

Would this help in your situation?
From Pub 541:

Sale, Exchange, or Other Transfer
The sale or exchange of a partner's interest in a partnership usually results in capital gain or loss. However, see Payments for Unrealized Receivables and Inventory Items, later, for certain exceptions. Gain or loss is the difference between the amount realized and the adjusted basis of the partner's interest in the partnership. If the selling partner is relieved of any partnership liabilities, that partner must include the liability relief as part of the amount realized for his or her interest.
...
Installment reporting for sale of partnership interest. A partner who sells a partnership interest at a gain may be able to report the sale on the installment method. For requirements and other information on installment sales, see Publication 537.
Part of the gain from the installment sale may be allocable to unrealized receivables or inventory items. See Payments for Unrealized Receivables and Inventory Items, later. The gain allocable to unrealized receivables and inventory items must be reported in the year of sale. The gain allocable to the other assets can be reported under the installment method.