Sale of Partnership Interest

[veritas]

I have a 50-50 LLC which terminated upon the sale of one partner's entire share sold to the other partner. We now have a single member LLC. How do I allocate the purchase price to the remaining owner? I see some discussion on pg 20-12 of TTB. But what I need is some kind of worksheet.

[Bees Knees]

I'm not sure I understand your question. If one partner bought out the other partner, the one who purchased the other partner's interest should get 100% of the purchase price allocation, since no other party was involved with the purchase. Or is there a third party involved?

[Unregistered]

I have tangible and intangible assets which have been aquired by the remaining partner by cash and debt assumption. So the assets aquired must be stepped up in the aquisition. I guess I am unsure as how to allocate. Let's say the basis in asstes is 10,000 for the selling partner and the aquisition is $20,000 in cash.

[Bees Knees]

I am not aware of any special rule that says how much to allocate to each. Generally, the buyer and seller must come to an agreement on how much of the purchase price should be allocated to each specific asset. I would think in this case, the same would apply, provided the allocations are reasonable. TTB, page 25-3 has a chart on the seller's tax treatment of gain and the purchase's tax treatment of cost.

[Bees Knees]

The discussion in TTB, page 20-12 says “For tax treatment of the purchasing partner, the partnership is deemed to have made a liquidating distribution of all of its assets to the partners, and following the distribution, the purchasing partner is treated as acquiring the assets deemed to have been distributed to the selling partner.”

So you have two transactions here:

1) The remaining partner has his half of the assets distributed to him. Basis in each asset equals his proportionate interest in each asset distributed. Use the rules discussed starting on page 20-9 to determine the tax treatment of the liquidating distribution.

2) You have one partner selling his share of assets that have just been distributed to the other partner in a taxable sale. Use the rules discussed starting on page 25-2 to determine the tax treatment of the sale between the two former partners.

[veritas]

Thank you very much.