Jack and Jill are both 20% partners in a partnership involving 3 other people. Jill buys out Jack. On the books of the partnership, I've always been taught that Jack's capital balance at the time of the sale to Jill simply is transferred to Jill. I've always been taught this or have believed this. And this would be true regardless of how much Jill paid to Jack.
I checked TTB and maybe I missed this. There is all kinds of discussion about how Jack will have capital gains, etc... and this of course would be true as far as Jack is concerned. It follows that the amount also is added to Jill's basis. But my belief is that this transaction does not affect the capital balances on the books of the partnership.
Am I wrong, or has this changed? Jill is insisting that the excess over his capital balance be treated as goodwill. I think the only thing for Jill is that her outside basis is increased.
I checked TTB and maybe I missed this. There is all kinds of discussion about how Jack will have capital gains, etc... and this of course would be true as far as Jack is concerned. It follows that the amount also is added to Jill's basis. But my belief is that this transaction does not affect the capital balances on the books of the partnership.
Am I wrong, or has this changed? Jill is insisting that the excess over his capital balance be treated as goodwill. I think the only thing for Jill is that her outside basis is increased.