John has a 60% capital and profits inter- est in the JAS Partnership with a basis of $333,600, which includes his share of liabilities, when he decides to retire. Andrew and Stephen want to continue the partnership€™s business. On the date John retires, the partnership€™s balance sheet is as follows:

a. What are the tax implications for John, Andrew, Stephen, and the JAS Partnership if Andrew and Stephen each purchase one-half of John€™s partnership interest for a cash price of $186,000 each? Include in your answer the amount and character of the recognized gain or loss, basis of the partnership assets, and any other relevant tax implications.
b. What are the tax implications for John, Andrew, Stephen, and the JAS Partnership if the partnership pays John a liquidating distribution equal to 60% of each partnership asset other than cash plus $24,000 of cash? Assume the assets are easily divisible.

Transcribed Image Text:

Partnership's Basis FMV Assets Cash S160,000 S160,000 Receivables 100,000 100,000 Building 200,000 300,000 Land Total S740,00O Liabilities and capital Liabilities S120,000 S120,000 Capital-John 261,600 372,000 -Andrew 87,200 124,000 -Stephen 87.200 124.000 Total 5740,000 The partnership has claimed S80,000 of straight-line depreciation on the building