Partner A is to receive 100000 in retirement of her partners

Partner A is to receive $100,000 in retirement of her partnership interest. The payments are to be spread over a 10-year period and paid in installments of $10,000 per year. If A\'s basis is $12,000 and the payments are considered to be Section 736(b) payments, how much income must A report in Year 1 if an election to apportion gain is made? A. $0 B. $2,000 C. $8,800 D. $10,000

Solution

As per section 736(b) that payments ,made in liquidation of interest of a retiring partner are considered as distribution by the partnership but only to the extend these payments are made in exchange of the interest of such partner. Since these payments are considered to be distributed income they are taxable income as per section 731.

Partner A\'s income that he would report be $10000 which would be the distributed income he receives from the partnership as per section 731.