Retiring partner A is to receive 120000 for his partnership

Retiring partner A is to receive $120,000 for his partnership interest spread over a 4 year period and paid in installments of $30,000 per year. If A\'s basis is $64,000 and the payment are considered to be Section 736(b) payments, how much income must A report in Year 2 if NO election is made? A.) $0, B.) $24,000, C.) $40,000 D.) $56,00

Solution

The payments under Section 736(b) are the payments to the extent of partner’s interest in partnership assets. The unrealized receivables are not treated as partnership property under the special rules of the section 736 (b) (2).

Hence, amount received in year 2 will be treated as unrealized receivables and A should report zero income in year 2.

The correct answer is A) $0