When one of the partners decides or is ready to retire from a partnership formed, there are
many options in liquidation to end the relationship. a Each one of these options is based on the
tax consequences for the partner leaving and the ones staying. a According to Antico (2013),
“When offering a new equity position or buying out a retiring partner, considerations vary
depending on the structure of the practice, so it is important to note the differences when
dealing with a partnership, as distinguished from a corporation. The appropriate structure of a
practice depends on the needs and desires of the practice owners”. a Now having this in hand,
the option I will pick and be beneficial for every partner is Option 1, just because it is
considering and giving opportunities equally to everyone. a We have to remember that Carol is
the one retiring and Amy and Bob are not, they would like to continue with the partnership. a
In my personal opinion, in options #2 and #3, you are adding an extra “thought”
beside a partner’s retirement. a Option #2 is considering a new responsibility for the
partnership and Option #3, is considering a new partner, someone that you don’t really know,
maybe in the future.
The sale of a partnership interest is treated as the sale or exchange of a capital asset, so
normal taxes will be applied to this sale. a The gain or loss will be calculated as the difference
between the amount realized in the transaction and the selling partner’s adjusted basis in the
partnership interest being sold. a In case of death, the purchaser’s basis is determined under
normal tax rules, by cost, and according to Section 1015. Also, this death of a partner can lead
to tax issues involving the close of a partnership's tax year with respect to the deceased
partner, a possible change in the partnership's year-end, post-death allocation of income, Sec.
754 elections, and Sec. 743 adjustments, among other things.
Antico, S. R. (2013). Understand tax implications of practice buy-ins, buy-outs: structure
agreements carefully to maximize benefits when an owner or partner leaves or is brought
on board. Medical Economics, 90(2).
Simmons, D. L. (2013). The Tax Consequences of Partnership Break-Ups: A Primer on Partnership
Sales and Liquidations. Tax Lawyer, 66(3), 653–731.
The Tax Consequences of Partnership Break-Ups: A Primer on Partnership Sale...: Multi-Search
(snhu.edu)
