Advanced Accounting

Simplify Partnership was a general partnership that provided tax consulting services (and thus capital was not a material income-producing factor). Abel retired from the partnership. At the time of his retirement, the Simplify Partnership balance sheet appeared as follows:

Asset	Adj. Basis	Book	Partner	Tax	Book
Cash	$180,000	$180,000	Abel	$90,000	$160,000
Acct. Rec.	-0-	$60,000	Baker	$90,000	$160,000
Stock	$60,000	$120,000	Charlie	$90,000	$160,000
Blackacre	$30,000	$120,000
Total:	$270,000	$480,000		$270,000	$480,000

Abel received $180,000 in liquidation of his interest. The partnership agreement did not include any provision for the payment of goodwill. A § 754 election has been made. What are the tax consequences to Abel and to Simplify?

Solution: