I apologize. I had opted out on this, because I was not able to hang around. this is an extensive question. I am back now. So let me outline this to see if I understand correctly
The partnership had 6 partners.
- 1. Partner 1: (a) owned 51% (b) received 651,320
- 2. partner 2: owned 11.25%. (b) received 170,000
- 3. Partner 3: received 30% (b) departs the company 1.5 years later (c) sells shares for 75,000 to outside interest.
- 4. Partner 4: received 30 % (b) departs the company 1.5 years later (c) sells shares for 75,000 to outside interest.
- 5. Partner 5: received 30%
- 6. Partner 6: received 10%
So your first question was:
Q1: What is my basis in the first buyout of 1&2? The basis is your apportioned share of the price paid to the departing partners. It does not matter what you actually did with the money, whether it was used to pay down a loan or not.
Q2: If the balance on the note is $400,000 at the time of termination do I leave the difference in as basis? The loan is treated separately from the purchase event where you bought out the remaining partners. However, when you consider the expenses of the loan, and the capital gain at the time of your sell (the 75,000), you could end up with a net loss. But you have to treat the capital gains fro the purchase and sell separate.
What is not clear to me, is if the loan of 651,320 was a loan to purchase the original buyout of the first two departing partners. If so then the loan expenses, can be counted as a cost in figuring the capital gains and loses, else not.
Q3: Further more I settled for less than FMV, do I get to count that on schedule D? FMV will not figure into the capital gains formula. The capital gains formula for the shares of number 1 and 2 for the sale would look like this: Capital gains = Sale price - (original cost + cost of sale + management fees if any for the shares).
So for you this means two primary calculation for schedule D.
1. Capital gains for the original share of the business before anyone departed And
2. capital gains or losses for the shares you purchased from the 1&2 departing partners.
You have to apportion the selling price accordingly.
So in this instance, you are very likely to have a capital loss.
Q4: Goodwill issue: Goodwill is a troublesome issue. IT only has a tax consequence when an existing business is purchased in its entirety. So I do not know what or why the did this. It sounds irregular. I am not sure what is going on here. In one place you said the money paid to number one was applied to a note, and now it is good will. Your question is confusing on this issue. If I pay someone 600,000 for shares, that money is leaving the company. So how can it be retained for good will? Teh only way I can see a debt instrument coming to play, is if the partners signed a loan and actually borrowed the 600,000 from the company? So if I go one step further, I could say the company would forgive the debt an and the owners would book good will?
What portion of the good will is your's?