How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask PDtax Your Own Question

PDtax
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1994
Experience:  32 years tax experience, including four years at a Big 4 firm.
64119565
Type Your Tax Question Here...
PDtax is online now
A new question is answered every 9 seconds

Im reporting the installment sale of a partnership interest.

Resolved Question:

I'm reporting the installment sale of a partnership interest. Part of the total payments is for unrealized receivables, reported as ordinary income. How do I report the unrealized receivable portion on the 1040? Does the amount get excluded from the installment sale form? I know the unrealized receivable portion has to be ordinary income and it should be subject to SE tax. Should this be added as an income item on Schedule E for the sold partnership?
Submitted: 11 months ago.
Category: Tax
Expert:  PDtax replied 11 months ago.

PDtax :

Welcome to the site. I'm PDtax, and will be helping you today.

PDtax :

"Inventory or Unrealized Receivables: If the partnership interest sold represents the selling partner's interest in both ordinary
income and capital assets, under Code Sec. 751(a) , some of the gain will be characterized as
ordinary income rather than capital gain. In the case of installment method reporting, the
income attributable to a partnership's inventory is not eligible for installment sale treatment.
Rev. Rul. 89-108, 1989-2 C.B. 100 .The sale of the interest is allocated to the assets being purchased."

PDtax :

http://taxtaxtax.com/pship/Sale%20of%20a%20Partnership%20Interests.pdf is the link to the text reproduced herein. I am going to the Rev Rul for backup.

PDtax :

http://www.charitableplanning.com/document/673445 is the link to the text of Rev Rul 89-108.

PDtax :

From the Rev Rul:

PDtax :

"Section 751 of the Code was enacted to prevent the conversion of certain
potential ordinary income into capital gain upon the sale or exchange of a
partnership interest. This section, in effect, severs certain income items
from the partnership interest. H.R. Rep. No. 1337, supra, at 70, 71, and S.
Rep. No. 1622, 83d Cong., 2d Sess. 99 (1954). Thus, to the extent a
partnership interest represents substantially appreciated inventory or
unrealized receivables described in section 751, the tax consequences to
the transferor partner are 'the same tax consequences which would be
accorded an individual entrepreneur.' H.R. Rep. No. 1337 at 71, and S. Rep.
1622, supra, at 99. In effect, the transferor partner is treated as
disposing of the property described in section 751 'independently of the
rest of his partnership interest.' S. Rep. No. 1622 at 98, 99. George
Edward Quick Trust v. Commissioner, 54 T.C. 1336 (1970), acq. 1970-2 C.B.
xxi, aff'd per curiam, 444 F.2d 90 (8th Cir. 1971); Woodhall v.
Commissioner, T.C. Memo. 1969-279, aff'd, 454 F.2d 226 (9th cir. 1972)."

PDtax :

This should not be a component of the sale of the partnership interest, but as a separate income item.

PDtax :

Thanks for asking at Just Answer. I'm PDtax.

Customer:

Ok, great. So I will report that amount allocable to unrealized receivables as it's own line, other income, subject to SE tax, and will report the remaining amount on the installment sale form, correct?

PDtax :

yes.

Customer:

thank you

PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1994
Experience: 32 years tax experience, including four years at a Big 4 firm.
PDtax and 8 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.