I have four person partnership. The capital accounts are as follows:

 A.      (112,000)
B.       (49,000)
C.        92,000
D.       250,000
Total    181,000

The Partners A and B with negative capital accounts have walked away from the partnerhip. Partners C and D will remain. The operating agreement does have a negative capital make up provision. However, partners A and B will not pay back the money. I presume that A and B will pay tax on the negative accounts. What happens to C and D and the partnership going forward?

asked 05 Feb '10, 23:31

Mike%201's gravatar image

Mike 1
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accept rate: 0%


Sounds like a homework question to me.

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answered 09 Feb '10, 19:36

SandySea's gravatar image

SandySea
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accept rate: 7%

Sandy is right, this sounds like a homework question. I am not an attorney, but the following issues come to mind. Can you really walk-away from a partnership? Depends on state law. In NY, you can't withdraw unless the partnership agreement specifically allows it. If A&B haven't legally withdrawn or abandoned their interest, they still own it even if you can't force repayment of negative capital. If A&B can't legally withdraw, perhaps C&D have some recourse to enforce the provisions for restoring negative capital. After you have the legal issues sorted out regarding ownership interests, you will have to determine if you have a technical termination of the partnership to answer questions for the partnership and C&D going forward.

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answered 09 Mar '10, 22:02

Linda%20Hamilton%20CPA's gravatar image

Linda Hamilt...
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accept rate: 10%

A partnership terminates for tax purposes( whether or not it has terminated for local law) when: 1. it stops doing business as a partnership, or 2. 50% or more of the total interest in partnership capital and profits changes hands within 12 consecutive months by sale or exchange or by distribution unless exempted by regs.

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answered 15 Mar '10, 18:31

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Eddie Douglas
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Asked: 05 Feb '10, 23:31

Seen: 5,976 times

Last updated: 15 Mar '10, 18:31