Research Project
Accounting 341

Dear Bill,

We are glad to help you with your concerns. According to the information you provided us, I will let you know the best way to proceed and your best options in the partnership.

According to Section 706 (c) (2) (a) of the Internal Revenue Bulletin, the taxable year of a partnership should be cosed the date of John's death, so the books need to be closed on March 31. Avery partnership does not need to terminate due to his death, although, it is necessary to do the allocation of the income. John is going to carry his part of the partnership thru his estate, including his capital account and the asset (building) you two own.

The best option for your partnership is to file Section 754. You can take this election by filing a signed statement with your partnership tax return. With this election the basis of the partnership's property will be adjusted as required under section 743(b) and 734 (b).

In John's case he had left an estate. The new basis that the estate will provide will be used to increase the basis of the property inside the partnership. This option will provide the estate or the estate beneficiaries with either additional depreciation deductions or reduction in the gain realized if the partnership decided to sell the property.

Also you will find the income allocation attached to this letter.
Thank you for your business and let us know if more explanations are needed.

Viviann S.

Income allocation,