You and one or more other individual co-owners operate a business or investment activity as a partnership and now intend to shut it down.

You won’t be surprised to hear that there will be federal income tax implications.

This article summarizes the tax implications in what we think are probably the three most common partnership shutdown scenarios.

Scenario 1. One partner buys out the other partner(s) for cash and continues to operate the business or investment activity.

Scenario 2. You and the other partners decide to liquidate the partnership by selling all of its assets for cash and distributing the cash to the partners.

Scenario 3. You and the other partners decide to liquidate the partnership by distributing all of the partnership’s existing assets to the partners.

Key point. To keep the length of this analysis manageable, we will make the simplifying assumption that you and the other partners are all individuals.

Key point. Understand that the same federal income tax results that we explain here will also apply if you operate your business or investment activity as a multi-member LLC that’s classified as a partnership for federal income tax purposes, and where all the LLC members are individuals. If that’s your deal, ... Log in to view full article.