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I had a partnership in which the assets were seized by the bank and sold. The proceeds didn't cover the outstanding loan so now it appears as though my partners and I are stuck paying the tax on the cancellation of the debt. How is that tax allocated to the partners if there were 3 originally but only two are actively filing for bankruptcy?


ANSWER


Expert Wray Rives's Answer:

 The income from debt forgiveness is allocated to the partners based on their original profit sharing percentages.

Wray Rives, CPA

Texas

29 yrs experience

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