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@lbones wrote:

We were told by Albany County that the partnership upon death ended. Bill went down to the county clerk’s office and amended the paperwork to remove Kelly’s name.

Also, Kelly did not have a will so there was no directive as to his portion of the business. Bill is working with Kelly’s wife Patti as he thinks that the appropriate thing to do is purchase Kelly’s interest in the equipment as Patti stated she had no interest in the business. 

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How it is registered with the county or state has very little to do with how it is treated on the Federal tax return.  If more than one person owns the business (even if the county or state thinks otherwise), it is still a Partnership.

In most cases, no directive means any solely owned property belongs to the Estate (or possibly directly to the spouse).  It looks like Bill is trying to "purchase Kelly's interest", which means Bill does not currently own the entire business yet.  It is still a Partnership, regardless of what they reported to the county or state.