When Partner B contributed $300k to the LLC it immediately became a partnership. Which raises concerns, since apparently no partnership returns were filed and it leaves us wondering how losses were allocated, and whether an IRC 754 election was made.

When an LLC with two members, becomes an LLC with one Member, it is treated as if the partnership has distributed all assets of the LLC to each of the partners, and the the remaining partner purchases the assets, in this case for $80k.  This money will be allocated among the assets of the partnership, and if any remains to goodwill.  None of it will directly be an expense on the P and L.

This process is addressed (somewhat incompletely) in Rev Rul 99-6

http://www.legalbitstream.com/scripts/isyswebext.dll?op=get&uri=/isysquery/irl6b5/3/doc