Calculate gain on sale of interest in a partnership

[strongsilence]

My client is a trust holding a 1/3 interest in a Partnership (activity is rent of land used for hunting). The trust sold its interest on March 1, 2025.  The CPA for the partnership, had been doing their taxes for 15 years, refuses to issue a K-1 for the two months of 2025. I have K-1s for 2023 and 2024. I can't reconstruct outside basis and I don't want to do it now. So, I'll extend the tax return.  Is the gain on sale my job or the partnership CPA?  Should I use the tax capital account as a proxy for outside basis?  I don't know if there are unrealized receivables.  What is your thought? Shoot holes in my thinking.

[strongsilence]

I think that if someone were to guess the outside basis without sufficient records or make a guess about §751 ordinary income without partnership data, it should be the client, and it should be in writing.

[Karen_pdx]

If the partnership's assets consist mostly of land, there may not be much in the way of 751 gain.

Do you have a copy of the partnership or operating agreement? Either under the agreement or state law, usually partners have a right to obtain copies of the complete partnership tax returns, which might help. Do you know the history of your client's ownership? Did the trust acquire the partnership interest due to the death of a partner? If so, was there a Form 706 filed that would show the basis as of the date of the partner's death? Did the partnership make an election under Sec. 754? Have there been disclosures of Sec. 743 step up and depreciation on the most recent K-1s?

If the trust was an original partner, the tax capital account would be a reasonable way to estimate basis. 

Do you have a copy of the sale agreement? Could it have been effective dated back to the beginning of the year? Did it state anything about the partnership's reporting obligations?

The partnership is obligated to provide the information about Sec 751 gain on the sale of a partnership interest. If you can't get it, you could consider reporting on Form 8275 that the partnership refused to provide information about any Sec 751 gain, but that the partner believes there was none due to the nature of the partnership's assets (if that is indeed the case).

Was Form 8308 filed? The selling partner should have received a copy - Partnerships file Form 8308 to report the sale or exchange by a partner of all or part of a partnership interest where any money or other property received in exchange for the interest is attributable to unrealized receivables or inventory items (that is, where there has been a section 751(a) exchange).

If no Form 8308 was filed, that could indicate there is no Sec. 751 gain, or it could indicate the partnership is not aware of the obligation to file Form 8308.

[sjrcpa]

" The CPA for the partnership, ..., refuses to issue a K-1 for the two months of 2025."

So who is getting the trust's share of its 2 months income? Did that CPA say why?

The trust's gain on the sale of the partnership interest is you/the trust's issue; not the Partnership's.

So is computing the Trust's basis. Does Trustee have prior tax returns/K-1s? How did Trust acquire interest? When?

EDIT: Karen's response is more thorough. I didn't see it when I posted.

[Accountant-Man]

<<The trust sold its interest on March 1, 2025.  The CPA for the partnership, had been doing their taxes for 15 years, refuses to issue a K-1 for the two months of 2025.>>

So the partnership is still alive with the remaining two partners or the other two plus the new partner(who bought the trust's share)?

Use the capital account as the basis unless the trust received the interest from an estate. Then you need to find a step up, which might be on the books of the partnership.

[strongsilence]

Thanks to all. All the info needed has been given to me.  (The PTSP did file a Final 2025 K-1; my client didn't know it.)

My client the trust (a partner in the partnership) got a basis step up in 2022 so I don't have as much work to do to calculate basis as I thought.