mark green and his brother michael purchased land in o/

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Mark and Michael each have a basis in their partnership interest of $300,000 including their share of liabilities. They share the economic risk of loss from the liabilities equally. Last spring, Mark had a serious heart attack. On his doctor advice, Mark wants to retire from all business activity and terminate his interest in the partnership. He is interested in receiving some cash now but is not averse to receiving part of his payment over time.
You have been asked to provide the brothers with information on how to terminate Mark interest in the partnership. Several possibilities have occurred to Mark and Michael, and they want your advice as to which is best for Mark from a tax standpoint. Michael understands that the resulting choice may not be the best option for him. The possibilities they have considered include the following:
Michael has substantial amounts of personal cash and could purchase Mark interest directly. However, the brothers think that option probably would take almost all the cash Michael could raise, and they are concerned about any future cash needs Michael might have. They would prefer to have Mark receive $120,000 now plus $110,000 per year for each of the next three years. Mark also would receive interest at a market rate on the outstanding debt. This alternative would qualify for installment reporting. However, the installment sale rules for related parties would apply.
The partnership could retire Mark interest. They have considered the option of paying Mark $150,000 now plus 50% of partnership profits for the next three years. Alternatively, they could arrange for Mark to have a $150,000 payment now and a guaranteed payment of $100,000 per year for the next three years. They expect that the dollar amounts to be received by Mark would be approximately the same for the next three years under these two options. Mark also would receive interest at a market rate on any deferred payments.
John Watson, a long-time friend of the family, has expressed an interest in buying Mark interest for $450,000 cash immediately. Michael and John are comfortable that they could work well together.
Mark has substantial amounts of money in savings accounts and in stocks and bonds that have a ready market. He has invested in no other business directly. Assume that, for each year, Mark ordinary tax rate is 33% and his capital gains tax rate is 18.8% (the 15% capital gain rate for his tax bracket plus the 3.8% rate on net investment income).
Prepare a memorandum summarizing the advice you would give the two brothers on the options that they have considered.

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