No, the buyout is not a partnership transaction other than the change in ownership. The sale involved the individual investors and should not have involved partnership funds.
For the period 1/1/22 through the day before the sale 12/15/22, the partnership had three partners with no change in ownership or profit/loss allocations. From 12/16/22 through the end of the year, there were two partners with adjusted ownership and profit/loss allocation percentages.
The Partnership Agreement governs how this transaction might affect income/loss allocations. In general, no change would be made prior to the change in ownership. After the sale, only the remaining partners receive income.
In TurboTax, report the change of ownership under Business Info >> About Your Business >> Has an Ownership Change = Yes.
Under Partner/Member Information, you will need to check the box for "This member left the company this year" for the partner who was bought out.
TurboTax will prompt you for the date of the ownership change and the profit/loss percentages after the change. Be sure the new percentages total to 100%.
TurboTax uses a weighted average based on days of ownership to allocate profit/loss to the members. Be sure you review the final allocations that are summarized on the Schedule K Reconciliation worksheet. Because the change in ownership occurred late in the year, the difference in income allocations may be less than you expected.
In summary, the purchase price is not reported on the partnership return. All partners will receive an income allocation for the year based on the days of ownership. TurboTax will report this change in ownership as required by the IRS.
Note that the remaining partners will need to adjust their "outside" basis, which is their total investment in the partnership, for the purchase of the third partner's share. This affects the partner's own records of the investment, not the information held within the partnership, and may not be the same as the balances shown on Schedule K-1 Part II Section L (if included).
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