Your partner determines his gain completely separate from the LLC.
From your facts, it appears that you are going from a two member LLC to a single member LLC. If this is correct, take a look at IRS Revenue Ruling 99-6. You are situation 1 if my assumption is correct.
https://www.irs.gov/pub/irs-drop/rr-99-6.pdf
What's happened here is that you paid more for his LLC units than what his inside basis (capital account) is. Essentially you paid some goodwill.
Let me know whether my assumption is correct. I will then provide some additional guidance.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
