in my opinion that goodwill they booked had a zero tax basis and should never have been booked. your tax basis is what you paid +/- the income and expenses reported on the k-1s over the years. since they booked GW they could have amortized it for book purposes but it would have had no effect on your tax reporting since its tax basis is zero. when you bought out those two partners you paid more or less than the tangible value of their interests (ignoring that old goodwill) say you paid 60K when the tax basis of their share of the assets was 50K in effect you paid 10K in goodwill eligible for amortization. at this point your tax basis would be your partnership basis + what you paid then to buy out their interests. then you sold approxomately 50% of the business which would result in a recognized gain of proceeds less a portion of the amount you paid for goodwill when you bought out the partners. now your tax basis is the partnership basis+ what you paid the partners less a reduction for the tax basis in the portion of goodwill sold. you can write off the original goodwill but because it has zero tax basis you get no deduction. what you have is a tax basis that probably exceeds the tax basis of the net assets. should you sell the business for less than your tax basis you will have a capital loss
here's an example of how things could have been recorded when you originally bought in. say the FMV of the entity is $90K and your getting a 1/3 interest so you pay $30K debit cash $30K credit your capital account
$30K. now let's say their capital accounts were $15K each so now the partnership has $60K in net assets (your $30K plus $15K for each of them) that's $30K short of FMV so they debit Goodwill $30K and credit each of their capital accounts $15K. That $30K is purely a bookkeeping entry that has a zero tax basis. your tax basis after this is $30K and theirs is still $15K each.
