Company consolidating general interest investment partnership
They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor.
The fair market value of the purchased interest is considered donated capital. Of the remaining ,000 of profit due to capital, at least 50%, or ,000, must be allocated to the father since he owns a 50% capital interest.
Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040).
For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (that is, based on their respective interests in the venture).
Unlike other partnerships, an electing large partnership doesn't terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period.
See section 1.708-1(b) of the regulations for more information on the termination of a partnership.