Partnership Abel, Benz, Clark & Day is in the real estate and
insurance business. Abel owns a 40% interest in the capital and
profits of the partnership, while Benz, Clark, and Day each owns
a 20% interest. All use a calendar year. At November 1, 2012, the
real estate and insurance business is separated, and two partnerships
are formed: Partnership Abel & Benz takes over the real
estate business, and Partnership Clark & Day takes over the insurance
business. Which one of the following statements is correct
for tax purposes?

(a) The requirement is to determine the correct statement
concerning the division of Partnership Abel, Benz, Clark, &
Day into two partnerships. Following the division of a partnership,
a resulting partnership is deemed to be a continuation of the
prior partnership if the resulting partnership’s partners had a
more than 50% interest in the prior partnership. Here, as a result
of the division, Partnership Abel & Benz is considered to be a
continuation of the prior partnership because its partners (Abel
and Benz) owned more than 50% of the interests in the prior
partnership (i.e., Abel 40% and Benz 20%).