Chapter 14 Dash Taxation Of Partners & Partnerships Flashcards
Two or more persons as co-owners of a business form profit.
partnership
The actual partnership do not pay taxes because…
it flows through to the partners, based on the partnership agreement
What is used to determine a partner’s distributive share of income from a partnership?
written agreement
Partnerships is a good way to avoid…
double taxation of dividends.
The duty of the partners is to act with…
reasonable care.
Partnerships have (limited or unlimited) liability.
unlimited liability
Partnerships can easily be created with little…
cost.
Partnerships can be dissolved upon the death of a…
partner.
Partnerships lacks the ________________ of a corporation.
centralized management
Partnerships are sometimes difficult when transferring…
partnership interest.
A “limited partnership” must have at least one ___________ and one _____________.
general partner
limited partner
“Limited partnership” are typically created to…
raise capital for a business venture.
“Limited partnership” cannot manage the…
business.
“Limited partnership” have limited…
liability. (You’re only losing the money you invest)
A “limited partnership” death ______ dissolve the partnership.
cannot
This theory is when the IRS recognizes a partnership as a separate entity.
entity theory
A partnership must file a tax return for…
information purposes only.
Partnerships can have their own ________________ and taxable year.
accounting method
Partnerships can make various ___________ on their income taxes.
elections
Under this theory, the partnership is a conduit (flow through) and is not a separate entity.
aggregate theory
Under the aggregate theory, partners are in business together to share…
gains and losses.
The partner’s share of income must have substantial economic effect, otherwise the IRS may adjust the…
allocation percentage.
Payment made to a partner regardless of whether the partnership has income (similar to a salary).
guaranteed payments
“Guaranteed payments” are taxable to the individual partner as…
ordinary income.
Do “guarantee payments” affect a partners basis?
No
The contribution of money or property to a partnership, in exchange for partnership interest, is a ______________ transaction.
non-taxable
A partners basis begins with contributions and is subsequently adjusted by…
earnings and losses.
When cash is contributed to the partnership, each partner has a basis in the partnership interest equal to the…
value of the cash.
When a partner transfers property to a partnership in exchange for an ownership interest, is there a gain or loss recognized?
gain or loss.
If a partner contribute services to a partnership in exchange for a partnership interest, the partner must recognize compensation income equal to…
the value of the services.
If a partnership assumes the liabilities of an individual partner (like a mortgage), the partner’s basis will be…
reduced.
If I assume the partnership’s liabilities (like a mortgage), my basis will…
increase.
Your basis as a partner will increase when these three things happen.
- When partners contribute capital
- Other partner’s partnership income
- When other partners share the liabilities assumed
Your basis as a partner will decrease when these three things happen.
- Distributions made to me as a partner (return of basis)
- Partners distributive share of losses and nondeductible current expenditures.
- Partners share of liabilities relieved (paid or assumed by the partnership).
A partnership where members are related through blood or marriage.
family partnership
Family partnerships are sometimes form solely to shift income between a family unit in order to…
minimize taxes.
The IRS pays close attention to family partnerships because there is a lot of room for…
abuse.
If a family partnership lax economic reality (bullshiting), the IRS may ignore the partnership agreement and will reallocate income to…
properly reflect the entrance of the family partners.
A family member will be recognized as a partner only if the partnership capital interest was acquired in a…
bona fide transfer.
gift or inheritance can be considered bona fide
Capital must be a _________________ factor for the partnership in order for a family member to be recognized as a partner.
material income-producing
If capital is not a material income-producing factor for a family partnership, then the interest will only be recognized if a family member contributed substantial…
services to the partnership.
When a partner dies or retires, their partnership interest is…
liquidated.
Without a written agreement, sometimes death of the general partner may…
dissolve the partnership.
This type of partnership is where capital is not a material income-producing factor.
service partnership
The portion of a “sale of partnership interest” proceeds which represent the partner’s share of the potential gain on ______________ items is taxable as __________.
inventory
ordinary income
The portion of a “sale of a partnership interest” proceeds that represents ___________ maybe taxable to a partner as either capital gain or ordinary income.
goodwill
