Chapter 3 & 4 - s corp and parnerships Flashcards
1
Q
S-corp formation
A
- similar to c corp:
- cash or property 80% or more (control)
- tax free to both
- carryover basis
- carryover holding period
- Services or < 80% (cash or property)
- taxable at FMV of stock
- wage expene for corp.
2
Q
Partnership formation
A
- cash or property
- tax free exchange
- carryover basis
- carryover holding period
- services
- taxable at FMV of services provided
- holding period:
- for cap assets or sec 1231: includes period held by partner
- all other property: when partnership interest acquired.
3
Q
S-corp basis
A
Initial basis
+/- % income/loss
muni bond interest
separately stated items
- dist. received
= net basis
4
Q
Partnership outside basis
A
initial outside basis
+/- % income/loss
muni bond int.
sep. stated items
- distributions
+ your % of PS liab.
- Liab. contributed to PS
= ending outside basis
5
Q
partnership capital (equity account)
A
- partnership assets minus liab.
- different than basis where it doesnt include partners share of liab.
- each partner’s account is accounted for on schedule k-1
6
Q
S- corp and partnership sep. stated items
A
- any amount that can hit a limit on your ind. tax return
- capital gains/losses
- section 1231 gains/losses
- section 179 dep. deduction
- rent and royalty income
- charitable contributions
- interest income on investments
7
Q
when partner’s basis reaches zero (can never go below zero)
A
- loss reducing basis below 0 not deductible
- cash distributions exceeding basis results in gain
- contributed asset subject to higher liab. results in gain.
8
Q
Guaranteed payments to partners
A
- payments not based on income/loss of partnership
- ex) services rendered or for the use of capital
- ordinay expense for partnership
- separately stated on sch. k-1 of partner receiving payment and included in ind. tax return
- payment received will be based on partnership tax year if partners tax year isnt same.
9
Q
Partnership tax year selection
A
- generally, same tax year as majority of partners
- can use diff if either:
- provides valid business purpose for alternate tax year
- section 444 election- no business reason needed, but no more than three months income deferral allowed.
- for ex. - normal is dec 31 (can use nov 30, oct 31, or sept 30)
10
Q
S corp dist.
A
- AAA - cumulative total undistributed net income for s corp
- AEP - E&P for c corp year (and never taxed to shareholders)
- order of taxation:
- AAA - not taxable
- AEP - taxable
- basis of stock - not taxable
- excess of dist of basis - capital gain
11
Q
Partnership dist. (non liquidating)
A
- cash dist.
- cash dist. - partner’s basis = gain
- property dist.
- basis of dist. asset in the hands of partner is reduced to equal the partner’s basis in partnership prior to dist.
- when receive both cash and property
- do cash first, the remainder is allocated to property
12
Q
Partnership dist (liquidating)
A
- partner’s basis must be reduced to 0 in all cases
- Cash, inv. and unrealized receivable dist.
- total - basis = gain
- property dist.
- basis in asset is always equal to partners basis before dist.
13
Q
Partnership termination
A
actual cash proceeds
+ debt relief
= amount realized
- partner’s basis (outside) (capital account + share of liab.)
= gain/loss
- ordinary gain/loss - inv. and receivables
- capital gain for everything else.
14
Q
when does partnership terminate?
A
- business and financial operations are discontinued
- reduced to one partner
- 50% or more of partnership interest change hand within 12 month period
15
Q
Health insurance premiums and other fringe beneftis for s corp
A
- paid on behalf of 2% or more shareholder- employee
- deductibe by s corp
- gross income for shareholder
- can be paid for family
