Chapter 4 Flashcards
How is a partnership created?
Informally because all the partners have unlimited liability.
How is cash/property contributed to a partnership treated?
The basis/ holding period will transfer to the partnership and there is no 80% rule.
How are services contributed to a partnership treated?
At FMV.
For which assets will holding period carry over to a partnership?
For capital assets and 1231 assets. For all other properties, the period is when the partnership interest was acquired.
How is a guaranteed payment treated for the partnership and the partner?
It is an ordinary expense for the partnership and ordinary income to the partner. It is subject to SE tax to the partner and also separately stated for the partner.
What is Basis in Asset Received?
When a partnership gives a partner an asset.
What happens when a limited partner dies?
The interest is readily transferable and does not terminate the partnership.
What does a limited partnership require?
At least one general partner and one limited partner, with the GP having unlimited liability.
What is the proper order of distributed assets?
Cash, unrealized depreciation recapture income, unimproved land.
Owners of LLC’s are referred to as what?
Members
What are the 3 basic rights of a partner?
1) profit/interest rights 2) property rights 3) participation/management rights
When would a general partnership fall under the statue of frauds?
If it’s 1) real estate 2) agreement is over a year
When would an oral agreement be okay with a general partnership?
When the statute of frauds doesn’t apply
What is apparent authority?
The authority that a good faith 3rd party reasonably assumes you have
Who is principle and agent in a general partnership?
Partnership is the principle and partner is the agent
A partner is liable for what?
Unlimitedly liable for contracts, debts, and torts
What is a new partner liable for?
Up to capital contribution on the old debt. On new debt, they are unlimitedly liable
What type of partnership is formally created?
A limited partnership
What rights does a limited partner have?
Interest/profit rights, vote on certain actions, and the right to look at the books and records
When does an entity have to be formally created?
When someone has limited liability
How are profits/losses distributed in an LP?
Based on capital investment, unless otherwise stated
When would a partner recognize gain?
When cash received or debt relief exceeds partner’s basis
What will the at-risk provisions limit?
A partner’s deduction for their share of partnership losses
When would a partner recognize a loss?
When basis exceeds assets received in a liquidating distribution
