Chapter 4 Section 2: Partnership Taxation Flashcards
In general, is the formation of a partnership taxed?
What’s the exception?
No - no G/L
Interest acquired for services rendered (FMV)
Property subject to excess liability
What do your liabilities assumed by others do to your basis?
What does assuming other peoples’ liabilities do to yours?
Decrease
Increase
What’s the holding period for assets contributed to the partnership?
Use the old owner’s holding period.
What does special allocation of contributed appreciated property mean?
When a partner contributes property with a FMV higher or lower than the NBV, a built-in gain/loss exists. Upon the subsequent sale of the property, the built-in gain/loss is allocated to the contributing partner
What’s the basis of property contibuted to a partnership?
NBV or debt assumed
What does inside basis mean?
Basis the partnership has in the asset it owns.
What does outside basis mean?
The basis a partner has in their ownership interest in the partnership.
What goes into a partner’s basis?
Capital account + partner’s share of liabilities.
What is the partnership tax return form?
1065
When does a partnership terminate?
Operations cease
50% or more of the interest is sold within any 12 month period
There are less than 2 partners
For a transaction between a partner and partnership, what do you do with gains and losses?
Loss is not allowed (related party in WRAP)
Gain is ordinary
What portion of their distributive share of partnership income needs to be included in their 1040?
All of it, even if it hasn’t been distrbuted
What are partnership losses limited to on the 1040?
The partner’s at-risk basis (excludes nonrecourse loans)
Define guaranteed payment
Are they deductible?
Reasonable compensation paid to a partner for services rendered or use of capital without regard to his ratio of income.
Yes, they’re deductible to the partnership, and taxable income to the partner
What are syndication costs?
Are they deductible?
They are the cost of raising money
They are not deductible
Are nonliquidating distributions taxable?
Usually not
By what amount do you reduce a partner’s basis when there are nonliquidating distributions?
NBV (nontaxable)
What are the three ways to liquidate a partnership interest?
Complete withdrawal
Sale of partnership interest
Retirement or death
What gain do you recognize in a liquidating distribution?
Only to the extent that money received exceeds the partner’s basis
Do you recognize a gain on the sale of partnership interest?
What’s the exception?
Yes - usually capital
If the gain arises from the sale of hot assets, it’s ordinary
Define hot assets
Unrealized (cash basis) receivables
Appreciated inventory
Recapture income regarding depreciable assets
