EA Part 2-Passkey 11-12 Partnerships Flashcards
Partnership
- unincorporated business with 2 or more members
- pass-through entity
- major advantage: not directly taxed on its income
- must have at least 1 general partner
A joint undertaking merely to share expenses is__
not a partnership
Form 8832
Form 8832 Entity Classification Election.
A domestic LLC with at least 2 members is classified as a partnership unless it files Form 8832 & elects to be treated as a corporation.
Organization that are prohibited from being classified as partnerships:
- joint-stock companies or joint-stock association
- insurance companies & certain banks
- government entities & certain foreign organizations
- any tax-exempt(nonprofit) organization
- any real estate investment trust (REIT)
- any trust or estate
- any organization that elects to be corp. by filing Form 8832
- corporation (although Corp. can be a partner is a partnership)
“Partnership Agreement” refers to any __
written document or oral agreement that bears on the underlying economic arrangement of the partners, including allocations of income, gain, loss, deductions & credits
A partnership agreement may be modified during the tax year and even after the tax year has closed, but not after __
the due date for filing its tax return, NOT including extensions.
A “natural business year” is a 12-month period where at least __% of ___
25% of total gross receipts are received in the last 2 months of the year.
A partnership may request a fiscal year that does not conform to the tax year of its partners, without a legitimate business purpose, by making a ___
section 444 election.
Every partnership must file a tax return unless __
it has no activity whatsoever (no income or losses during the year)
A partnership files on the 15th day of the __th month and may request a ___ month extension.
4th month (like individuals) 5-month extension
Form 7004
Form 7004 Automatic Extension of Time to File Certain Business Income Tax, Information or Other Returns
The IRS requires partnerships with more than ___ partners (K-1’s) to file their returns electronically.
100
The penalty for late filing is $__ per month, per partner, for up to __ months.
$195/mth/partner
12 months
Partners are not employees, therefore no withholding is taken out. General partners are considered to be __
self-employed and thus must pay estimated payments.
Limited partners are subject to self-employment tax only on __
guaranteed payments, such as salary and professional fees for services rendered.
A limited partnership (LP or LLP) is formed under _
state limited liability law. They usually offer professional services (attorneys, doctors, etc.). LLP protects individual partners from liability for malpractice of other partners.
A capital interest in a partnership is an interest in its assets that is __
distributable to the owner of the interest if
- the owner withdraws from the partnership or
- the partnership liquidates.
Family members will be recognized as partners only if either the __
- family member treats the activity a bona fide business activity; actually controls their interest
- or some capital or service is provided by each partner & they have agreed to share in profits
A loss on the sale or exchange of property between related persons is not deductible. An individual is considered as also owning __
the partnership interest directly or indirectly owned by his family (brothers, sister, spouses, ancestors, descendants)
For a husband & wife to be a “qualified joint venture,” both spouses must
1) materially participate
2) be the only members in the venture
3) file a joint tax return
Form 4562 Depreciation and Amortization is used to elect to __
amortize or capitalize start-up and organizational costs over 180 months. Election irrevocable.
Guaranteed payments are generally deducted on Form __
1065 as a business expense and reported on Schedule K-1.
The partner who receives a guaranteed payment reports the full amount as __
ordinary income on Schedule E/Form 1040 for the tax year in which the partnership tax year ends.
Guaranteed payments are not subject to __
income tax withholding.
When a partner contributes property to a partnership, the partnership’s basis is generally __
the same as the adjusted basis of the partner, including any gain recognized by the partner in connection with the contribution.
If a partner receives a capital interest as compensation for services, the partner must __
recognize ordinary income equal to the FMV of the partnership interest that is transferred in exchange for services. Treated as a guaranteed payment.
“Outside basis”
Refers to a partner’s basis in his partnership interest .
“Inside basis”
A partnership’s basis in its assets
Items that increase a partner’s basis in the partnership are a partner’s ___
+additional cash contributions to pshp
+increased liabilities
+increased share (or assumption of) pshp liabilities
+distributive share of pshp income
+distributive share of the excess of the deductions for depletion over the basis of the depletable ppt
Items that decrease a partner’s basis in the partnership:
- money & adj basis of ppt distributed to the partner by the pshp
- partner’s distributive share of pshp losses
- partner’s distributive share of nondeductible pshp expenses that are not capital expenditures; 179 expenses
- partner’s deduction for depletion for any oil & gas wells
In a constructive liquidation, the following events are treated as occurring at the same time:
- all pshp liabilities become payable in full
- all pshp assets have $0 value, except for ppt contributed to secure a liability
- all ppt is disposed of in a fully taxable transaction for no consideration
- all items of income, gain, loss or deduction are allocated to the partners
- the pshp liquidates
Because a pshp is a flow-through entity, each partner is taxed on his distributive share of income, whether or not __
it is actually distributed.
Any gain or loss on a sale or exchange of unrealized receivables or inventory items a partner received in a distribution is treated as __
ordinary income or loss.
If inventory held for more 5 years, gain would be capital gain, provided inventory was a capital asset at time of sale
A partner cannot have a negative partnership basis. If a partner has distributions that exceed his adjusted basis during any tax year, the excess is __
generally treated as a capital gain to the partner.
Any partnership losses and deductions that exceed the partner’s basis may be carried forward __
indefinitely until the partner’s basis in the pshp increases.
A partnership interest is a capital asset, which typically means __
any gain or loss on the sale or exchange of a pshp interest is treated as a capital gain or loss.
A partnership liquidation happens when
– a pshp dissolves or stops doing business; a partner can die, or a partner drops out of the business
A partnership terminated when one of these events takes place:
1) all operations are discontinued
2) at least 50% of the total interest in pshp capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner
If a partner pay any part of an insolvent partner’s share of debts, –
he can take a bad debt deduction.
No deduction of a loss is allowed if a sale or exchange between two partnerships in which the same persons directly or indirectly own more than __
50% of the capital or profits interests in each partnership.
