M2 Partnerships: Part 1

Question 1

Partnership Formation. General rule for contribution of property

Answer 1

General Rule = NOT TAXABLE, keep NBV

Question 2

Partnership Formation. Rule for contribution of services for a PROFIT INTEREST

Answer 2

FMV = 0 * so no tax recognized

Question 3

Partnership Formation. Rule for contribution of services for a CAPITAL INTEREST

Answer 3

Taxable Gain at FMV - ordinary income

Question 4

Partnership Formation. Contribution of property subject to an excess liability

Answer 4

Excess of liabilities over the basis treated as taxable “boot” and is a gain to the partner

Question 5

Basis of contributing partner’s interest

Answer 5

Initial Basis
\+Cash	
\+Property (NBV)
 assumed by OTHER partners (amount = the other partners’ combined interest)
\+Services (FMV) 
\+Liabilities assumed by the incoming partner
-------------------------
Ending Basis

Question 6

Basis of contributing partner. In a partnership, subtract only which liabilities?

Answer 6

the percentage assumed by the OTHER partners

Question 7

Basis. When there is a built-in gain or loss from contribution of property, when it is sold, this gain or loss that existed when contributed is allocated how?

Answer 7

SPECIALLY allocated to the contributing partner

Question 8

Basis. What is the partnership’s basis for contributed property?

Answer 8

GREATER OF NBV or Debt Assumed

Question 9

Partner Basis Formula

*Remember the difference between capital account and partnership basis (basis includes the partner’s share of liabilities)

Answer 9

Beginning Capital Account (Cash, FMV Services, NBV assets - liability)
+%All Income (Ordinary, capital, and tax-free)
- % ALL Losses (up to zeroing out his/her basis)
-Withdrawals (like a bank account = nontaxable = NBV)
———————————–
Ending CAPITAL account
+% of Liabilities (recourse and nonrecourse)
——————————–
Ending Basis

**Basis = Capital account PLUS Partner’s share of liabilities

Question 10

Partnership Accounting Period General Rule (type and due date)

Answer 10

Calendar year end (December 31)

Due March 15

Question 11

Partnership Terminates when (2)

When is termination date?

Answer 11

• If operation cease
• If 50% or more change in total partnership interest (deemed distribution = NON TAXABLE)

*DATE of event

Question 12

Two Effects of a TECHNICAL termination

Answer 12

NONTAXALBE = NBV (50% or more change occurred or operation ceases)

1) Deemed distribution to the remaining partners and purchaser
2) Hypothetical re contribution of assets to a new partnership
* Basically closed an old account and opened a new one, that’s why not taxable

Question 13

Transactions Between Partner and Partnership:
Losses -
Gains -

Answer 13

Losses - Related Party Losses DISALLOWED (wRap)

Gains - taxable as ordinary income