Module 3: Partnerships: Part 2

Question 1

For the partner to deduct tax losses generated by a partnership, what hurdles must it pass?

Answer 1

1. Tax basis
2. At-risk amount
3. Passive activity

Question 2

What are the carryover periods for tax losses?

Answer 2

• Any unused loss resulting from tax basis limitations can be carried forward
• Any unused loss resulting from at-risk limitation can be carried forward until partner generated additional at-risk amounts
• Any unused loss resulting from passive activity limitation can be carried forward until additional passive income can be generated to absorb loss

Question 3

Define guaranteed payments?

Answer 3

Reasonable compensation paid to partner for services rendered or use of capital w/out regard to partner’s ratio of income

Allowable tax deduction to partnership and income to partner

Question 4

What elections that affect calculation of taxable income are made by the partnership?

Answer 4

• org. expenditures and star-up costs
• acct methods
• tax year
• depreciation methods
• elections out of installment sale treatment
• section 754 election for optional basis adjustment of partershi passets

Question 5

The basis of distributed property assigned may not exceed what?

Answer 5

The basis of a partner’s entire interest in the partnership (reduced by the amount of cash distributed in the same transaction)

Question 6

How is the distribution of property treated if the basis in the partnership > BV of the asset?

Answer 6

No gains recognized b/c partner’s basis in partnership reduced by NBV of property distributed

Question 7

How is the distribution of property treated if the basis in the partnership < BV of the asset?

Answer 7

No gain recognized
Partner’s basis in partnership cannot go below zero

Partner’s basis in asset = basis in partnership

Question 8

When is gain recognized on a distribution?

Answer 8

Only to the extent that cash (including partnership liability assumed by partner) distributed exceed the adjusted basis of the partner’s interest in the partnership

Question 9

What is a limited partnership?

Answer 9

Like a general partnership but with general partners and limited partners

Question 10

What are the liability limits for general partners and limited partners?

Answer 10

General = unlimited liability for debts and obligations
Limited = liability limited to total amount of their investment

Question 11

What is a limited liability company?

Answer 11

A separate legal entity from its owners

Members not personally liable

Question 12

Who makes the election of the method used to depreciate partnership property?

Answer 12

Under the entity theory, the partnership elects the depreciation method to be used and may use any method approved by the IRS

Question 13

How is ordinary income (Net income/loss) of a partnership calculated?

Answer 13

Business income

= Net business income/loss

Question 14

What are separately stated items?

Answer 14

Charitable contributions
Dividend income
Capital gains/losses
Net "active" or "passive" rental real estate income/loss
Interest Income
Section 179
Investment interest expense

Question 15

What are guaranteed payments under the IRC?

Answer 15

Payments to partners for services rendered or the use of capital without regard to partnership income

Question 16

In a nonliquidating distribution, when would a gain be recognized (exception to general rule)?

Answer 16

Only to the extent that cash (including the partner’s share of partnership liabilities are assumed by other partners) distributed exceeds the adjusted basis of the partner’s interest in the partnership