Partnership 3 - Transactions with Partners Flashcards
Is guaranteed pmt impacted by partnership income?
No.
How is guaranteed pmt taxed to the partner and what is the tax implication for the partnership?
Ordinary income.
Deductible by the partnership.
On which form is the guaranteed pmt reported?
On K-1.
What other taxes is that guaranteed pmt subject to?
Self-employment tax.
When is the guaranteed pmt assumed to be paid regardless of when the pmt was actually made?
On the last day of the partnership’s taxable year.
Question:
A has 25% interest, received $20,000 guaranteed pmt for the service. Net business income before guaranteed pmts: $80,000. Net LT capital gains: 10,000.
What amount of income should A report from the partnership on his tax return?
Ordinary business income: 80,000-20,000=60,000.
Total income reported = (60,000x25%) + 20,000 + (10,000x25%) = $37,500.
What is the treatment of recognized gains and losses when a partnership disposes of an asset with built-in gain or loss?
Question:
Asset contributed: FMV: 10,000 and AB: 7,000 (=BIG: 3,000).
The recognized G/L is allocated back to the contributing partner to the extent of the built-in G/L.
The first $3,000 gain on the sale must be allocated to the contributing partner.
What is the principle of built-in gains and losses also called?
Sec. 704(c).
What is the time limit of Sec. 704(c)?
No limit.
What’s the purpose of Sec. 704(c)?
Prevents TPs from using partnerships to transfer appreciation to other partners.
When are losses disallowed?
- Between a partnership and person owning more than 50% of capital or profits interest.
- Between 2 partnerships if same person owns more than 50% of capital or profits interest.
Related-party losses: what rule applies to determine the ownership interest?
Constructive ownership rule (which include family member ownership).
Question:
FAD partnership is a equal partnership.
F and D are father and daughter. F sells a business asset (AB: 12,000) for $8,000.
What are tax consequences?
What if FAD later sells the asset to an unrelated 3rd party for $10,000?
Father:
*Amount realized (8,000) - AB (12,000) = Realized loss (4,000).
As he owns more than 50% (67%) through constructive ownership rule, this whole loss is disallowed. However, this becomes “Right of offset” to offset any gain from the sale of this asset in the future.
*Amount realized (10,000) - AB (=what they paid 8,000) = Realized gain (2,000) - Right of offset (2,000) = Recognized gain ($0).
Remaining 2,000 right of offset disappear.
When can partners be considered as employees?
Never.
When do partners receive W-2?
Never.
