Partnership

Question 1

Partnership interest

Answer 1

Is capital asset
When sale in CG/L, OI must be reported to extent of selling partner’s share of unrealized receivables and Inventory.
If there are no hot assets,
Amount realized= cash received + relief debt
Recognized CG/L= Amount realized - Basis of partnership interest

Question 2

Separate tax items in sch K and allocated to each partner in K1

Answer 2

Capital gain or losses
Sec 1231 G/L
Charitable contributions
Foreign income taxes
Sec 179 exp deduction
Interest, Div, & Royalty income
Interest expense on investment indebtedness
Net income/loss from rental real estate activity
Net income/loss from other rental activity

Question 3

Ordinary income and deduction in Partnership

Answer 3

Sales
COGS
Business exp: wages, rents, bad debts& repairs
Guaranteed pmt to partners
Depreciation
Amortization (180m) org or start up exp
Sec 1245, 1250 recapture

Question 4

Formation of partnership

Answer 4

No gain or loss recognized by a partner when contribute property to exchange for partnership interest

BASIS of INTEREST=basis of contributed property (except when boot is received or liab assumed)

Partner recognized income when contribute service in exchange for interest at FMV of service

Holding period =partner property holding period

Question 5

Passive activity loss limitations

Answer 5

Deductible only to the extent of the partner’s income from other passive activities

Passive activity: any trade business that partner not materially participate and rental activity

To qualify for 25000 deduction for active participation in rental restate activity, a partner must own at least 10%of partnership interest

Question 6

Guaranteed payments

Answer 6

Pass through partner on the last day of the partnership’s tax year

Partner’s fringe benefits are deductible by the partnership as guaranteed pmt and must be included in partner’s gross income

Question 7

Partner’s basis is

Answer 7

INCREASED by distribution of
+partnership ordinary income
+CG/L and other special income items
+tax exempt income of partnership

DECREASED by:
+ $ and AB of other properties distributed to other partner
+partnership Ordinary loss and special exp
+ amount partner’s deduction for depletion on oil& gas

Question 8

Changes in liabilities effect:

Answer 8

Partnership’s liability:
+increased when partner’s basis increases ( increase AP, partnership borrow loan)
+decrease if pay off loan

Partner’s liability:
+increased when assumed liab by partner is considered as contribution to partnership
+decreased when assumed liab by partnership is considered as distribution to partner

Question 9

Transactions with controlled partnerships

Answer 9

NO LOSSes are deductible from sale or exchange between a partnership with partner owned >50% of partnership interest

If transactions between a person related to a partner owned

Question 10

Sale or exchange of property between partnership and partner who owns

Answer 10

+ >50%interest in the partnership, Loss is disallowed

+Capital loss is recognized based on FMV and cost of property