Partnership,Estate,Trust Flashcards
Partnership,Estate,Trust
Partnership( Form 1065 ) deducts guaranteed payments in calculating net business income
Partners report guaranteed payments received as ordinary income
Partnership:
Calendar year or elect fiscal year
however, the fiscal year election cannot defer partner income more than 3 months
Partner’s Basis in Partnership Interest
\+Partner’s investment \+ All income items \+Increases to partner’s share of debt -(Decreases to partner’s share of debt) -(Losses and deductions) -(Distributions) =Partner’s basis
Losses deducted only to extent of partner’s adjusted basis
Basis can never go below zero
M exchanges land for a 30% interest in partnership.
FMV of land $100,000 Monette’s basis in land 5,000
a. M’s initial basis in partnership interest $ 5,000
b. M’s taxable gain $ 0
c. Partnership’s basis in land $ 5,000
M exchanges mortgaged land for a 30% interest in partnership.
FMV of land $100,000
M’s basis in land 75,000 Mortgage on land 50,000
a. M’s initial basis in partnership interest
M’s basis in land $ 75,000 M’s 30% share of partnership debt 15,000
M’s debt relief (50,000)
M’s initial basis in partnership interest $ 40,000
M exchanges mortgaged land for a 30% interest in partnership.
FMV of land $100,000
M’s basis in land 75,000 Mortgage on land 50,000
b. Monette taxable gain
c. Partnership’s basis in land
b. M’s taxable gain= $ 0
(Net debt relief to Monette of $35,000 [$15,000 - $50,000] does not exceed his basis in contributed land)
c. Partnership’s basis in land $ 75,000
M exchanges mortgaged land for a 30% interest in partnership.
FMV of land $ 100,000 Monette’s basis in land 25,000
Mortgage on land 50,000
a. M’s initial basis in partnership interest
M’s basis in land $ 25,000
M’s 30% share of partnership debt 15,000
M’s debt relief (50,000)
M’s taxable gain 10,000
M’s initial basis in partnership interest $ 0
M exchanges mortgaged land for a 30% interest in partnership.
FMV of land $ 100,000 Monette’s basis in land 25,000
Mortgage on land 50,000
b. M’s taxable gain
$ 10,000 (Net debt relief to Monette of $35,000 [ $15,000 - $50,000 ] exceeds his basis in contributed land)
c. Partnership’s basis in land
M’s basis in land $ 25,000
M’s taxable gain 10,000 Basis of land to partnership $ 35,000
Exchange Services for Partnership Interest
Fair market value of partnership interest is ordinary income to partner
Related Party: A partner who owns more than XX% interest in a partnership
Related Party: A partner who owns more than 50% interest in a partnership
Related Party Transactions
Loss:
Gain:
Loss: Loss is DISALLOWED
Gain: any gain is ordinary income
Nonliquidating (Current) Distributions
- Gain
- Losses
- Gain
a. Generally, reduces partner’s basis in partnership
b. Gain recognized only if cash or debt relief received exceeds partner’s basis - Losses never recognized
Partner receives nonliquidating distribution of $10,000 cash and land with a FMV of $100,000 and a basis to the partnership of $8,000.
Partner’s basis in partnership interest $ 25,000 Cash distribution (10,000) Partner’s adjusted basis in partnership interest $ 15,000 Partner’s basis in land (Lower of partner’s basis in partnership interest or partnership’s basis in land (8,000) Partner’s remaining basis in partnership interest $ 7,000
Partner receives nonliquidating distribution of $10,000 cash and land with a FMV of $100,000 and a basis to the partnership of $20,000.
Partner’s basis in partnership interest $ 25,000 Cash distribution (10,000) Partner’s adjusted basis in partnership interest $ 15,000 Partner’s basis in land (Lower of partner’s basis in partnership interest or partnership’s basis in land (15,000) Partner’s remaining basis in partnership interest $ 0
Gain cannot be recognized as land is distributed in this case.
Liquidation (Complete Distribution)
- Taxable gain if cash received or debt relief exceeds partner’s basis
(NO PROPERTY causes gain/loss) - Loss recognized if cash received or debt relief is less than partner’s basis, and partner receives no other property
Partner has a basis of $25,000 and receives cash and land in a complete liquidation.
Cash distribution $ 10,000 Basis of land to partnership 8,000
FMV of land 100,000
Partner’s basis in partnership interest $ 25,000 Cash received (10,000) Partner’s remaining basis in partnership interest is Partner’s basis in land $ 15,000
In complete liquidation, balance will be zero
Partnership Termination
- Dissociation
- Liquidation
- Dissociation:50% or more of partnership interests are sold or exchanged within 12 months
- Liquidation:Operations cease
Estate tax
- Transfer tax
- Income tax
- Transfer tax
a. Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return
b. Tax based on fair market value of estate - Income tax
a. Form 1041, U.S. Income Tax Return for Estates and Trusts
b. Tax based on income earned while a going concern
Gross Estate: Fair market value
- Life insurance proceeds
- Income in respect of decedent (IRD): Anything payable to estate
a. Salaries
b. Rents
c. Royalties
d. Dividends - Incomplete gifts
- Revocable transfers
- Property jointly held with
a. Spouse: 50% included in gross estate
b. Other Party: 100% included in gross estate, less the other party’s investment
1040 “last 1040 of the life’
1041 income from going concern
706 estate tax
medical exp-1040 or 706
Nondiscretionary Deductions
Funeral expense
Administrative expense
can be deducted from 706
Discretionary Deductions
- Charitable bequests (unlimited)
- Marital deduction (unlimited)
- Charitable bequests (unlimited) requires will
2. You can give estate to children but that cannot be deducted
- Testamentary Trust:
2. Inter Vivos Trust:
- Testamentary Trust: Created by a will
2. Inter Vivos Trust: Created during lifetime
Simple Trust
a. All income must be distributed each year
Complex Trust
Simple Trust:
All income must be distributed each year
Complex Trust:
Anything else
Tax Year
a. Trust:
b. Estate:
Tax Year
a. Trust: Calendar year
b. Estate: Fiscal or calendar year(because we cannot tell when people dies)
Exclusion: Donors may exclude from tax $14,000 of gifts to each donee annually
Husbands and wives may split gifts and double the exclusion
Gift given over $14,000 per year per donee will
reduce unified credit $45,000
Unlimited Exclusion
Unlimited Exclusion
- Spouse
- Charities (60% to AGI)
- Paid directly to
a. Educational institutions for tuition (not books or room and board)
b. Health care provider for medical care - Political contributions
The method used to depreciate partnership property is an election made by
The partnership and may be any method approved by the IRS
The method used to depreciate partnership property is an election made by
The partnership and may be any method approved by the IRS
offering materials
is not organization cost
guaranteed payment
be paid without regard to partnership income
The partnership of Marks & Sparks sustained an ordinary loss of $42,000 in Year 1. The partnership, as well as the two partners, are on a calendar-year basis. The partners share profits and losses equally. At December 31, Year 1, Marks had an adjusted basis of $18,000 for his partnership interest, before consideration of the loss. On his Year 1 individual tax return, Marks should deduct an (a)
Ordinary loss of $18,000
remaining $3,000 is carried forward forever
loss is picked up only up to his/her basis
Passive loss can be taken only up to
passive income
B contributed land to form Partnership. the land’s basis is $36,000 which is subject to
an $18,000 mortgage that was assumed by Partnership.
B’s initial basis in the partnership is
36,000-(18,000*50%)=
27,000
Storm acquired a 25% interest in Ace Partnership by contributing land having an adjusted basis of $32,000 and a fair market value of $100,000. The land was subject to a $48,000 mortgage, which was assumed by Ace. No other liabilities existed at the time of the contribution. What was Storm’s basis in Ace?
32,000-(48,000*75%)= -4,000
basis won’t go negative.
S’s basis in Partnership is 0.
S’s taxable gain is 4,000
A’s basis of the land is
32,000+4,000 = 36,000
Don and Lisa are equal partners in the capital and profits of Sabal & Noel, but are otherwise unrelated. The following information pertains to 300 shares of Mast Corporation stock sold by Lisa to Sabal & Noel:
Year of purchase Year 0
Year of sale Year 3
Basis (cost) $8,000
Sales price (equal to fair market value) $3,000
The amount of long-term capital loss that Lisa realized on the sale of this stock was
$5,000
it’s OK as Lisa owns just 50% share and she is not a majority
Kade owns an 85% interest in the capital and profits of Ante Antiques, a partnership. In Year 3, Kade sold an oriental lamp to Ante for $6,000, Kade bought this lamp in Year 1 for her personal use at a cost of $1,000 and had used the lamp continuously in her home until the lamp was sold to Ante. Ante purchased the lamp as inventory for sale to customers in the ordinary course of business. What is Kade’s reportable gain in Year 3 on the sale of the lamp to Ante?
$5,000 ordinary income
K bought the lamp as inventory to sale> this cannot be capital gain
(MR CIA are not capital asset)
The adjusted basis of Todd’s partnership interest was $45,000 immediately before Todd received a current distribution of $15,000 cash and property with an adjusted basis to the partnership of $40,000 and a fair market value of $35,000.
What amount of taxable gain must Todd report as a result of this distribution?
$0
for 45,000 USD basis,
first cash portion of 15,000 USD is deducted.
remainder 30,000 USD basis cannot be minus by receiving 40,000 USD land.
Todd’s basis in the distriuted property is 30,000 USD, remainder 10,000 USD is non taxable.(will be gone)
Gain can be recognized in non-liquidating distribution only when
cash be distributed higher than partner’s basis (PRETTY RARE)
The basis to a partner of property distributed “in kind” in complete liquidation of the partner’s interest is the
Adjusted basis of the partner’s interest reduced by any cash distributed to the partner in the same transaction
On December 31, after receipt of his share of partnership income, Clark sold his interest in a limited partnership for $30,000 cash and relief of all liabilities. On that date, the adjusted basis of Clark’s partnership interest was $40,000, consisting of his capital account of $15,000 and his share of the partnership liabilities of $25,000. The partnership has no unrealized receivables or substantially appreciated inventory. What is Clark’s gain or loss on the sale of his partnership interest?
Capital gain of $15,000
Cash 30,000+COD 25,000-his interest 40,000=15,000
Partnership’s assets:
Cash $ 102,000
Unrealized AR basis:none FMV: 420,000
Totals basis:$ 102,000 FMV:$ 522,000
liability and capital:
Note payable basis & FMV $60,000
3 partners’ capital basis:$14,000 FMV: &154,000
Totals basis:$ 102,000 FMV:$ 522,000
C, an equal partner, sold his partnership interest to D, an outsider, for $154,000 cash on January 1, Year 2. In addition D assumed C’s share of the partnership’s liability.
What was the total amount realized by C on the sale of his partnership interest?
Cash $154,000+COD (60,000/3) = 174,000
Partnership’s assets:
Cash $ 102,000
Unrealized AR basis:none FMV: 420,000
Totals basis:$ 102,000 FMV:$ 522,000
liability and capital:
Note payable basis & FMV $60,000
3 partners’ capital basis:$14,000 FMV: &154,000
Totals basis:$ 102,000 FMV:$ 522,000
C, an equal partner, sold his partnership interest to D, an outsider, for $154,000 cash on January 1, Year 2. In addition D assumed C’s share of the partnership’s liability.
What amount of ordinary income should C report in his Year 2 income tax return on the sale of his partnership interest?
Cash $154,000+COD (60,000/3) = 174,000
174,000-(14,000+20,000)=140,000
As there are Unrealized AR in the asset,
this gain will be ordinary income.
If there are no hot assets,
this gain becomes capital gain.
Gain is recognized by the partner who receives a nonliquidating distribution of property, where the adjusted basis of the property exceeds his or her basis in the partnership interest before the distribution
False
Gain is recognized in non-liquidating distribution only when cash larger than partner’s basis is distributed.
Income in respect of a cash basis decedent
Covers income earned before the tax payer’s death but not collected until after death
1041: fiduciary income tax return aka estate income tax return(to going concern)
706: estate tax return
Within how many months after the date of a decedent’s death is the federal estate tax return (Form 706) due if no extension of time for filing is granted?
9 months
Abby and Tom Kehls, both U.S. citizens, are married. All of their real andpersonal property is owned by them as tenants by the entirety or as joint tenants with right of survivorship. The gross estate of the first spouse to die
Includes 50% of the value of all property owned by the couple, regardless of which spouse furnished the original consideration
Proceeds of a life insurance policy payable to the estate’s executor, as the estate’s representative, are
Always includible in the decedent’s gross estate
Which of the following is (are) deductible from a decedent’s gross estate?
I. Expenses of administering and settling the estate
II. State inheritance or estate tax
I. Only
The standard deduction for a trust or an estate in the fiduciary income tax return is
zero there’s none such
Raff died in Year 1 leaving her entire estate to her only child. Raffs will gave full discretion to the estate’s executor with regard to distributions of income. For Year 2, the estate’s distributable net income was $15,000, of which $9,000 was paid to the beneficiary. None of the income was tax exempt. What amount can be claimed on the estate’s Year 2 fiduciary income tax return for the distributions deduction?
$ 9,000
if they pay 16,000USD:
only 15,000USD is deductible
A distribution to an estate’s sole beneficiary for the calendar Year 1 equaled $15,000, the amount currently required to be distributed by the will. The estate’s Year 1 records were as follows:
Estate income $40,000 Taxable interest
Estate disbursements $34,000 Expenses attributable to taxable interest
What amount of the distribution was taxable to the beneficiary?
$ 6,000 is DNI
DNI doesn’t include capital gain
rest 9,000 USD is non taxable,
treated like return of capital
By what date must the executor file the Form 1041, U.S. Fiduciary Income Tax Return, for the estate’s calendar Year 1?
Monday, April 17, Year 2
same as 1040, 4/15
NO gift tax to
- Spouse
- Charity
- Paid directly to school for tuition(not for room and board)
- Paid directly to hospital
- Political conbtribution
Gifts tax exclusion
- Gifts that are more than the annual exclusion for the calendar year.
- Tuition or medical expenses you pay for someone (the educational and medical exclusions).
- Gifts to your spouse.
- Gifts to a political organization for its use.
Gain at contribution of property can be only recognized when
COD is larger than contributed basis. NEVER SEE FMV,that’s there for destroying you
holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date
the partner’s holding period of the capital asset begins
partnership is considered terminated for income tax purposes when
the partnership’s business and financial operations are discontinued
Corp can be partnership’s owner
C corp cannot be S corp’s owner!
C corps are separate taxable entities, so double taxation can occur when
the entity has TI and distributions are made
Allocation
C: dividends
S: based on per share,per day ownership
P : income and losses are allocated based on teh ownership agreement,and special allocations are permitted.
An executor of a decedent’s estate that has only U.S. citizens as beneficiaries is required to file a fiduciary
income tax return, if the estate’s gross income for the year is at least
Rule: A fiduciary must file a return on Form 1041 if the estate has gross income of $600 or more for the tax year and if none of the beneficiaries are nonresident aliens.
The charitable contribution deduction on an estate’s fiduciary income tax return is allowable:
The charitable contribution deduction on an estates fiduciary income tax return is allowable only if the decedent’s will specifically provides for the contribution.
Rule: Estates are allowed an unlimited charitable deduction for amounts that are paid to recognized charities out of gross income under the terms of the governing instrument during the tax year.
Estate income
Taxable interest $65,000
Net long-term capital gains allocable to corpus 5,000
Municipal Bond interest 1,000
Estate disbursements
Administrative expenses attributable to taxable income 14,000
Charitable contributions from gross income to a public charity,
made under the terms of the will 9,000
what was the estate’s distributable net income (DNI)?
43,000
Municipal Bond interest 1,000 is included!(included in DNI but allocated as tax exempt)
Capital gains/losses are not includable.
gift tax exemption 2019
15,000USD
revocable trust is not a gift. but
the interest distributed from the revocable trust already in current year is present interest.
Under the Sales Article of the UCC, in an auction announced in explicit terms to be without reserve, when
may an auctioneer withdraw the goods put up for sale?
I. At any time until the auctioneer announces completion of the sale
II. lf no bid is made within a reasonable time
ll only.
In an auction without reserve, the goods must be sold if an offer is made. Of course, if no offer is made within a reasonable time, the goods need not be sold. Item I describes a sale with reserve.
Which of the following contracts is handled under common law rules rather than under Article 2 of the
Uniform Commercial, Code?
a. Oral contract to have hair styled in which expensive products will be used on the hair.
b. Oral contract to purchase a textbook for $100.
c. Written contract to purchase an old handcrafted chair for $600 from a private party.
d. Written contract to purchase a heater from a dealer to be installed by the buyer in her home.
Article 2 of the UCC applies to sales of goods. Common law generally applies to contracts for services and real estate. Even though goods are used in this service contract, the predominate feature of this contract is the service.
Thorn purchased a used entertainment system from Sound Corp. The sales contract stated that the
entertainment system was being sold “as is” Under the Sales Article of the UCC, which of the following
statements is (are) correct regarding the seller’s warranty of title and against infringement?
I. Including the term “as is” in the sales contract is adequate communication that the seller is
conveying the entertainment system without warranty of title and against infringement.
II. The seller’s warranty of title and against infringement may be disclaimed at any time after the
contract is formed.
Under the Sales Article, all sales of goods include a warranty that the seller has title to the goods being sold unless the warranty is specifically disclaimed or the circumstances of the sale indicate that no such warranty is being made (e.g., a sheriff’s sale). A disclaimer must be made before or contemporaneously with the sale. A later disclaimer would be ineffective. Thus, neither I nor II is correct.
strict liability theory
商品を使った人が怪我などして訴訟を起こす場合、立証しなくてはいけないのは
その商品がdefectだったという事のみ。自分にnegligenceは無かったという事は証明しなくてよい。
Guaranteed payment is subject to
self employment tax
Related party loss is not allowable, but you must recognize
related party gain
Thompson’s basis in Starlight Partnership was $60,000 at the beginning of the year. Thompson materially participates in the partnership’s business. Thompson received $20,000 in cash distributions during the year. Thompson’s share of Starlight’s current operations was a $65,000 ordinary loss and a $15,000 net long-term capital gain. What is the amount of Thompson’s deductible loss for the period?
55,000
60,000-20,000+15,000=55,000
Basis of property distributed from partnership is either lower of
basis of partnership or tax basis of the partner after deducted basis of the cash distributed in the same transaction
For S or P, pass through entity,
NOL carryover is not allowed. it can be deducted at partner level.
In non liquidating distribution, no gain is recognized for
both party, partner and partnership. Gain is recognized only when cash more than basis is distributed.
To properly create a trust,
Executing a written trust instrument is not needed.
You cannot deduct medical or funeral expenses on Form 1041.
medical:final 1040 or 706
funeral:706
estate admin fee: 1041 or 706
trust rule against perpetuities not
after death from 21 years
charitable trust has not this restriction.
Dep exp should go to beneficiary
Annual property tax should go to beneficiary
Mortgage interest goes to principal
Income received deceident should show
both 706 and 1041!
Upon liquidating distribution,
When partners basis is larger than distributed properties
Decide basis by appreciated basis
土地と機材があったとして、土地のappreciationが20000、機材が15000だとしたら土地の上昇率は20/35=57パーセントと考え、それを残っているbasisにかけた分をもともとパートナーにとっての機材のbasisに足す。
パートナーシップに出資されたプロパティが7年以内に他のパートナーへディストリビュートされた場合
ゲインを認識する！
Medical paid within one year of death maybe deducted on
Either the 706 or 1040
