Partnership Tax

Question 1

When is gain recognized on a contribution to a partnership in return for an interest?

Answer 1

• When services are rendered

- When property is subject to a (excess) liability

Question 2

Partner’s initial basis calc

Answer 2

Cash contributed
Property (NBV)
(Liabilities assumed by other partners)
Services performed FMV
Liabilities of other partners assumed by incoming partner

Question 3

When property subject to a liability is contributed to a partnership….

Answer 3

and the subsequent decrease in the partner’s individual liability exceeds her partnership basis, the excess amount is treated like taxable boot.

Question 4

Holding period of assets contributed

Answer 4

if property was previously 1231 asset in the hands of the partner, holding period includes that of partner.

if property was ordinary income, holding period begins on the date the property is contributed.

Question 5

If partner contributes BIG property

Answer 5

the BIG/L that exists on date of contribution must be specially-allocated to the contributing partner upon subsequent sale of that property.

Question 6

Partnership’s basis for contributed property

Answer 6

Generally = contributor’s basis + any recognized gain by the incoming partner

HP:
1231 - includes partner hp
OIA - starts on contribution date

Question 7

A partnership terminates when

Answer 7

• operations cease
• 50% or more of total partnership interest in both capital and profits is sold/exchanged within 12 month period
• there are less than two partners

Question 8

Guaranteed payments

Answer 8

Allowable tax deductions and income to the partner

Question 9

What items appear on the 1065 but also appear on k-1s?

Answer 9

• Net business income or loss
• Guaranteed payments
• Partners’ health insurance premiums
• Retirement plan contributions

Question 10

Partner’s basis calc

Answer 10

Capital account
+ % partnership liabilities
=basis

Question 11

Nonliquidating distributions

Answer 11

Generally nontaxable to a partner.

Reduces basis by amt of cash/nbv of property distributed

Question 12

Nonliq distr - basis to partner

Answer 12

may not exceed partners basis - stop at zero basis

Question 13

Liquidating distributions - Complete withdrawal

Answer 13

partner recognizes gain only to the extent that money received exceeds the partner’s basis in the partnership

Question 14

Liquidating distributions - Sale of p/s interest

Answer 14

Capital gain or loss recognized

Beg Cap Acct
%income(loss) up to sale
=cap acct @ sale date
%liabilities
=adj basis
(amount received)
=gain or loss

Question 15

Any gain that represents partner’s share of “hot assets” is treated as..

Answer 15

Ordinary gain.

Hot assets include:

• unrealized receivables
• appreciated inventory
• “recapture income” regarding depreciable assets owned by p/s

Question 16

Liquidating distribution - retirement or death of partner

Answer 16

allocated between payment for interest and other payments

payment for a partnership interest results in capital gain or loss