Partnership Taxation Flashcards
False. Income and expenses flow through to the partner to be taxed via a
Form K-1.
Partnership taxation
Neither gain nor loss is recognized in an exchange of property for a partnership interest. It is a non-taxable event.
Partnership taxation
Initial basis for partnership property is the basis of the property that was contributed or exchanged for the partnership interest.
Partnership taxation
It is a taxable event; treated the same as compensation for the services. The taxable income equals the % of partnership interest received times the FMV of the partnership.
i.e. the FMV of the interest received is the taxable income for the service provider.
Partnership taxation
The basis in the partnership interest is the amount of taxable service revenue provided by service provider.
Partnership taxation
The partnership inherits the holding period of the asset contributed.
The exception of inventory- the holding period begins when contributed.
Partnership taxation
Tax treatment is the same as that of an individual taxpayer.
However syndication fees are not deductible or amortized.
Partnership taxation
COGS
Wages - except for partners
Guaranteed payments to partners
Business bad debt (if on accrual basis)
Interest paid
Depreciation (except section 179)
Amortization (Startup costs; goodwill; etc)
Partnership taxation
Losses cannot be taken beyond a partner’s basis in the partnership
Losses in excess of basis are carried forward until basis is available
Partnership taxation
They appear in partner’s income during the year in which the partnership’s fiscal year CLOSES.
Partnership taxation
Health insurance; life insurance and other benefits paid on behalf of the partner are treated as guaranteed payments and are includable as self-employment income.
Partnership taxation
Partner’s % share of ordinary income from partner’s K-1
+ Guaranteed payments
- Partner’s % share of section 179 expense from K-1
= Self-employment income (subject to SE tax)
Partnership taxation
Partner’s basis is basis of goods exchanged or for services exchanged is FMV of partnership interest received.
If purchased; purchase price less liabilities incurred = basis.
For a gifted interest in a partnership; gift basis rules apply.
Partnership taxation
Foreign tax paid
Investment interest expense
Section 179 expense
Charitable contributions
Mnemonic: IFC179
Partnership taxation
Passive Income
Portfolio Income
1231 Gain or Loss
Mnemonic: PP1231
Partnership taxation
Beginning partnership basis
+ Capital contributions
+ Share of ordinary partnership income
+ Capital gains
+ Tax-exempt partnership income (DON’T FORGET!)
= Ending partnership basis
Partnership taxation
Money distributed
Adjusted basis of property distributed
Partners’s share of ordinary losses
Partnership is relieved of a liability (considered a distribution)
Partnership taxation
Partnership getting a loan
Capital contributions
Ordinary income
Capital gains
Tax-exempt income
Partnership taxation
If the partnership gets a loan; this INCREASES basis.
If partnership is relieved of a liability; this DECREASES basis.
Partnership taxation
They do not affect basis- they are already included in ordinary income; which affects basis.
Partnership taxation
- Increase basis (all items; including tax-exempt income)
- Distributions
- Losses (limited to basis)
Partnership taxation
It must be the same as 50% of the partners and use the same tax year for 3 years once adopted.
Partnership taxation
The taxable year closes with respect to the decedent partner’s interest ONLY.
Partnership taxation
- They have inventories
- Partnership is a tax shelter
- Has a corporate partner
- Gross receipts are $5 Million or more
Exception: If gross receipts are $1 Million or LESS and Partnership maintains inventories; Cash method is ok.
Partnership taxation
When there is less than 2 partners (only one partner)
When 50% of the partnership interests sell within a 12 month period- partnership IMMEDIATELY terminates.
Partnership taxation
Gain or Loss = Amount realized on sale - basis in partnership interest
Partnership taxation
Basis = Capital account + Liabilities assumed
Partnership taxation
As ordinary gain/loss.
Items that fall into non-capital category would be unrealized receivables; appreciated inventory; and similar.
Partnership taxation
FMV of Assets (non-capital)
- Adjusted basis of assets
= Ordinary gain
x Partner’s % interest
= Partner’s share of gain
Note: No gain or loss will be recognized by a partnership upon distribution of property.
Partnership taxation
- Money distributed
- Adjusted basis of unrealized receivables and inventory
- Adjusted basis of other property
Note: Only MONEY distributions will trigger a gain in a partnership distribution.
Partnership taxation
Only in a liquidating distribution.
Partnership taxation
- Money was distributed
- Unrealized receivables were distributed
- Appreciated inventories were distributed
Otherwise; no loss recognized.
Partnership taxation
