Partnership Taxation Flashcards
REG - Tax
True or false? Partnerships are a taxable entity.
False. Income and expenses flow through to the partner to be taxed via a
Form K-1.
REG - Tax
When exchanging property for a partnership interest; how is gain or loss recognized?
Neither gain nor loss is recognized in an exchange of property for a partnership interest. It is a non-taxable event.
REG - Tax
What is a partner’s basis in partnership property?
Initial basis for partnership property is the basis of the property that was contributed or exchanged for the partnership interest.
REG - Tax
When services are exchanged for a partnership interest; how is this treated for tax purposes?
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.
REG - Tax
What is the partner’s basis in a partnership when they provide a service in exchange for the interest?
The basis in the partnership interest is the amount of taxable service revenue provided by service provider.
REG - Tax
What is the holding period of an asset that has been contributed to a partnership?
The partnership inherits the holding period of the asset contributed.
The exception of inventory- the holding period begins when contributed.
REG - Tax
What is the tax treatment of startup costs for a partnership?
Tax treatment is the same as that of an individual taxpayer.
However syndication fees are not deductible or amortized.
REG - Tax
What deductions are subtracted from gross revenues to arrive at partnership income?
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)
REG - Tax
How are partnership losses taken on an individual’s return?
Losses cannot be taken beyond a partner’s basis in the partnership
Losses in excess of basis are carried forward until basis is available
REG - Tax
When are guaranteed payments to a partner includable in taxable income?
They appear in partner’s income during the year in which the partnership’s fiscal year CLOSES.
REG - Tax
How are partner benefits paid by the partnership treated?
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.
REG - Tax
How is net self-employment income from a partnership interest calculated?
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)
REG - Tax
In general; what is a partner’s basis in partnership property purchased?
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.
REG - Tax
Which items are not deductible on Schedule K of form 1065?
Foreign tax paid
Investment interest expense
Section 179 expense
Charitable contributions
Mnemonic: IFC179
REG - Tax
Which items are not counted as income on Schedule K of form 1065?
Passive Income
Portfolio Income
1231 Gain or Loss
Mnemonic: PP1231
