Partnership Transactions 1 of 2 (11)

Question 1

Partnership

Answer 1

An arrangement, which may be formal or informal, in which two or more parties agree to operate a business as co-owners for profit. All partners have unlimited liability.

Question 2

Basis

Answer 2

The amount the partner generally has “at risk” in the partnership, which initially consists of the cash or property contributed to the partnership, minus any liabilities assumed by the partnership, plus the partner’s proportionate share of the liabilities assumed by the partnership, including those of the partner and other partners.

• Increases result from additional contributions of cash or property to the partnership and the partner’s share of increases in partnership liabilities and taxable and nontaxable partnership income.
• Decreases result from distributions to the partner, assumption of any of the partner’s liabilities by the partnership, and the partner’s share of losses and nondeductible partnership expenses.

Question 3

Outside Basis

Answer 3

A partner’s basis in the partnership.

Question 4

Inside Basis

Answer 4

The partnership’s basis in partnership assets.