Partnership Transactions

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.

Question 5

Guaranteed Payment

Answer 5

A payment to a partner that is not contingent on the partnership’s profit or income, such as salary or interest, treated as if it were due to a third party but taxed as if a distribution of ordinary income. It is not considered a separately stated item to the partnership paying it, but it is a separately stated item to the partner receiving it.

Question 6

Contribution

Answer 6

Property that a partner gives the partnership for partnership use, which does not usually result in a gain or loss and with the partnership establishing a tax basis and holding period equal to that of the contributing partner (Carryover basis and Holding period).

Question 7

Partnership Distributions

Answer 7

Withdrawals of cash or other property from the partnership that may be received by a partner as a distribution of current or prior period earnings (current distribution) or a distribution in partial or complete liquidation (liquidating distribution), reducing the partner’s basis in the partnership, although not below zero, by the amount of money or the adjusted basis of property received.

Question 8

Limited Liability Partnership (LLP)

Answer 8

A partnership in which some or all, depending on the jurisdiction, of the partners will have the same limited liability protection as stockholders in a corporation with the pass-through tax treatment of a partnership and the right of owners to participate in management of the partnership.