Partnerships Flashcards
The biggest difference between a partners inside basis and his/her outside basis is that outside basis….
Outside Basis includes debt. You get credit for your debt
How is the compensation of services treated?
Services are not property or cash. Treated like “compensation” or a guaranteed payment. Will generally be deductible to the partnership
What is meant by inside basis
AKA - Partnership capital. It is basically “Tax Basis Equity” and DOES NOT include debt
What is meant by Outside Basis
It is Tax Basis equity PLUS Debt.. It is the basis we use if you sell a partnership interest
What is a partnership
According to IRC Secs. 761(a) and 7701(a)(2), a partnership is any unincorporated organization (including a syndicate, group, pool, or joint venture) that conducts a business or financial venture that cannot be classified as a corporation, trust, or estate. Implicit in this definition is the requirement that a partnership must carry on a business or investment activity for joint profit
What are differences between General and Limited partnership
In a general partnership, all partners may act as agents for the partnership
and have unlimited liability for partnership obligations. Conversely, in a limited
partnership, one or more partners (the limited partners) have limited liability
with respect to partnership obligations and do not have authority to act as
agents for the partnership. A limited partnership must have at least one general partner.
A general partner is personally liable for all partnership debts and obligations and
generally participates in the partnership’s management. On the other hand, a limited
partner has no liability for partnership obligations and is typically liable for no more than
the amount of any unpaid capital contributions or those liabilities expressly assumed or
guaranteed. In exchange, the limited partner usually surrenders the right to participate
in the partnership’s management and agrees to restrictions on the transferability of the
partnership interest.
Partners hold different types of interest
Partners hold both capital interests and profits interests. A capital interest represents
a partner’s interest in the net assets of the partnership. A profits interest represents a
partner’s allocable share of partnership profits. These interests are often expressed as
percentages. The capital and partnership interest percentages may not be the same.
What tax year must a partnership use.
he required tax year is the tax year of a majority of its partners. For instance,
if a majority of the partners are calendar-year individuals, the partnership’s
required tax year is a calendar year.
If a partner receives interest in a partnership for contributed services, what is the taxability of this?
One of the most common occurrences involving partnerships is the receipt by a partner
of an interest in the entity in exchange for past services, or in exchange for a promise to
perform future services. In general, if a partner receives a capital interest in a partnership
in exchange for services the receipt will be taxable; however, if the partner receives profits
interest in exchange for services, if certain tests are met, the receipt will be tax-free.
Tax-free receipt of a profits interest in a partnership is a key difference between corporations
and entities taxed as partnerships.
Is income from a partnership subject to self-employment tax?
YTV: Do I pay S.E. tax on partnership income.
Jason D. Knott
If the partnership operates an ordinary trade or business, the Form 1065 will report ordinary trade or business income, this ordinary income is subject to S.E. tax if the partner is actively participating. If the partnership is a passive activity it is not subject to S.E. tax. If you are a limited partner and you are NOT actively participating then you will not be subject to self-employment tax. You must be mainly just a passive investor. If you contribute more than 500 hours you should treat income as S.E. tax
What are guaranteed payments and how are they treated for tax purposes?
Guaranteed payments are fixed amounts to be paid to partners regardless if the partnership reflects a profit or loss for the year. They are deductible from partnership ordinary income and they are subject to S.E. Tax
If a partnership converts to an S Corporation do they have to pay taxes on that conversion
YTV: Common Mistakes converting to an S Corp
REH CPA
If you are converting an existing business to an S Corporation it falls under the tax code called 351 Exchange. This is considered a tax free exchange or transfer. You need to qualify for the exchange. A taxable event can be created when you have assets with corresponding liabilities that exceed basis.
How does a partner in a partnership determine what guaranteed payments should be?
ChatGPT
To determine what guaranteed payments are, partners typically refer to the partnership agreement or the operating agreement. Guaranteed payments are made for services rendered. Guaranteed payments are to be received regardless of the partnership’s overall financial performance. Partnership agreement should define the type of services for guaranteed payments.
n a partnership are distributions in excess of basis considered a long term or short term gain?
ChatGPT 3.5
In a partnership, distributions in excess of a partner’s tax basis are generally treated as capital gains. Whether they are considered long-term or short-term gains depends on the holding period of the partnership interest.
If a partner in a partnership lends money to the partner is the interest deductible.
Source:
David Kelley
NSTP
A formal note should be created for each loan. If partnership repays the loan and it includes interest payments then it is deductible by partnership but the interest income is includable in the personal tax return.
if the partner is not reimbursed for the interest expense he may be able to deduct this as an unreimbursed business expense on page 2 of the partnership
