Partnerships 2 Flashcards
When do partners report income?
In the year that the partnership tax year-ends.
Describe the characteristics of a partnership loss deduction limit.
Amount of adjusted basis;
To extent at risk;
May have passive loss limits;
Unused losses are carried forward indefinitely.
What tax forms does a partnership report income on?
Report taxable income on Form 1065;
Report separately stated items to each partner on Schedule K-1.
Define “pre-contribution property.”
Property that has appreciated (depreciated) in value at the time of its contribution to the partnership.
What are guaranteed payments?
Those made to partners without regard to partnership income;
Ordinary income to recipients at the partnership year-end;
Reduce partnership income and therefore reduce each partner’s share of income.
What is the appropriate treatment of pre-contribution gains and losses?
Allocated to specific contributing partners when recognized by partnership.
What is the accounting effect of a deemed distribution?
A decrease in the partnership liabilities.
Define “gain recognition on non-liquidation distributions.”
Cash distributed in excess of outside basis causes gain recognition.
How is a partner’s adjusted basis in liquidations allocated?
To cash distributions and cash deemed distributed;
To distributions of unrealized receivables and inventory in an amount equal to the partnership’s basis in these assets;
To other assets distributed;
Deficiencies are allocated to properties with unrealized losses;
Excesses are allocated to properties with unrealized gains.
What conditions must exist for the recognition of loss on a liquidating distribution?
Distribution consists of only cash, and pro-rata distribution of inventory and unrealized receivables;
Outside basis of the partner’s interest exceeds sum of cash plus inside basis of receivables and inventory.
What is the general gain recognition rule in partnership liquidations?
Distributions do not create gain or loss unless a partner receives cash (or cash equivalents) in excess of his adjusted basis.
What two events will terminate a partnership for tax purposes?
No part of the business continues to be carried on by any partner in the partnership within a 12-month period;
There is a sale or exchange of at least a 50% interest in both capital and profits within a 12-month period.
How does a partnership continue when there is a merger?
One partnership continues if the old partners also control (more than 50%) the merged entity.
How does a partnership continue when there is a division of partnership?
One of the new partnerships is a continuation of the old partnership if the partners (in the new partnership) had a controlling interest in the old partnership.
Define “hot” assets.
Unrealized receivables, or
Inventory;
Generate ordinary income.
