Partnerships Flashcards
How do you calculate partnerships basis in contributed property?
The partnership’s basis for contributed property is the adjusted basis of such property to the contributing partner at the time of contribution, plus any gain recognized by the partner.
When property is contributed to a partnership how is gain or loss recognized?
When property is contributed to a partnership in exchange for a partnership interest, the general rule is that no gain or loss is recognized by the partner or the partnership.
A partner who receives a partnership interest in exchange for services recognizes compensation income equal to?
to the FMV of the partnership interest.
What are the choices for partnership tax year?
- Majority interest tax year is the tax year of partners owning more than 50% of partnership capital and profits if they have the same tax year on the first day of the partnership tax year.
- Principal partners’ tax year is the same tax year of all principal partners, i.e., partners owning 5% or more in capital and profits.
- Least aggregate deferral tax year is determined by multiplying each partner’s ownership percentage by the number of months of income deferral for each possible partnership tax year and then selecting the tax year that produces the smallest total tax deferral.
Under Sec. 444, a partnership may elect a tax year that is neither the required year nor a natural business year. The year elected may result in no more than 3 months’ deferral (between the beginning of a tax year elected and the required tax year). The partnership must also pay an amount approximating the amount of additional tax that would have resulted had the election not been made.
What is added and subtracted from partners basis?
Add:
Subsequent contributions
Increase in distributive share of liabilities
Distributive share of taxable income items
Distributive share of tax exempt income items
Deduct:
Partner’s distributions and withdrawls.
Distributive share of decreases in liabilities
Distributive share nondeductible items not chargeable to capital accounts
Distributive share of special depletion deductions
Distributive share of loss items.
What are hot assets and how are they treated?
Hot assets are unrealized receivables and inventory. They are considered ordinary income.
The method used to depreciate partnership property is an election made by
The partnership and may be any method approved by the IRS.
If a property that was contributed to the partnership is now sold, who receives the gain?
Basis $60, FMV $100 sold for $160
100-60=40 is the Built in gain that is allocated to the partner that contributed the asset. The rest of $60 is shared equally between the partners.
If guaranteed payments are paid and in the problem you are asked to calculate partners income in the partnership, what should you do with guaranteed payments first?
If income is 100 and you have a 25% interest, and guaranteed pmt is 20, then 100-20=80 x .25=20
What are the separately stated items?
- Sec. 1231 gains and loss
- Net short- and long-term capital gain or loss from the sale or exchange of capital assets
- Investment income and related expenses
- Charitable contributions
The original basis in a partnership interest of a person who acquired it by inheritance is the
is the fair market value of the interest on the date of death (if the estate does not elect the alternate valuation date).
What is a guaranteed payment?
A guaranteed payment is a payment to a partner that is determined without regard to the partnership income. These payments can be in addition to regular profit shares and are deductible by the partnership.
Are guaranteed payment subject to self employment tax?
Amounts received as guaranteed payments from services rendered to a partnership are subject to self-employment tax
How are guaranteed payments deducted?
Guaranteed payments are considered as ordinary and necessary business expenses, like salary expenses, so they are deductible by the partnership and reported on line 10 of Form 1065. The recipient partner also includes the full guaranteed payment, reported on line 5 of Schedule K-1, as ordinary income.
In a non liquidating distribution partners basis in the partnership is reduced by what?
A partner’s basis in a partnership is reduced by the amount of money and the basis to the partner of distributed property in a nonliquidating distribution
In a non liquidating distribution when is gain recognized?
What is the partner’s basis in the distributed property?
The distributee partner generally recognizes gain only to the extent that money received exceeds his or her adjusted basis in his or her interest. The partner’s basis in the distributed property is the partnership’s adjusted basis in the property immediately before distribution, but it is limited to the distributee’s adjusted basis in his or her partnership interest minus any money received in the distribution.
When is gain recognized in a liquidating distributions?
A partner recognizes gain only to the extent a money distribution exceeds the AB in the partnership interest immediately before the distribution
What is the basis in the property in a non liquidating distribution?
The basis of the property distributed in a non-liquidating distribution is the lesser of remaining basis in the partner’s partnership interest (after cash is distributed) and the adjusted basis of the property.
In a liquidating distribution, when is gain recognized? and what would be the basis in the property received?
In liquidation of a partner’s interest, gain is recognized to the extent money distributed exceeds the liquidating partner’s AB in the partnership interest immediately before the distribution. The liquidating partner’s basis in (noncash) property received in a distribution in liquidation is any excess of his or her adjusted basis in the partnership interest immediately before distribution over any amount of money received.
What is the holding period of the property received in a nonliquidating distributions?
When a partnership distributes property to a partner in a nonliquidating distribution, the holding period for the partner is the same holding period as for the partnership.
Differentiate the basis of property received in a liquidating distribution and a non liquidating distribution. Partner basis 25, cash received 5, AB of property is 21.
In a nonliquidating distribution: 25-5=20 Now compare and choose the lesser of 20 or 21. So AB in property received is 20.
In a liquidating distribution: 25-5=20 that is your AB in property received.
Are cash distributions reported in income?
A partner does not recognize gain for current money distributions; therefore, the cash distribution is not included in income.
Payments made to retiring partner or successor in interest of a deceased partner that are not made in exchange for an interest in the partnership property are treated as either
(1) a distributive share of partnership income or (2) a guaranteed payment. Payments that are made based on partnership income are taxable as a distributive share of partnership income. However, if the payment is not based on partnership income, it is a guaranteed payment.
Julie’s basis in her partnership interest was $75,000. In a distribution in liquidation of her entire interest on that date, she received properties A and B. Property A had an adjusted basis to the partnership of $35,000 and a fair market value of $75,000. Property B had an adjusted basis to the partnership of $15,000 and a fair market value of $25,000. Based on this information, what was Julie’s basis in property A immediately after the distribution?
75-35-15=25 is the left over basis that needs to be allocated to the properties. So Increase in FMV for prop A 75-35=40 Increase in FMV for prop B 25-15=10 So 40/(40+10)=.8 x 25 basis=20 So basis in property A is 35+20=55
When is a partnership considered terminated?
If within a 12 month period there is a sale of 50% or more of the total capital interest.
When a termination happens what 2 things happen?
I. There is a deemed distribution of assets to the remaining partners and the purchaser.
II. There is a hypothetical recontribution of assets to a new partnership.
A partnership is able to elect large-partnership status if it has at least how many partners in the preceding tax year?
Large partnerships with 100 or more partners (not counting service partners) in the preceding tax year may elect large-partnership status.
For an electing large partnership, charitable contributions are
An electing large partnership does not separately state its charitable contributions to its partners. Instead, the Sec. 170 charitable contribution deduction is allowed at the partnership level in determining partnership taxable income, subject to a 10%-of-taxable-income limitation, similar to the limitation applicable to corporate donors.
For electing large partnerships, combining capital gains and losses
For electing large partnerships, netting of capital gains and losses occurs at the partnership level.
For an electing large partnership, miscellaneous itemized deductions are considered at the partnership level by
Miscellaneous itemized deductions are generally combined at the partnership level. Instead of applying the 2% floor to each deduction, 70% of the total of these deductions are disallowed at the partnership level.
Even if elected a large partnership, what items remain separately stated items?
portfolio income (i.e., dividends), tax-exempt interest, and passive income (rental income) all remain separately stated items, even for electing large partnerships.
