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Partnerships Flashcards

1
Q

What are the partnerships dates

A

Due 3/15
(like S corp)
extension - 5 months extension

Tax years must be the same as the majority of the partners

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2
Q

What is the big difference with partnerships

A

Everything is ‘At risk”

You have UN-Limited liability

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3
Q

What is the filing form for partners

A

1065

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4
Q

What is net outside basis

A

This is the partners basis in the partnership that is viewed from an outside perspective. This is the PARTNERS basis

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5
Q

What is the inside basis

A

This is the basis amount of the assets inside the partnership TO the partnership. This is the PARTNERSHIPS basis in the asset

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6
Q

What is a guaranteed Payment

A

This is sorta like a salary in that the partner is guaranteed to get regardless of income to the partnership

It is ordinary income to the partnership and to the partner

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7
Q

Is a partnership created formal or informal

A

informal - so everything is considered at risk

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8
Q

What does a partner basis include

A

your percent of the liabilities

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9
Q

Do you need to worry about 80% or more?

A

No - not in a partnership

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10
Q

How are Guaranteed Payments separately stated

A

Guaranteed Payments are part of ordinary income BUT are separately stated on that Partner s K-1

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11
Q

Calendar rules for partnership

A

Partnership must adopt the same tax year as that of the partners or a majority

Usually calendar year

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12
Q

What are the rules when having transactions between partnerships

A
  • they are considered at two separate entities

The exception is if one partner owns a majority (60%)

  • They can’t have losses from sales of property between partners.
  • They can have gains - ordinary income
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13
Q

Cab your basis every go below 0

A

NO - never below zero

The rest is suspended

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14
Q

What are the rules on selecting a tax year - partnerships

A

The general rule is to adopt a tax year that coincides with the tax year of a majority of the partners

Generally need to have a business purpose for selecting abetter tax year

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15
Q

What is IRC Section 444

A

Under section 444 a partnership can select a different tax year as long as it is within 3 months deferral period.

Under 444 there does not have to be any business purpose to elect an alternative tax year

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16
Q

In a complete liquidation of a partner how do you calculate the basis of “in Kind” property

A

The complete liquidation means that the partner’s basis must be zero.

Step one is to reduce basis by and cash in the transaction 10 - 5 = 5

Step 2 is to reduce the the basis to zero by the property transaction

You can t have a gain or loss on property distribution so if the inside basis is more ( 10) the the result is a capital gain to the partner.

The result is that the property distributed is equal to the basis of the partners interest after subtracting and cash distributed at the same time

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17
Q

What are the rules on at - risk amounts

A

When a partnership has a business loss for the year each partner can only deduct their share of the loss to the extent of their basis

The at risk amount is usually the partner’s basis less their partner percentage of any non-recourse debt

This is because non-recourse debt make s the partner not ultimately liable for the debt -

So they are not really at risk for their share of the debt

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18
Q

Can partnerships or S corps claim a NOL

A

No - they can’t

Pass through

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19
Q

What is a guaranteed payment

A

It is made without regard to partnership income

It WOULD include a salary for services rendered by the partner

NOT include percentage interest in profits

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20
Q

Is a partner at risk for a non recourse loan?

A

No -

Recourse loans increase a partner’s basis but non recourse loans do not

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21
Q

When you receive payment for services in the form of property an ownership - was is the tax implications for you

A

Property and % of partnership is valued at FMV and that is added to your gross income

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22
Q

When you have capital gains does this count as income to a partner

A

Yes it does

guaranteed payments
ordinary income
capital gains

are all reported as income to a partner on their K-1

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23
Q

Sales of partners’ assets to the partnership at guaranteed amounts regardless of market values.

A

This is a guaranteed payment

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24
Q

Payments of principal on secured notes honored at maturity.

A

Principle payments are debt obligations

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25
Q

Sales of partners’ assets to the partnership at guaranteed amounts regardless of market values.

A

These are not considered guaranteed payments

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26
Q

Net long term capital gains

A

Distributions of net long-term capital gains earned by the partnership are dependent on their being earned and are not guaranteed payments to partners.

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27
Q

Section 444 does the rule apply to general and limited partnerships

A

Yes - it applies to both

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28
Q

When you render service fore a % of a partnerships - who do you do it

A

You take the Fair Market Value on the day you come into it. and then take the percentage

This will equal the amount of ordinary income you will get

5% of 170,000 = 8500 of ordinary income

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29
Q

which increases a partners base - recourse or non recourse loans

A

recourse loans - YES increase a patterns bases

Non recourse loan - does NOT increase a partners base and

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30
Q

When a partner get land as a distribution what is the holding period that the partner recognizes

A

They assume the holding period of the company.

If the company held it for 5 years, then the partner assumes that holding period as well

Same with carryover basis

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31
Q

Can you every ahem a negative basis in a company

A

Nope - you can only have 0 and the rest is held on for future when you do have basis

32
Q

What happens when a partnership terminates for tax purposes

A

When a partnership terminates for tax purposes, but the business continues, it is treated as a total distribution of the assets to the partners followed by a recontribution of all the assets to a new partnership.

33
Q

When is a partnership considered terminated

A

A partnership terminates when either the partnership ceases conducting business or over 50% of the partnership’s ownership interests are sold within a 12-month period.

This also means when a parter’s share change hands - so simply selling to a third party counts as termination grounds

34
Q

when a partner receives an interest in exchange for services rendered - how do you calculate the the amount you will include in the partners income

A

If you get interest in return for services it is as if you earned that percentage

so if you get 10% of the company then the income that you have to claim is based on the FMV of the assets in the business

if FMV is 1000,000 then 10% is 10,000

10,000 is how much you have to include in gross income

35
Q

What method of depreciation must a partnership use

A

Any that is approve by IRS

36
Q

What happens when you have losses in excess of at risk amounts

A

Excess losses can be carried forward to subsequent years with no time limit, and deducted when the “at risk” amount has increased.

37
Q

What is the at risk amount

A

The amount “at risk” includes the cash and adjusted basis of property contributed by the taxpayer, and the liabilities for which the taxpayer is personally liable (this excludes non-recourse debt).

For real estate activities it includes qualified non-recourse debt secured by the real property used in the activity.

38
Q

Hoe do you determine how much deductible loss you can take in a partnership

A

A deductible loss is limited to the partners adjusted basis in the partnership

Basis is increased capital gains and decreased by cash distributions

Your basis is your at risk amount -

you can take losses up to your at risk amount and then can carry any remaining forward until you have sufficient basis to deduct the losses

39
Q

Is a sole proprietorship a pass through entity

A

No - it does not file its own tax return

40
Q

How do you define a pass through entity

A

It files a tax return, but does not pay tax

LLC
LLP
S corp
Partnerships

41
Q

What are the names of owners:

LLC
C corp
S corp
Partnership

A

LLC - members
Partnership - general partner
S corp - shareholder
C - corp - shareholder

42
Q

What is a cash distribution from a partnership considered to an individual

A

It is a return of capital

It reduces you basis in the partnership, but is NOT considered income

43
Q

what costs can and can not be deductible as organizational expenses

A

legal fees - yes

No accounting fees to prepare representation in offering material, No costs associated with selling partnership interests

5000 per year - reduced if above 50K amortized over 180 months

44
Q

Can a nonliquidating cash distribution may reduce the recipient partner’s basis in his partnership interest below zero.

A

no parters base can NEVEr go below zero - eater in liquidating or non liquidating distribution

45
Q

A nonliquidating distribution of unappreciated inventory reduces the recipient partner’s basis in his partnership interest.

A

True

46
Q

In a liquidating distribution of property other than money, where the partnership’s basis of the distributed property exceeds the basis of the partner’s interest, the partner’s basis in the distributed property is limited to his predistribution basis in the partnership interest.

A

True

47
Q

Gain is recognized by the partner who receives a nonliquidating distribution of property, where the adjusted basis of the property exceeds his basis in the partnership interest before the distribution.

A

False

your partnership basis becomes 0

basis in property is same as your basis in partnership at the time

48
Q

Will non liquidating distributions of cash in excess of the partner’s basis result in a gain

A

Yes - they are the only type that will result in a gain

49
Q

In a nonliquidating distribution of inventory, where the partnership has no unrealized receivables or appreciated inventory, the basis of inventory that is distributed to a partner cannot exceed the inventory’s adjusted basis to the partnership.

A

true

50
Q

The partnership’s nonliquidating distribution of encumbered property to a partner who assumes the mortgage, does not affect the other partners’ bases in their partnership interests.

A

False

all partners share will be effected by the removal of the mortgage

This includes the one partner who is assuming the mortgage

51
Q

Tax Treatment?

Partnership made a proportionate cash distribution

A

Partnership made a proportionate cash distribution

52
Q

Tax Treatment?

Partnership sold depreciable property at a gain in excess of the depreciation allowed on the property

A

Partnership sold depreciable property at a gain in excess of the depreciation allowed on the property

property old at a gain to the extent of depreciation it is RECAPTURED as ordinary income

The rest is 1231 Gain and passes to the partner on their tax return

53
Q

Tax Treatment? Partnership claimed section 179 deduction for depreciable property purchased during the year

A

Treated as separately stated item by the partnership and potentially deductible by the partners.

54
Q

Tax Treatment?

Partnership made cash contributions to qualifying charities

A

Treated as separately stated item by the partnership and potentially deductible by the partners.

55
Q

Tax Treatment?

Partnership sold an investment held for less than one year at a gain

A

Treated as separately stated item by the partnership, taxable to the partner.

56
Q

Tax Treatment? Partnership paid for rental of office space

A

Deductible by the partnership in arriving at partnership ordinary business income.

57
Q

Tax Treatment?

Partnership paid outside consultant for services rendered

A

Deductible by the partnership in arriving at partnership ordinary business income.

58
Q

Tax Treatment? Partnership made a cash contribution to a foreign charity

A

Partners are not entitled to a deduction and decrease their basis in the partnership.

Charity is only deductible if you make it to a US charity

It is not deductible

It is treated as if it were a distribution to a partner

59
Q

A nonliquidating cash distribution may reduce the recipient partner’s basis in his partnership interest below zero.

A

False

60
Q

A nonliquidating distribution of unappreciated inventory reduces the recipient partner’s basis in his partnership interest.

A

True

61
Q

In a liquidating distribution of property other than money, where the partnership’s basis of the distributed property exceeds the basis of the partner’s interest, the partner’s basis in the distributed property is limited to his predistribution basis in the partnership interest.

A

true

62
Q

Gain is recognized by the partner who receives a nonliquidating distribution of property, where the adjusted basis of the property exceeds his basis in the partnership interest before the distribution.

A

False

only can have a gain if you get more cash than your basis

63
Q

In a nonliquidating distribution of inventory, where the partnership has no unrealized receivables or appreciated inventory, the basis of inventory that is distributed to a partner cannot exceed the inventory’s adjusted basis to the partnership.

A

true

64
Q

The partnership’s nonliquidating distribution of encumbered property to a partner who assumes the mortgage, does not affect the other partners’ bases in their partnership interests.

A

false

65
Q

between a C corp, and S corp and a partnership - which one has restrictions on who can be an owner

A

Only S corp - a corp can not be an owner of an s corp

66
Q

How are income and losses allocated in a partnership

A

With Pships, income and losses are allocated based on the ownership agreement, and special allocations are permitted.

67
Q

How are S corps allocation based

A

S corps are based on a per share per day ownership basis

68
Q

which of the three have the least protection

A

General Pships have the least protection because there is unlimited liability for the owners; whereas C Corps and S Corps have the ability to limit liability since the owners are liable only to the extent of their investments

69
Q

S corps - what qualifies

A

However, in S Corps there can only be one class of ownership, and not more than 100 owners of which none are nonresident aliens.

70
Q

What is the partners tax basis used for

A

determining the partner’s gain or loss on subsequent sale of their partnership interest.

71
Q

what is the difference between how a partnership and s corp compute their partner basis

A

With a partnership, the partners add their proportionate share of the partnership liabilities to their net adjusted basis in the assets they contributed.

72
Q

how do s corps recognize gains or losses

A

An S corporation will generally recognize gain or loss on the distribution of property as if it were sold for its fair market value.

73
Q

how are the gain an losses handled in an s corp

A

Any gain or loss recognized by the S corporation will flow-through to the shareholders’ tax returns and increase or decrease their bases in their stock.

74
Q

When can you receive capital gains in an s corp

A

Capital gain will be recognized by a shareholder who receives property with a fair market value in excess of the shareholder’s basis in the asset.

75
Q

do partnerships recognize gains or losses

A

A partnership generally will not recognize a gain or loss on the distribution of property.

76
Q

How do you allocate non recourse loans to partners

A

it is usually based on the partners profit percentage

77
Q

Are recourse loans allocated to limited partners

A

no recuasse they do not share the liability for repayment so the full amount is given to the partner with the recourse loan

REG (31 decks)

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