Partnerships Flashcards
WHAT is a partnership’s basis for determining depreciation on a building?
THE contributing partner’s basis at the time of contribution
HOW would you treat an increase in a partnerships’ liabilities?
By increasing each partner’s basis in proportion to their ownership
WHAT is considered a general rule when property is contributed to a partnership in exchange for a partnership interest?
NO gain or loss is recognized by the partner or the partnership
WHAT would be considered an individual partner election (rather than a Partnership election)?
Whether to take a deduction or credit for taxes paid to foreign countries
versus a Partnership-level election of accounting methods and/ or tax year to use
True or False.
A partnership generally terminates for tax purposes on the death of a partner.
FALSE.
A partnership generally does NOT terminate for tax purposes on the death of a partner
This is partly due to the fact that the deceased partner’s estate or successor in interest continues to share in partnership profits and losses
True or False.
A partner’s basis is increased by his or her share of partnership income and decreased by distributions.
TRUE.
A partner’s basis is increased by his share of partnership income and decreased by distributions.
HOW is a decrease in a partner’s share of partnership liabilities treated for tax purposes?
AS a distribution of money to the partner.
i.e. this reduces the partner’s share of basis by that same amount
WHAT is considered the “original basis” in a partnership interest of a person who acquired it by inheritance?
THE Fair Market Value (FMV) of the interest on the date of death
caveat. This is also based on whether or not estate does not elect the alternate valuation date
WHAT is NOT a consideration in determining the basis of a partner’s interest in a partnership for purposes of computing gain or loss on the sale or liquidation?
The partnership book value of the partner’s interest
i.e. The partnership book value of a partner’s interest has no effect on basis
WHERE would “Guaranteed payments” that were made by a partnership to partners for services rendered to the partnership (that are deductible business expenses) be reported?
ON the Schedule K-1 to be taxed as ordinary income to the partners
WHAT are the rules for a gain to be “capital” in nature in a partnership transaction?
(1) Item must have been held for more than 5 years; and
(2) have been a capital asset in the hands of the distributee partner
True or False.
Gain is not recognized by a partner on a distribution except to the extent that money distributed exceeds the partner’s adjusted basis in the partnership interest.
TRUE.
Note: The basis of property received in a distribution may NOT exceed the partner’s basis in the partnership interest less any money received in the distribution
WHAT would be considered “Hot assets” of a partnership?
(1) Unrealized receivables
(2) Inventory
i. e. Any gain realized attributable to “hot assets” is ordinary income. “Hot assets” include unrealized receivables and inventory
True or False.
A limited partnership is a pass-through (nontaxable) entity.
TRUE
A limited partnership is a pass-through (nontaxable) entity.
Note: Partners must report their shares of the limited partnership’s taxable and deductible items on their personal returns
HOW would you treat a transaction conducted by a partner with the partnership in a capacity other than that of a partner?
AS if it were with a third party after arm’s-length negotiation
