Partnerships, Estates, Trusts, Tax Exempt entities Flashcards
DNI
Is the maximum amount of the distribution on which beneficiaries can be taxed
The distribution deduction is equal to the lesser of the required distribution or the distributable net income (DNI), which is computed without including exempt income. The required distribution is equal to all the income, excluding principal items. Therefore, the required distribution is $130,000 ($80,000 interest + $30,000 dividend + $20,000 exempt interest).
Distributions- Partnerships
No gain or loss is recognized by the PARTNERSHIP when it distributes property or money.
Individual Gain would be recognized if the FMV of CASH exceeded basis in the partnership interest.
Gift Splitting
Gift-splitting allows spouses to treat each gift as made one-half by each. This allows each spouse to exclude the first $14,000 of each gift of a present interest to a third person in a calendar year, for a total exclusion of $28,000 per donee. If the gift is less than the exclusion, the couple does not file.
Electing a Large Partnership
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.
Losing Exempt Status of a Club
The exempt status of an otherwise qualified social club is lost if part of net earnings benefit any private shareholder. Exempt status is also lost if more than 35% of its receipts are from sources other than membership fees, dues, and assessments. Of this 35%, up to 15% may be from the use of the club’s facilities or services by the general public, etc.
Alternate Valuation Date
Alternate valuation date for property included in the decedent’s gross estate is to value all estate property on the date 6 months after the decedent’s death or at the time the property is disposed of, if earlier.
This election can be made only if the result is a reduction in both the value of the gross estate and the sum of the federal estate tax and the generation-skipping transfer tax (reduced by any allowable credits).
Separately stated items In Partnership Income
Charitable Contributions
Interest Income
Don’t need to file Form 990 (Annual Informational return)
- A church or church-affiliated organization
- An exclusively religious activity or religious order
- An organization (other than a private foundation) having annual gross receipts that are not more than $50,000
- A stock bonus, pension, or profit-sharing trust that qualified under Sec. 401
- A Keogh plan whose total assets are less than $100,000
Non-cash property received in a distribution
The distributee’s basis in noncash property received in a distribution in liquidation is any excess of his or her AB in the partnership interest immediately before distribution over any amount of money received. Gain is only recognized to the extent money distributed exceeds the partner’s basis in the partnership. Hoben’s basis in the assets received is $10,000, and Hoben does not recognize any gain on the distribution.
Admitting a general partner
The limited partners therefore do not have the power to admit new general partners, and unanimous consent is needed unless the partnership agreement provides otherwise.
UBI
income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose constituting the basis for an organization’s tax-exempt status.
Having $1,000 or more in computing UBI is requisite for filing form 990-T (Not the annual informational return)
Tax Exempt Status
Tax-exempt status is available to various classes of nonprofit organizations under Sec. 501(a). Sec. 501(c)(2) through (25) lists several organizations that may qualify for tax-exempt status, including civic leagues; fraternal benefit societies; and labor, agricultural, or horticultural organizations. Blue Cross and
Assignment of Rights
A partner may assign his or her interest in the partnership but is not allowed to assign rights in specific partnership property.
Only a claim against the entire partnership allows specific partnership property to be attached.
Selling partnership interest
Generally, a capital gain or loss is recognized on the sale of a partnership interest. A selling partner’s relief of liabilities is included in the amount realized. Gain or loss recognized by the selling partner is the difference between the amount realized and the adjusted basis of the partner’s interest in the partnership. Therefore, Scott’s capital gain is $5,000 ($25,000 amount realized – $20,000 adjusted basis).
Partners Basis
A partner’s basis in a partnership is his or her adjusted basis in the property contributed, plus income recognized by the partner for receiving the interest in exchange for services.
