R4 - big topic 2/3 - partnership

Question 1

I. Formation of the partnership

Answer 1

A. GR
No gain or loss is recognized.

B. Exceptions - taxable to the partner

1. Service = ordinary income = FMV
2. Excessive liability (Boot) = PARTNER BASIS - par’s individual liab.

Nolan receives an interest in the partnership for services performed. The services are valued at the fair market value of what is received (the partnership interest) of $120,000, regardless of what Nolan’s normal billing for these services might have been.

Question 2

I. Formation - Core formula

Answer 2

Basis of contributing partner’s interests
1. initial basis
Cash - amount
+Property - adjusted basis
+Services - FMV
- (Liability) - incoming par’s liabilities assumed by others**the remaining part is still my problem. not in here. = (1 - my share%) total liability
+ Liability - other’s liability assumed by incoming par
= Initial Basis

Initial basis can NEVER go negative.
any access is taxable gain (boot).

Question 3

I. Formation - Basis of contributing par - 2. Property Subject to a (excess) liability

Answer 3

core formula
cash
\+ property @ adj basis
\+ service @ fmv 
- liability (1-my share%) 
\+ liability (my share% * other liability) 
= basis 

if (cash + property @ adj basis + service @ fmv + liability (my share% * other liability) > (- liability 1-my share%))

• > basis = o
• > excess is taxable gain.

Question 4

I. Formation - Build-in gain or loss allocation

Answer 4

if fmv > adj. basis or fmv<adj. basis, build-in gain/loss exists and MUST be allocated back to 主人.

Question 5

I. Formation - Partnership Basis

Answer 5

partnership basis = GREATER of contributor basis (NBV) or assumed liability (100% liability)

Question 6

II. Operations - Core Formula

Answer 6

Beginning CAPITAL Account (cash+ nbv pro+fmv srv -%liab)
+ % ALL INCOME (ordinary + capital + tax free)
- (% ALL LOSSES) (up to his basis)
- (WITHDRAWALS)
= Ending capital account
+% Recourse Liabilities
= Year End Basis

**Partnership basis = Capital account + my % liability

Question 7

III. Taxation (Form 1065 + Schedule K and K-1) -

A. tax periods

Answer 7

A. due date - 4/15; max deferral - oct., nov. dec (3 months)

When terminate

• operations cease
• 50% + total partnership interests in both capital and profits is sold in 12 months
• less than 2 partners

Termination effect:
1. deem old par’s contribution -> 2. 假装recontribution and move into a new partnership

Question 8

III. Taxation (Form 1065 + Schedule K and K-1) -

B. Transactions between par and partnership

Answer 8

B. Transactions between par and partnership
GR - partnership and par trading = partnership trading with outsider.
2 limits about 50% holding par
1 - Loss = no allow WRaP - controlling par (50%+ holding) = relative. Loss is not allowed.
2 - Gain = Ordinary income

Question 9

III. Taxation (Form 1065 + Schedule K and K-1) -
C. Determination of par’s share of income, credit and deductions

• 1. taxable income
• 2. tax losses

Answer 9

1. taxable income (ALL income * partner%)
2. Tax Losses
   - can offset ordinary income
   - the “3” Hurdles
   a. tax losses limited to Tax Basis
   Limitation = Par’s adjusted basis = capital account + my%x other’s liability

b. at-risk
c. passive loss

***Carryforward -> can be carried forward and offset future basis.

Question 10

很重要！！

Capital account and Basis

Answer 10

Capital Account = Cash + FMV@ Service + NBV@Property - (1-my%)xmy liab.

Basis = Cash + FMV@ Service + NBV@Property - (1-my%)xmy liab. + my%x other’s liability

Question 11

III. Taxation (Form 1065 + Schedule K and K-1) -
C. Determination of par’s share of income, credit and deductions

3. Guaranteed Payments

Answer 11

3. Guaranteed Payments = reasonable compensation paid to partner for services WITHOUT regard to his ratio of income.

TWO DEDUCTIONS - on partnership and income to the partner

Question 12

V. Nonliquidating distribution

Answer 12

A. General - non taxable
B. Basis reduction on par’s basis = cash or adj. basis
C. Property = adj. basis

**D. reduction limitation
assigned basis CANNOT exceed basis in partnership.
example:
1. par’s basis > adj. basis of prop received
no gain recognized. new basis = old basis - adj. basis

2. par’s basis < adj. basis of prop received
   new par basis = 0 (Stop at Zero)
   new basis on property = left over

E. Gain on excess cash
gain only recognized when cash distributed > par’s basis (Before distribution)

唯一的gain！

Question 13

Nonliquidating distribution - new basis for distributed property

Answer 13

Hart’s adjusted basis in Best Partnership was $9,000 at the time he received the following nonliquidating distributions of partnership property:
Cash $5,000

Land
Adjusted basis 7,000
Fair market value 10,000

9,000
- 5,000 (cash distributed)
= 4,000 (remaining basis)

4,000
- 7,000 (land adjusted basis)
= 0 (stop at zero)

new land basis received = 4,000 -> non-liquidating partnership

如果是loss, exceed loss 可以carryforward 为offset以后的basis. 但这里是distribution。

Question 14

VI. Liquidating Distributions

Answer 14

• complete withdrawal
• sale of partnership interest
• retirement of death

Question 15

VI. Liquidation - 1. complete withdrawl

Answer 15

Nontaxable Liquidation

1. get the par basis on the withdrawal date
   Adjusted basis @ withdrawal date
   - cash Withdrawal
   = left over (ALL allocated to ASSETS WITHDRAWAL)
   彻底清零
2. Gain recognized
   那是那个gain = Money received > par basis
   只有这么一个gain
3. Loss recognized
   if cash withdrawal + property basis > par adj basis
   LOSS

Question 16

VI. Liquidation - 2. sale of partnership

Answer 16

Sales of partnership = Capital gain or loss (general)

Core Formula
Beg. Capital Account
\+/- % income or loss
= Capital account @ sale date
\+ my% of partnership liab.
= Adjusted basis @ Sale Date
- Sales price (= cash + my% of partnership liab (cod) + FMV Property ) 
-------------------------------
Gain or loss (Capital) 

***Exception (Ordinary Income)
HOT ASSETS 
- unrealized (cash basis)receivables
- Appreciated inventory 
- "recapture income"

Question 17

VI. Liquidation - 3. Retirement of Death of Partner

Answer 17

capital gain or loss