R4 Partnership Taxation

Question 1

What is the initial basis of a partner’s interest?

Answer 1

Cash

+ Property

• % (Liabilities) assumed by other partners

+ Services provided @ FMV (and taxable to partner)

+ % Liabilities assumed from the other partners

= Begining Capital Account

Question 2

What is the basis of contributed property to the partnership?

Answer 2

Is the partner’s NBV increased by any gain recognized by the partner on the contribution.

Question 3

State the holding period for a parnter’s interest

Answer 3

The holding period is equal to holding period of the property contributed if it is a capital assets or a Section 1231 asset in the hands of the partner.

If the property is an ordinary income asset (inventory) the holding period starts on the date of contribution to the partnership.

Question 4

What is the formula for a partner’s basis in its partnership interest?

Answer 4

Basis= Capital accounts + Partner’s share of recourse liabilities

Question 5

When does a partnership cease to exist for tax purposes?

Answer 5

• When operations cease
• When 50% or more of the total interest (capital and profits) in the partnership is sold or exchanged within a 12 month period
• When there are fewer than 2 partners (becomes a sole proprietorship)

Question 6

What is the treatment of guaranteed payments to a partner?

Answer 6

A guaranteed payment is a deduction on the partnerhsip tax return, and the payment flows through the partners as part of ordinary business expense on the K-1

Then because the partner is not considered an employee, the payment must be included as self-employment income on the patner’s return

Question 7

what is the limit on the deductability of a partnership loss to a partner?

Answer 7

• Partnership loss deduction to a partner is limited to the partner’s adjusted basis in the partnership interest (called “at riks” provision)
• Any unused loss can be carried forward and used in a future year when basis becomes available
• The partner also may be subject to passive activity loss limiations

Question 8

How are the partnership income and losses reported?

Answer 8

On Schedule K-1

1. Net business income or loss
2. Guaranteed payments to partners
3. Net “Active” rental income or loss
4. Net “Passive” rental income or loss
5. Interest Income
6. Dividend Income
7. Capital gains or losses
8. Charitable contributions
9. Section 179 “bonus depreciation”
10. Investment interest expense
11. Partner’s health insurance premiums
12. Retirement plan contributions (as income)
13. Tax credits

Question 9

How are partnership losses treated at the partner level?

Answer 9

A partner reports losses on the partner’s income tax return to the extent the partner has basis

A partner’s loss in excess of the partner’s basis, and any loss not allowed on account of the “at risk” rules or the “passive activity loss” rules will be carried forward indefinitely (and remain suspended until basis becomes available or the partner disposes of the entire partnership interest)

Question 10

When a partnership is terminated, what basis does the partner assume for distributed property?

Answer 10

• Upon termination, the partner’s basis in the property distributed from the partnership is equal to the partner’s basis in the partnership interest reduced by any money received
• the holding period of the property includes the partnership’s holding period

Question 11

What partnership income and losses reported on the information schedule 1065?

Answer 11

The detail is reported in form 1065:

1. Business Income
2. <business></business>
3. <guaranteed></guaranteed>
4. Net Business Income or Loss
5. Partner’s health insurance premiums
6. Retirement plan contributions (keogh plan)