R4 - Partnerships

Question 0

What goes into partner’s initial basis?

Answer 0

Cash
NBV of property
LESS: liabilities assumed by other partners
FMV of services rendered
Liabilities assumed by the incoming partner

Question 1

How does a partner recognize gain if he contributes services in exchange for partnership interest?

Answer 1

Ordinary income = % equal to his partnership interest in FMV of partnership’s assets

Question 2

What happens if a partner contributes a property with a FMV not equal to its NBV and later on the partnership sells the asset?

Answer 2

The built-in gain/loss existing at the date of the CONTRIBUTION is specially-allocated to the partner who contributed it

Question 3

What is partnership’s basis in the contributed property?

Answer 3

NBV + any gain recognized by the incoming partner, if that election is made

Question 4

What are possible partnership tax years?

Answer 4

Calendar or fiscal - 3 month deferral maximum (oct, nov, dec)

Question 5

What if a partner enters into a transaction with a partnership as an outsider?

F.ex. Buying an asset

Answer 5

If he owns more than 50% - he’s a related party in which case:

Loss - disallowed
Gain - ordinary

Question 6

What is a guaranteed payment?

Answer 6

Distribution to a partner for services or capital provided

WITHOUT regard to partnership income or profit/loss sharing ratio

Question 7

How are payments to a retired partner treated?

Answer 7

Ordinary income to partner

Deduction to partnership

Question 8

Are syndication fees deductible?

Answer 8

No!

Question 9

What happens if a partnership distributes property and partner’s basis is less than NBV?

Answer 9

No gain is recognized!!!

Partner gets basis in the asset = basis in the partnership before distribution after cash received, if any
His basis in the partnership becomes $0

Question 10

In a liquidating distribution how is gain recognized, if any?

Answer 10

Only to the extent of MONEY received

After cash - zero-out to get out

Question 11

Can a partner recognize a loss on a liquidating distribution?

Answer 11

YES - if he only receives cash, unrealized A/R or inventory

Question 12

What is the character of gain on sale of partnership interest?

Answer 12

Capital, unless some or all of it is “hot assets”

Unrealized receivables
Appreciated inventory
Recapture income in depreciable assets owned by partnership

Question 13

If an estate or trust has a capital gain or loss, does it get distributed to the beneficiary?

Answer 13

No - it stays with the trust and is classified as principal absent written provision to the contrary

Question 14

How is DNI calculated?

Answer 14

Gross income less deductions
ADD: adjusted tax-exempt interest

Capital gains are excluded from calculation

Question 15

What are estate and trusts allowable deductions?

Answer 15

Carrying on a trade or business
Production of income
Preservation of income producing property
CPA fees
Charitable contributions - unlimited, if such contribution is provided for in the will

Question 16

What two items are apportioned between principal and income?

Answer 16

Annuities

Interest (bond amortization - principal, the rest is income)

Question 17

What is income distribution deduction limitation?

Answer 17

The lesser of:

Actual distribution
DNI

Question 18

What is estate exemption amount?

Answer 18

$600

Question 19

What are estates and trusts tax years?

Answer 19

Estate - calendar or any fiscal

Trust - calendar ONLY

Question 20

What are simple trust’s features?

Answer 20

Distributions out of income ONLY, not corpus
MUST distribute all of it currently
No charitable contribution deduction

$300 exemption

Question 21

What are complex trust’s features?

Answer 21

May accumulate income
May distribute principal
May deduct charity

$100 exemption

Question 22

What is an estate tax return?
When it must be filed?
What’s the deadline?

Answer 22

Form 706
9 months after death
File only if the gross value of the estate + taxable gifts are over 5,120,000

Question 23

What goes into estate value?

Answer 23

FMV property owned
Insurance proceeds
Incomplete gifts
Revocable transfers
All property entitled to be received

Question 24

What are estate non discretionary expenses?

Answer 24

Medical - estate OR 1040 as an option
Administrative - estate OR 1040 as an option
Outstanding debts
Claims against the estate
Funeral costs
Certain taxes

Question 25

What are estate discretionary expenses

Answer 25

Unlimited charitable and marital deduction