R4: Property, Partnership, and Estate and Gift Taxation Flashcards
How is a partner’s basis calculated in a newly formed partnership?
Cash contribution + Adjusted basis of non-cash property - share of liabilities assumed by other partners
When contributing property to a partnership, when is a gain calculated?
If the liability assumed is greater than the the basis of the property, then a gain is recognized. (FMV is irrelevant.)
What is the basis of a nonliquidating distribution of property to the partner?
The partner’s basis of the distribution is the adjusted basis of the property from the business but only up to the value of the partner’s adjusted basis in the partnership.
When should the gain on retirement payments be recognized?
Payments made in liquidation of the interest of a retiring partner are considered a distribution by the partnership. Therefore, a retiring partner continues as a partner until his interest has been completely liquidated by partnership distributions. The gain is recognized in the year the final payment is made.
What is the basis of a liquidating distribution of property to the partner?
In a liquidating distribution, the partner’s basis for the distributed is the same as the adjusted basis of his partnership interest, reduced by any monies received in the same transaction.
How does an increase in partnership liabilities affect the partner’s basis?
The partner’s original basis is increased by the portion of the liabilities assumed by the partner (the partner’s share percentage of the liabilities).
What income increases a partner’s basis?
All income (including tax free income) increases a partner’s basis
How is the partner’s basis calculated when partnership interest is received for services rendered?
If a person receives an interest in the capital of a partnership as a result of prior employment service, the FMV of the interest acquired represents ordinary income to the recipient and is the basis of the partnership interest acquired.
What is the gain on property contributed to a partnership?
There is no gain or loss recognized when a partner contributes property to a partnership in exchange for a partnership interest. Instead, the basis of the property contributed carries over and becomes the partnership’s basis in the property. Likewise, the basis of the porperty contributed net of any related loans assumed by the other partners, becomes the new partner’s basis in the partnership interest. When the property is later sold by the partnership, any gain recognition to the extent of the unrecognized gain would be specifically allocated to the partner who contributed the property to the partnership.
What amount of partnership income is taxable?
A partner must include his allocated share of partnership income, even if not received in cash, in his tax return for his taxable year within which the taxable year of the partnership ends.
Who controls a grantor trust?
When the creator is treated as the owner of a trust, it is referred to as a grantor trust.
How is the gain or loss of a stock option treated?
An option held by an investor is a capital asset. A capital asset which is sold or exchanged within one year of acquisition will generate either a short-term capital gain or loss. The cost of worthless stock or securities is treated as a capital loss as if they were sold on the last day of the taxable year which they became totally worthless.
How are partnership built-in gains treated?
The difference between the tax basis and the FMV on the date the partnership was formed is a built-in gain to the contributing partner. Accordingly, the built-in gain is allocated to the contributing partner and the remaining gain is then shared equally by all of the partners (including the contributing partner).
What is an attribute exclusively of a complex trust?
Complex trusts may accumulate distribute corpus (principal).
What is the tax year of an estate?
An estate may choose the same accounting period as the decedent, or it may choose a calendar year or any fiscal year it wishes, with a few exceptions.
