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REG > R5 Partnership > Flashcards

R5 Partnership Flashcards

1
Q

Formation

A

no gain/loss at the formation

Contribution of property : NBV

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2
Q

Partnership Interest

Capital interest

Profit interest

Service provided to get interest

A

1) Capital Interest:
right to share in the net assets of partnership when liquidated

1.1) Capital Interest acquired for services provided
(taxable = FMV)
- taxed as ordinary income

2) profit interest
right to share in the future profit or loss of the partnership
………………..
2.1) Profit Interest Acquired for Services provided (FMV = 0 )
- not recognized any compensation as ordinary income
- coz the right is to get UNCERTAIN future profits

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3
Q

property subject to an (excess) liability

A
  • excess is assumed by the other partners
  • is gain to the partner - taxable

only a portion that is assumed by other partners is the gain, not the whole liability

( vs. in corp all liability would be gain)

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4
Q

Basis of partner in partnership

“Outside basis”

A

Cash contributed
+ property contributed ( adj. basis)
+ service provided (FMV, if capital interest)
- ( liabilities transferred to the partnership, assumed by other partners)
+ partners share of partnership liabilities ( existing liabilities that were in the partnership & new partner will take on)
—————————————————————–
Partners initial basis in partnership interest

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5
Q

Debt allocation
Recourse

& Nonrecourse

A

1) recourse debt
- go after the partners’ personal property
- allocated to general partners only

2) nonrecourse debt
- limited to the secured property
- General and limited partner based on their relative profit-sharing ratio

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6
Q

Holding period

A
  • Use old contributed property holding period ( PP&E)
    capital asset or section 1231 assets
  • Exception
    Inventory: holding period starts the date the property is contributed
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7
Q

Special Allocation: built-in gain

A
  • if partner contributes property with an FMV that is higher or lower
  • when sold
  • built-in gain is allocated to the contributing partner
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8
Q

Inside Basis

A

Greater of

1) NBV OR
2) Debt assumed

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9
Q

Partner’s tax basis in the partnership interest

A

= Capital account (BASE) + partner’s share of partnership liabilities

B: 
Beginning Capital Account 
Cash 
FMV Services ( = taxable) 
NBV assets 
( liability transferred to partnership) % assumed by others 
A 
\+ % of all income 
ordinary business income 
separately stated income and gains 
tax-exempt income ( increases basis) 
S  ( UP to zeroing out partners basis) 
(- % all losses and deductions)
-ordinary business loss 
-separately stated losses and deductions 
-nondeductible expenses

( Distributions) like a bank account, withdrawals = nontaxable = NBV
-Cash
-property: adjusted basis (NBV)
—————————————————————-
E
ending capital account
+ % partnership liabilities ( recourse & non recourse)
————————————————-
Ending TAX basis in the partnership interest

** tax basis can not be reduced below zero

##note: 
S corp: nonrecourse debt do not increase shareholders basis ( at-risk)
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10
Q

Partnership Tax Return

A

1065 - Due March 15th

  • each partner is liable for only the taxes on his distributive share of partnership income, as reported on Schedule k-1, regardless of whether the distribution is actually made to the partner
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11
Q

Accounting period

termination of partnership

A

Calendar year

partnership terminated when:

  • operation cease
  • fewer than two partners
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12
Q

Related party gains loss

A

related party:
Over 50% interest

related party loss:
Disallowed
R of WRaP

……………………
related party gain
- is ordinary income

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13
Q

Reporting Partnership Income ( Schedule k-1)

A
  • each partner gets one
  • A partner must include on an individual income tax return the partner’s distributive share of ordinary business income or loss and each separately item of income, gain, loss, and deduction
  • Each partner reports their share of net income/loss on schedule E

K is summary of k-1s

Biz Income
( Biz expenses)
( Guaranteed Payments) -> expenses to partnership
———————————
1. ordinary biz income loss ( Sch E)
2. Guaranteed payments to partners ( to that partner as income)
3. net rental estate income/loss ( Sch E)
4. interest income ( Sch B)
5. Dividend Income ( Sch B)
6. Capital gains and losses (Sch D)
7. Net Section 1231 gain (loss) ( Sch D)
8. Charitable Contributions (Sch A)
9. Section 179 expense deduction - separately stated
10. Investment Interest expense
11. PArtners health insurance premiums ( included as part of guaranteed payments) Adju. to partners tax return
12. retirement plan contributions for employees
13. retirement plan contributions for partners ( included as part of guaranteed payments) Adju. to partners tax return
14. Tax credits (reported by the partnership but claimed by partners)

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14
Q

1) Guaranteed payment
2) Tax elections
3) Org expenditures & Start-up costs
4) Section 199A Qualified biz income

A

1) Guaranteed payment:
- Partnership Tax deduction
- Partner Taxable Income as ordinary income
- not included in QBI

1.1 Retirement Payments
payments to retiring partner that is not in liquidation of partnership
- ordinary income to the recipient
- deduction to partnership
—————————————————-
2) Tax elections
- partnership decides ( not the partner)
- tax year: Dec 31st

3) Org expenditures (a) & Start-up costs (b)
5k is phased out after cost exceeds 50k

(a) = 5k/excess 180 months
legal services, accounting services

(b) = 5k/ excess 180 months
training, adv, testing

## syndication cost = not deductible 
raising capital (e.g. offering materials)

4) Section 199A Qualified biz income
20% deduction

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15
Q

Loss limitation

1) tax basis limitation partner level issue
2) at-risk limitation partner level issue
3) passive activity loss (PAL) limitation = real estate losses
4) excess business loss limitation = NOL

A

1) Tax Basis Limitation
- a loss in excess of the partner’s tax basis is suspended
until basis reinstated in future

  • share of debt depend on partner and type of debt
  • when sold, if insufficient tax basis - loss lost forever

2) at-risk limitation
- recourse debt only for general partners
- exception of certain nonrecourse debt
- qualified nonrecourse debt is included in at-risk basis , others are not

  • loss allowed when sold,

3) Passive Activity Loss (PAL) Limitation
- Rental real estate
- only offset passive activity income
- suspended and carried forward
- Fully deduct in year you sell it ( against any income)

4) Excess Business Loss Limitation
- max biz loss that can be deducted in
$524000 (MFJ)
$262,000 (others) accr to 2021

  • CF NOL, is subject to 80% taxable income
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16
Q

Nonliquidating Distributions: Like a bank account withdrawal

A
  • nontaxable
  • reduce the partners basis
  • by cash or adjusted basis (NBV) of property
  1. Property Distribution
    - maybe reduced if the partner does not have a sufficient basis
    - stop at zero

1.1 Basis in partnership interest greater than the adjusted basis of property distributed:
USE NBV to reduce basis

  1. 2 Basis in partnership interest less than the adjusted basis of property distributed:
    - stop at zero
    - no gain
    - ———————————————-
  2. Cash distribution
    - if greater than basis: excess = capital gain
  1. Multiple Assets
    - when partners basis less than the adjusted basis of the asset
    :basis assigned first to Cash then hot assets ( inventory and unrealized receivables) Then to other properties
17
Q

LLC vs. limited partnership

A 
LLC: 
Corporation, but for tax purpose 
if 2 or more owners - partnership 
if 1 owner: sole proprietorship 
if wants to be treated as corp for tax too ( needs to elect)
  • all are limited member

VS.

limited partnership
- needs one general partner

18
Q

Liquidation of partnership
1) complete withdrawal

2) sale of partnership
3) retirement or death

A

1) complete withdrawal (liquidating distribution)

- Nontaxable liquidation 
#Rule: zero out to get out

adj basis
(cash distribution)
——————————-
remaining basis to be allocated to assets distributed

1.1 Gain recognition = exception
Cash > Basis

1.2 loss recognition = expectation
Only cash < Basis
No other items received

1.3 distribution of multiple assets
cash then hot assets then other assets

1.4 Distribution of hot assets only

LOSS if: partners basis > than partnerships basis in assets

19
Q

A) IF partners basis < “less” than partnerships basis in assets

B) IF partners basis > “more” than partnerships basis in assets

A

A) IF partners basis < than partnerships basis in assets

  1. assign a basis
  2. adjust the basis of any assets that have depreciated in value
  3. allocate any basis based on a relative adjusted basis
    * *See R5 M4 page 3 for example**

…………………………………………

B) IF partners basis > “more” than partnerships basis in assets

  1. assign a basis
  2. adjust the basis of any assets that have appriciated in value
  3. allocate any basis based on an FMV
    * *See R5 M4 page 3 for example**
20
Q

Liquidation of partnership

2) sale of partnership

1) complete withdrawal
2) sale of partnership
3) retirement or death

A

2) sale of partnership

GR: Capital gain or loss

Beg capital account
share of income(loss) up to sale
————————————————–
capital account at sale date
Share of partnership liabilities
———————————————–
adjusted basis in partnership interest
( amount realized)
—————————————–
Capital gain/loss

Cash received
+ FMV of property received
+ relied from share of partnership liabilities

Exception:
Ordinary income -if hot assets
(inventory and unrealized receivables)
——————————————————–
2.1 Allocation of partnership income or loss
- allocated pro rata
- based on the number of days

21
Q

Liquidation of partnership
3) retirement or death

1) complete withdrawal
2) sale of partnership
3) retirement or death

A
  • Capital gain or loss

- if measured by partnership income - ordinary income

22
Q

Section 754 election and section 743(b) basis adjustment

A

when sold or exchange or upon death of a partner

if outside basis is not equal to inside basis then make election to adjust
so that inside and outside basis will be equal

see R5 m4 page 7 for example

REG (30 decks)

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