R5 - Partnerships Pt 1, 2, 3

Question 1

Profits Interest Acquired for Services Rendered

Answer 1

No gain is recognized.

Question 2

Taxable Events for Partners

Answer 2

• Capital Interest Acquired for Services Rendered: Partner recognizes Ordinary Income pro rata of the liquidation value of assets.
• Property Subject to Excess Liab: Excess liab assumed by other partners is Boot.

Question 3

Basis of Partner’s Interest

Answer 3

Cash 
(+) NBV
(+) Services (FMV) 
(+) Liabilities You Take On (from partnership)
(-) Liab You Put In (not 100%)

Question 4

Net Basis

Answer 4

NBV Assets - Other Partner’s % liab assumed

Question 5

Property Subj to a Liab = Boot

Answer 5

NBV Assets - Other Partner’s % liab assumed = Negative Basis
* Negative basis is Taxable boot to arrive at zero basis.

Question 6

Holding period

Answer 6

PPE = Contributed prop holding period

Ord Income Asset (Inventory) = Holding period begins on the date the property is contributed to the partnership.

Question 7

BIG Tax

Answer 7

• Applies to partner when prop is subsequently sold.

- Must be allocated to Partner

Question 8

Partnership’s basis for Contributed Property

Answer 8

Greater of:

• NBV
• Debt Assumed

Question 9

Tax Losses

Answer 9

Limited to:

1. Tax Basis
2. At Risk Amount = Same as S Corps
3. Passive Activity
4. Excess Business Loss = Max deduction per Year ($500K MFJ; $250K S)

Question 10

CF of Loss

Answer 10

Disallowed due to limitations mentioned above.

Question 11

Nonliquidating Distributions

Answer 11

Basis is reduced by cash and basis of property distributed.

Basis to partner on property distributed cannot be negative.

Question 12

Gain on Excess Cash

Answer 12

Cash - Basis = Gain

Question 13

What element of partnerships is not included in QBI?

Answer 13

Guaranteed payments.

Question 14

Loss Limitations

Answer 14

TAPE

Question 15

Complete Withdrawal Liquidation Calc = Zero out to get out

Answer 15

Beg Capital Account
(+) % of Income (Loss)
1. (=) Partner Cap Account
(+) % of Liabilities
2. (=) Adj Basis at date of Withdrawal
(-) Cash Withdrawn
3. (=) Remaining Basis

Question 16

Complete Withdrawal Liquidation: Taxability

Answer 16

Gain Recognized when cash > basis

Loss Recognized when only cash < basis (no other items received)

Question 17

Distribution of Multiple Assets

Partner’s Basis is Less than Partnership’s Basis in Assets Distributed

Answer 17

Step 0: Start with Basis in partnership prior to distrib
Step 1: Basis in Partnership - NBV = Remaining Basis
Step 2: Adjust remaining basis based on NBV. (Bring basis down to FMV or lowest amount).
Step 3: Get % allocation, and multiply by remaining basis.

Don’t forget to deduct direct write offs!
Do chart, and perform check. It all must tie out to Step 0.

Question 18

Distribution of Multiple Assets

Partner’s Basis is More than Partnership’s Basis in Assets Distributed

Answer 18

Step 0: Start with Basis in partnership prior to distrib
Step 1: Basis in Partnership - NBV = Remaining Basis
Step 2: Adjust remaining basis based on FMV. (Bring basis up to FMV or higher amount)
Step 3: Get % allocation, and multiply by remaining basis.

Don’t forget to deduct direct write offs!
Do chart, and perform check. It all must tie out to Step 0.

Question 19

Sale of Partnership Interest: Capital Gain or Loss Calc

Answer 19

Beg Capital Account
(+) % of Income (Loss)
1. (=) Partner Cap Account
(+) % of Liabilities
2. (=) Adj Basis 
(-) Amount Realized 
3. (=) Cap Gain or Loss

Question 20

Retirement or Death of a Partner

Answer 20

• Generally Cap Gain or Loss
• Ordinary income, if payments measured by partnership income.
• Sec 174

Question 21

Sec 754

Answer 21

When an incoming partner buys out an outgoing partner, they get the FMV, however, the incoming partner gets the old basis for their new partnership. With Sec 754 election, the adjustment is made to match the receiving assets (FMV) of the partnership.