REG 5 - Partnerships: Part 2

Question 1

How are retirement payments to partners treated for tax deductions on partnership tax return? How are retirement payments treated to the partner receiving?

Answer 1

• Deductions to the partnership on return

- Ordinary income to the recipient

Question 2

How do organizational expenditures and start-up costs get expensed and amortized?

Answer 2

• Organizational expenditures are expensed up to $5,000 and the remaining excess is amortized over 15 years (180 months)
• Start-up costs are expensed up to $5,000 and the remaining excess is amortized over 15 years (180 months)

Question 3

What is included in start-up costs? What is excluded in start-up costs?

Answer 3

Included costs:

• Legal services
• Drafting corporate charter
• Bylaws
• Minutes of organization meetings
• Accounting services
• State incorporation

Excluded costs:

• Issuing and selling stock
• Commissions
• Underwriter’s fees
• Costs incurred in transfer of assets

Kristi Corp has following organizational expenses:
Legal fees - $15,000
Accounting services - $5,000
State incorporation - $3,000
Cost of selling shares - $10,000

• Only the $15,000, $5,000, and $3,000 can be used as start-up costs

Step 1) $15,000 + $5,000 + $3,000 = $23,000

Step 2) $23,000 - $5,000 (expense amount) = $18,000

Step 3) $18,000 / 180 months (amortization amount) = $100/month

Question 4

Are syndication costs deductible or nondeductible? (raising money)

Answer 4

Syndication costs (raising money is nondeductible)

Question 5

Can a loss be carried below basis of partner?

Answer 5

No, a loss of a partner that is below basis is limited to basis with excess carried forward.

Question 6

What is the basis assigned to distributed property if asset is distributed below shareholder’s basis?

Answer 6

Asset distributed is at NBV.

Asset distributed may NOT exceed ZERO.

Question 7

Can a taxpayer have a gain on excess cash or excess property distributed as a non liquidating dividend?

Answer 7

Only GAIN ON EXCESS CASH

Cash
- Basis
= Gain

Question 8

Are LLC members in a Limited Liability Company personally liable?

Answer 8

LLC members in a Limited Liability Company are not personally liable.