Reg Sec 4

Question 1

Partnership Basis

• Increases Basis in partnership
• decreases basis in partnership
• Contributed is subject to a liab.

Answer 1

• Basis is the amount p partner has a risk in the partnership, basis is not identical to equity/capital.
• Increases basis, Contributions of assets by a partner to partnership, Borrowing and other debts incurred by the partnership, Allocation of partnership income to partner.
• decreases basis, Distribution of assets from the partnership to the partner, Allocation of partnership losses to the partner, Repayments and other reductions of debt o the partnership.

-Contributed is subject to a liability, the partner’s net contribution is reduced because of the contributed liability, but then each partner’s basis is increased by their individual shares of the liability.
Example: ABC partnership is formed by 3 equal partners: Andy and Bille each contribute 100 of cash. Cindy contributes land with a tax basis of 80 and FV of 130, subject to an unpaid mortgage of 30. Andy ending basis is 100 of cash +10( one third of the 30 unpaid mortgage)=110 basis. Bill is the same as Andy, but Cindy since contributing the Land (net liab.) 80 tax basis in land-30 in liab. +10( on third of the 30 unpaid mortgage)=60 basis

Question 2

• Partners renders services for interest
• No partner’s basis is below $0
• Capital (Equity)
• organizational cost

Answer 2

-When a partner renders services, the partner reports ordinary income to FV of the partnership interest being granted, and basis is increased by same amount.

-Basis never declines below 0, Loss blow 0 is not deductible, Cash distribution exceeding basis results in gain, contributed asset subject to higher liab. results in gain.
Example: Get 20% interest by contributing asset with FV of 10,000, basis of 4,000 and mortgage liab. of 6,000. beginning basis is 4,000 + 1,200(liab of 6000*20%) - 6000(mortgage liab) = (800). since basis cannot be negative, a gain of $800 and basis of 0.

• is on a Sch K-1 and is separated form Basis and capital account does not include a partner’s shares of partnership liab. Partnership do not pay taxes.
• organizational cost of 5,000 is deductible and any thing more is amortized over 180 month period for fees to began the partnership.

Question 3

• Separately state item
• Example of ordinary income
• Recognized Gain in Partnership

Answer 3

• Separately stated item not included in Partnership ordinary income. Capital gain/loss, Section 1231 gains/losses, Dividends and interest, Passive activities, Charitable contributions, Section 179 depr election, tax credits.
• Partnership ordinary income are sale, depr, supplies, and salaries
• Gain in a partnership isn’t recognized unless the Cash is more than the basis of the company.

Question 4

-Non-liquidatin distribution

Answer 4

-non-liquidating reduces partner’s basis in the partnership
Assume a partner makes a non-liquidatind distribution of 10 with a basis of 17 the partner basis after distribution for property and land would be 7 for both and Gain or loss of 0. But if the basis was 8 then with cash the partner would recognized a gain of 2 and the property would be reduced to 8 not to exceed the partners basis with 0 basis in partnership.

Question 5

liquidating distribut

Answer 5

liquidating distribution the partner’s basis in the partnership must be reduced to 0. The distribution are as follows: Cash, inventory and unrealized receivable distributions and Property distributions.
Example: if 10 liquidating distribution with 17 basis in business, 17-10 CASH would be a loss of 7 since partner’s basis after distribution is always 0. 17-17 PROPERTY 0 gain or loss and 0 basis (property is adj to beginning basis). If beginning basis was 8 then 8-10 CASH with 0 basis after distribution gain of 2. And 8-8 PROPERTY after basis of 0 and no gain or loss

Question 6

Termination

-partnership distribution

Answer 6

-partner wishes to sell their interest to another party, the amount realized is the sum of Cash and property received plus relief of debt.
Example: Bobby buy Sammy’s 50% interest in a partnership for 375 FMV, the sales of the proceeds to Sammy are 425(Cash of 375 and 50(50%of 100 debt). Assuming Sammy basis before sale was 75(tax basis of 25 and the 50 of debt), so sammy individual tax return is 425-75= gain of 350.

• partnership distribution is treated as return on capital and isn’t tax like ordinary income and guaranteed payments.
• If a partner terminates for tax purposes and business continues, it is treated as a total distribution of assets to partners followed by recontribute of assets to new partner. A partnership terminates when 50% or more of interests change hands within a 12 time.

Question 7

Deductible loss in partnership

Answer 7

A partnership deductible loss is limited to a partner’s adjusted basis in the partnership. Example:
If partners basis is 60,000 at the beginning, the partner receives 20,000 in distributions and 15,000 in capital gains and have a total ordinary loss of 65,000. The partner can only deduct 55,000 (60+15-20) of that loss.

Question 8

Depr Methods

Answer 8

The partnership may use any method of depreciation that is approved by the IRS.