REG - Tax - Partnership Flashcards
Partnership has fiscal year ending 9/30. Partner A files tax return on calendar basis. Partnership paid A a guaranteed salary of 1k/month for calendar year 2010 and 1.5k for 2011. After deducting salary, the partnership realized ordinary income of $80k for YE 9/30/2011 and 90k for 9/30/2012. A’s share of profits is the salary and 40% of ordinary income. What is A’s TI from partnership for 2011?
Both distributable shares of income and guaranteed pmts are reported by partners for theyear in which the end of the partnership fiscal year occurs.
Guaranteed pmts from (10/1/10 to 9/30/11) is 1k at 3 months and 1.5k at 9 months + share of ordinary income (80kX 40%) = 48.5k
ABC partnership are equal partners A basis in partnership interest is 70k. A receives a liquidating distribution of 10k cash and land with FMV of 63k and basis of 58k. What is A’s basis in the land?
When is gain or loss recognized?
A distributee partner can recognize loss only upon the complete liquidation of the partner’s interest and then only if what is received consists of solely money, unrealized receivables, or inventory. Since A received land in the liquidating dist, no loss can be recognized and the land has to absorb all of the remaining partnership basis after it is first reduced by cash received. Partnership basis of 70k is reduced by 10k cash, and land basis is remaining 60k.
No gain is recognized only if the cash received exceeds the basis of the partnership interest.
A owns an 80% interest in the capital and profits of partnership. A buys land from partnership at FMV for 10k when basis was 16k. The year end NI is 94k after deducting the 6k loss on land. What is A’s distributive share of ordinary income from the partnership?
80k. The recognition of loss is disallowed on a sale or exchange between a partnership and a person who owns (directly or constructively) more than a 50% partnership interest. The 6k realized loss on the sale of land must be added back to the partnership’s NI.
What happens on the liquidation of a partnership? What would be the basis in real estate?
Generally, neither a partnership nor a distributive partner will recognize gain or loss on proportionate distributions in complete liquidation of a partnership. As a result, a partner’s basis for distributed property is generally the same as the partnership’s former basis for the property. However, since a distribution cannot reduce the basis for a partner’s partnership interest below 0, the distributed property’s basis to the partner is limited to the partner’s basis for the partnership interest before the distribution.
How do you determine a partner’s basis in the partnership? Given cash, stock with FMV and basis, and cost of computer
The basis of a partnership interest acquired through a contribution of property equals the amount of cash contributed plus the adjusted basis of any other contributed property. For example, cash + basis of stock, + cost of computer.
What happens when partnership is liquidated with cash, inventory and land? Outside basis of partner’s interest is given and partner sells the inventory and land - what income is reported?
Ex: 4k cash, inv basis 4k 6k FMV, land basis 5k FMV 3k.
Outside basis = 12k. Sold inv for 5k and land for 3k.
1k ordinary gain and 1k capital loss
No gain or loss would be recognized by the partner upon receipt of the cash, inv, and land in complete liquidation of his partnership interest. The 12k basis of his interest would be reduced by cash of 4k first and then the 4k basis of inv, with the remaining 4k becoming the land basis. The subsequent sale of the inv with a basis of 4k and price of 5k results in 1k ordinary income. It is ordinary income as it is sold within 5 years of its receipt. Assuming partner held land as capital asset, the sale results in 1k capital loss.
What is the effect of a 100k increase in partnership liabilities?
Since partners are liable for partnership liabilities, a change in the amount of partnership liabilities affects a partner’s basis for a partnership interest. When partnership liabilities increase, the increase is treated as if each partner individually borrowed money and then made a capital contribution of the borrowed amount. As a result an increase in partnership liabilities increases each partner’s basis in the partnership by each partner’s share of the increase.
When would a gain or loss be recognized on a nonliquidating distribution? Example - non cash dist, 70k partner basis, cap assets basis 65k and FMV 83k
Gain recognized if the money received exceeds the partner’s basis in the PS. Gain or loss can also be recognized if a nonliquidating dist is disproportionate with respect to the partner’s interest in partnership property. A dist is disproportionate if the partner receives more than the partner’s share of unrealized receivables, and substantially appreciated inventory, and in return relinquishes a share in other assets, or receives more than the partner’s share in capital and sec1231 assets, and in return, relinquishes an interest in the partnership’s unrealized receivables and substantially appreciated inv.
Transferred basis of 65k in cap assets and a basis of 5k for continuing partnership interest.
What is deductible in computing partnership ordinary income?
Guaranteed pmts to partners are deductible.
There would be no net operating loss (NOL) dedn, since prior losses would have already been passed through to partners.
Charitable contributions are subject to % limits, they must be separately passed through to partners and cannot be included in computing ordinary income.
A dedn for partner’s personal exemptions is not allowed on partner or PS’s tax return.
How does a partner’s basis change? Example, 75k cash contrbution, guaranteed pmt only to him of 20k, total PS loss of 18k after making 20k pmt, 2 equal partners
A partner’s original basis in the PS consists of his capital contribution. It increases by the partners distributive share of income, and decreases by distributions from the PS and the partner’s distributive share of any PS losses.
75k less 9k = 66k basis
The 20k guaranteed pmt is already reflected as dedn in computation of PS loss. Receipt of the guaranteed pmt is reported as ordinary income by partner.
What is and is not allowed for guaranteed pmts to partner?
Guaranteed pmts are pmts made to a partner for services or for the use of capital if the pmts are determined without regard to the amount of PS income. Guaranteed pmts are deductible by a partnership in computing its ordinary income or loss from trade or business activities and must be reported as self employment income by the partner receiving pmt. A pmt that represents 10% interest in PS profits cannot be classified as a guaranteed pmt because the pmt is conditioned on the PS having profits and thus is not guaranteed.
Calculate basis in the PS if given property for 50% interest. Property has FMV of 10k, basis of 6k and 9k mortgage assumed by PS.
Partner’s basis is the 6k basis less the net decrease in individual liability resulting from the PS’s assumption of mortgage 4.5k. The partner’s basis is 1.5k then.
How do you calculate partner’s PS basis at the end of the year?
A partner’s beginning basis is increased by the partner’s distributive share of all income items (incl tax exempt income) and is decreased by all loss and dedn items, as well as distributions received from the PS. A partner’s basis is increased by a net increase in PS liabilities in the year, or decreased if there is a net decrease in PS liabilities.
Beginning basis 10k + share of ord income 7.5k + share of tax exempt income 1k + share of NI in partnership liabilities 3k - dist to partner received 3k = 18.5k
How do you calculate distributive shares to be included in gross income? Example: A,B,C are equal partners. Feb 28, 2011, A sold interest to D. March 31, B died and estate held interest for rest of year. PS had fiscal year of June 30, 2011 and profit of 45k. Assuming PS income earned on pro rate monthly basis, and all partners are calendar year taxpayers.
C has 1/3 share of 15k.
A closes on Feb 28 with 45kX1/3X8/12 =10k
D has other 5k
PS tax year closes as of date of death so B would have 11.25 and estate of B has 3.75.
Where is the at risk limitation provision used?
A partner’s share of PS losses is generally deductible by the partner to the extent of the partner’s at risk basis for the PS interest at the end of the PS year.
Note that these at risk rules apply at the partner level, not the PS level.
