Tax - Partnership Taxation

Question 1

False. Income and expenses flow through to the partner to be taxed via a
Form K-1.

Answer 1

Partnership taxation

Question 2

Neither gain nor loss is recognized in an exchange of property for a partnership interest. It is a non-taxable event.

Answer 2

Partnership taxation

Question 3

Initial basis for partnership property is the basis of the property that was contributed or exchanged for the partnership interest.

Answer 3

Partnership taxation

Question 4

It is a taxable event; treated the same as compensation for the services. The taxable income equals the % of partnership interest received times the FMV of the partnership.

i.e. the FMV of the interest received is the taxable income for the service provider.

Answer 4

Partnership taxation

Question 5

The basis in the partnership interest is the amount of taxable service revenue provided by service provider.

Answer 5

Partnership taxation

Question 6

The partnership inherits the holding period of the asset contributed.

The exception of inventory- the holding period begins when contributed.

Answer 6

Partnership taxation

Question 7

Tax treatment is the same as that of an individual taxpayer.

However syndication fees are not deductible or amortized.

Answer 7

Partnership taxation

Question 8

COGS
Wages - except for partners
Guaranteed payments to partners
Business bad debt (if on accrual basis)
Interest paid
Depreciation (except section 179)
Amortization (Startup costs; goodwill; etc)

Answer 8

Partnership taxation

Question 9

Losses cannot be taken beyond a partner’s basis in the partnership

Losses in excess of basis are carried forward until basis is available

Answer 9

Partnership taxation

Question 10

They appear in partner’s income during the year in which the partnership’s fiscal year CLOSES.

Answer 10

Partnership taxation

Question 11

Health insurance; life insurance and other benefits paid on behalf of the partner are treated as guaranteed payments and are includable as self-employment income.

Answer 11

Partnership taxation

Question 12

Partner’s % share of ordinary income from partner’s K-1
+ Guaranteed payments
- Partner’s % share of section 179 expense from K-1
= Self-employment income (subject to SE tax)

Answer 12

Partnership taxation

Question 13

Partner’s basis is basis of goods exchanged or for services exchanged is FMV of partnership interest received.

If purchased; purchase price less liabilities incurred = basis.

For a gifted interest in a partnership; gift basis rules apply.

Answer 13

Partnership taxation

Question 14

Foreign tax paid
Investment interest expense
Section 179 expense
Charitable contributions

Mnemonic: IFC179

Answer 14

Partnership taxation

Question 15

Passive Income
Portfolio Income
1231 Gain or Loss

Mnemonic: PP1231

Answer 15

Partnership taxation

Question 16

Beginning partnership basis
+ Capital contributions
+ Share of ordinary partnership income
+ Capital gains
+ Tax-exempt partnership income (DON’T FORGET!)
= Ending partnership basis

Answer 16

Partnership taxation

Question 17

Money distributed
Adjusted basis of property distributed
Partners’s share of ordinary losses
Partnership is relieved of a liability (considered a distribution)

Answer 17

Partnership taxation

Question 18

Partnership getting a loan
Capital contributions
Ordinary income
Capital gains
Tax-exempt income

Answer 18

Partnership taxation

Question 19

If the partnership gets a loan; this INCREASES basis.

If partnership is relieved of a liability; this DECREASES basis.

Answer 19

Partnership taxation

Question 20

They do not affect basis- they are already included in ordinary income; which affects basis.

Answer 20

Partnership taxation

Question 21

1. Increase basis (all items; including tax-exempt income)
2. Distributions
3. Losses (limited to basis)

Answer 21

Partnership taxation

Question 22

It must be the same as 50% of the partners and use the same tax year for 3 years once adopted.

Answer 22

Partnership taxation

Question 23

The taxable year closes with respect to the decedent partner’s interest ONLY.

Answer 23

Partnership taxation

Question 24

1. They have inventories
2. Partnership is a tax shelter
3. Has a corporate partner
4. Gross receipts are $5 Million or more

Exception: If gross receipts are $1 Million or LESS and Partnership maintains inventories; Cash method is ok.

Answer 24

Partnership taxation

Question 25

When there is less than 2 partners (only one partner)

When 50% of the partnership interests sell within a 12 month period- partnership IMMEDIATELY terminates.

Answer 25

Partnership taxation

Question 26

Gain or Loss = Amount realized on sale - basis in partnership interest

Answer 26

Partnership taxation

Question 27

Basis = Capital account + Liabilities assumed

Answer 27

Partnership taxation

Question 28

As ordinary gain/loss.

Items that fall into non-capital category would be unrealized receivables; appreciated inventory; and similar.

Answer 28

Partnership taxation

Question 29

FMV of Assets (non-capital)
- Adjusted basis of assets
= Ordinary gain
x Partner’s % interest
= Partner’s share of gain

Note: No gain or loss will be recognized by a partnership upon distribution of property.

Answer 29

Partnership taxation

Question 30

1. Money distributed
2. Adjusted basis of unrealized receivables and inventory
3. Adjusted basis of other property

Note: Only MONEY distributions will trigger a gain in a partnership distribution.

Answer 30

Partnership taxation

Question 31

Only in a liquidating distribution.

Answer 31

Partnership taxation

Question 32

1. Money was distributed
2. Unrealized receivables were distributed
3. Appreciated inventories were distributed

Otherwise; no loss recognized.

Answer 32

Partnership taxation