Taxes: Transactions with Partners

Question 1

Taxes:
Transactions with Partners
Guaranteed Payments

Answer 1

Guaranteed Payments

• made to partners without regard to partnership income
• received for services or capital investment
• ordinary income to recipients at year-end
• reduce partnership income and therefore reduce each partner’s distributive share
• deemed paid on last day of tax year, regardless of date of payment

Question 2

Taxes:
Transactions with Partners
Built-In Gains & Losses

Answer 2

Built-In Gains & Losses
- allocated back to contributing partners when property is sold
- up to gain/loss realized on sale
- character is determined by use to partnership
Exceptions
1. sales of contributed ordinary income or loss property (inventory or AR), generate ordinary gain/loss to contributing partner (limit 5 years) (no time limit for AR) then all gain/loss is ordinary
2. same for contributed capital assets