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Flashcards in Partnership Taxation Deck (32)
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1
Q

REG

True or false? Partnerships are a taxable entity.

A

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

2
Q

REG

When exchanging property for a partnership interest; how is gain or loss recognized?

A

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

3
Q

REG

What is a partner’s basis in partnership property?

A

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

4
Q

REG

When services are exchanged for a partnership interest; how is this treated for tax purposes?

A

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.

5
Q

REG

What is the partner’s basis in a partnership when they provide a service in exchange for the interest?

A

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

6
Q

REG

What is the holding period of an asset that has been contributed to a partnership?

A

The partnership inherits the holding period of the asset contributed.

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

7
Q

REG

What is the tax treatment of startup costs for a partnership?

A

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

However syndication fees are not deductible or amortized.

8
Q

REG

What deductions are subtracted from gross revenues to arrive at partnership income?

A

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)

9
Q

REG

How are partnership losses taken on an individual’s return?

A

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

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

10
Q

REG

When are guaranteed payments to a partner includable in taxable income?

A

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

11
Q

REG

How are partner benefits paid by the partnership treated?

A

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.

12
Q

REG

How is net self-employment income from a partnership interest calculated?

A

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)

13
Q

REG

In general; what is a partner’s basis in partnership property purchased?

A

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.

14
Q

REG

Which items are not deductible on Schedule K of form 1065?

A

Foreign tax paid
Investment interest expense
Section 179 expense
Charitable contributions

Mnemonic: IFC179

15
Q

REG

Which items are not counted as income on Schedule K of form 1065?

A

Passive Income
Portfolio Income
1231 Gain or Loss

Mnemonic: PP1231

16
Q

REG

How is adjusted partnership basis calculated?

A

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

17
Q

REG

What items DECREASE partnership basis?

A

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

18
Q

REG

What INCREASES partnership basis?

A

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

19
Q

REG

How do liabilities either INCURRED or RELIEVED affect a partner’s basis in a partnership?

A

If the partnership gets a loan; this INCREASES basis.

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

20
Q

REG

How do guaranteed payments affect partnership basis?

A

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

21
Q

REG

What is the order in which basis is adjusted in a partnership?

A
  1. Increase basis (all items; including tax-exempt income)
  2. Distributions
  3. Losses (limited to basis)
22
Q

REG

How is the taxable year of a partnership determined?

A

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

23
Q

REG

How does death of a partner affect the partnership’s taxable year?

A

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

24
Q

REG

When CAN’T a partnership use cash basis?

A
  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.

25
Q

REG

When does a partnership terminate?

A

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.

26
Q

REG

How is gain or loss on sale of a partnership interest calculated?

A

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

27
Q

REG

What is the new basis of a partnership interest sold?

A

Basis = Capital account + Liabilities assumed

28
Q

REG

How is the sale of non-capital partnership property treated?

A

As ordinary gain/loss.

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

29
Q

REG

How is a partner’s share of an ordinary gain calculated?

A

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.

30
Q

REG

What is the order of basis reductions for distributions from a partnership?

A
  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.

31
Q

REG

When can a LOSS occur in a partnership distribution?

A

Only in a liquidating distribution.

32
Q

REG

What are the requirements for recognizing a gain in a partnership liquidating distribution?

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

Otherwise; no loss recognized.