Partnerships Flashcards
How is the creation of partnership treated?
Cash or property - tax free, carryover basis and holding period
Services - ordinary income at FMV on date services provided
What is a guaranteed payment?
P-ship:
Considered deductible ordinary expense as part of net business income
Paid like salary not based on income
Not separately stated to P-ship
Partner:
Separately stated and taxable
Does not separately affect basis but included in partner income
How is a partner’s basis calculated?
Initial basis
+ Income/Loss (including muni bond interest)
- Distributions Received
+ Partner’s % of recourse P-ship liabilities
- Liabilities contributed to P-ship
= Ending basis
What is outside and inside basis?
Outside - partner basis in P-ship
Inside - partnership basis in their assets
What is the “At Risk” amount?
At Risk =
+ Amount of equity contributed
+ Share of P-ship liabilities
+ Assets pledged to meet obligations
How is partnership tax year determined?
Generally required to adopt same tax year as partners or majority of partners
If no majority, use least aggregate deferral method
When can partnership use a tax year other than normally required year?
If meets either:
1) has valid business purpose for alternate year OR
2) makes a Section 444 election that allows no more than 3 months of income deferral
How are non liquidating partnership distributions treated?
Cash - excess distribution over basis = Gain
Property - No G/L, use lower of p-ship or partner basis
How are liquidating partnership distributions treated?
Cash, inventory, and unrealized receivables - excess distribution over basis = Gain
Property - No G/L, use partner basis, must go to 0
What is the amount realized in a partnership sale?
Cash and property received
+ Debt relief
What are “Hot Assets”?
Inventory
Accounts receivable
Unrealized depreciation recapture
Must be reported as ordinary income in a sale
When does a partnership terminate?
When any occur:
Business and financial operations are discontinued
Business is reduced to one partner
>=50% partnership interests change hands within 12 month period, use date of transfer to determine termination
What are characteristics of an LLC?
Formal creation
>= 1 person
Limited liability for contracts and debts
Unlimited liability for malpractice or negligence
Agents/members
Taxed as P-ship, or Corp or Schedule C
What are characteristics of LLP?
Formal creation
>= 2 people
Limited liability for malpractice or negligence
Unlimited liability for contracts and debts
Agents
Taxed as P-ship, or Corp
