Module 2: Partnerships: Part 1

Question 1

What is profits interest in a partnership?

Answer 1

The right to share in the future profits of the partnership

Question 2

What are the exceptions to nonrecognition of gain?

Answer 2

1. Capital interest acquired for services rendered (FMV)

2. Property subject to (excess) liability = boot/loot = gain to partner

Question 3

Initial basis calculation

Answer 3

Cash
Property (NBV)

Services (FMV)
Liabilities of other partners

Question 4

What is the holding period for partnership interest?

Answer 4

Use “old” (contributed) asset’s holding period (PPE)

Question 5

What increases the partner’s basis?

Answer 5

pro rata share of income and increase of partnership iabilities

Question 6

What decreases the partner’s basis?

Answer 6

pro rata share of losses and decrease in partnership liabilities

Question 7

What happens if a partner contributes property with an FMV that is higher or lower than the property’s adjusted basis (NBV)?

Answer 7

Upon the subsequent sale of that property, the “built-in” gain or loss that existed at the date of contribution must be specially allocated to the contributing partner

Question 8

What is the partnership’s basis of contributed property?

Answer 8

Carryover basis plus any gain recognized by the incoming partner

Question 9

What is the partner basis formula?

BASE

Answer 9

Beginning capital account
Add:
- % of all income (ordinary, capital, tax-free)
Subtract:
- % of all losses
- withdrawals
= Ending capital account
\+ % liabilities (recourse and nonrecourse)
= Year-end basis

Question 10

Form 1065?

Answer 10

Partnership tax return

Information return

Question 11

When does a partnership terminate?

Answer 11

1. Operations cease
2. 50% or more of totaling partnership interest in both capital and profits is sold/exchanged w/in 12-month period (technical termination)
3. Fewer than 2 partners

Question 12

What are the limitations to a transaction between partner not acting in capacity of partner (outsider) and partnership?

Answer 12

1. Related party loss (WRaP) is disallowed

2. Related party gain is ordinary income

Question 13

Without the election to adopt an annual accounting period, what is the required tax year for the partnership?

Answer 13

A tax year of one or more partners w/more than 50% interest in profits and capital