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Flashcards in Partnership Basis Etc. Deck (18):
1

Rule when trade services for cash and interest and equipment?

It's the FMV of everything doesn't matter, doesn't matter if it's a limited partnership, doesn't matter if it's under 80% that's only corps.

2

New partner joins, basis goes from 25% to 20%, do you get less of the liabilities.
Question raises the following:
Liabilities from 150 beginning to 100 end

Are partners capital accounts reduced as liabilites are paid off?

A decrease in partnership liabilities is treated as a distribution of money to the partner.

And how is that reported on the K-1. I think it's in box L the basis box. ON line 19 as a distribution? that doesn't make sense. it says "treated as a distribution"

3

Elections - which are partnership which are individual

General rule

or

What isn't

Stuff that's organizational: accounting methods, tax year, inventory methods, start up/organizational costs, installment sales, sec 179, involuntary conversion gains, depreciation methods

Partners: foreign tax credit or deduction

4

I don't get this but you increase basis for an increase in liabilities, but not for an increase in assets.

Then it says only if the liabilities increase the partnerships assets. Actually ther's a lot of exceptions here to.

if the liability :is a non-deductible, non0capital expense of the partnership. What does that mean.

I give up really.

5

If you sell your partnership interest and there are "hot" assets (receivables and inventory) how does that effect recognition

This was question 542 and a tough one.

Take the percentage of ownership of the gain on receivables and inventory.
Example: 25% of gain, you have to remember it's gain AR 36K and inventory went up by $52K x 25% = 22,000

Now calculate what he got over basis: in this case it was 20K

Guess what only got 20K in cash, but recognizes 22K in ordinary income and a 2K capital loss

6

Which of the following are adjustments to partnership income (i.e., separtely stated items)
Longterm Cap gain
Section 1231 Loss
Dividends
Interest Paid to partners for use of capital

Capital Gains - Yes, take out
Section 1231 Loss - Have no idea what this but add it back
Dividends - take out
Interest Paid to partners for use of capital - guess what no adjustment, not a separately stated item. It's considered an guaranteed payment.

7

What interest paid to the partners for use of capital considered?

A guaranteed payment, meaning the partnership treats it as a ordinary expense before distribution.

8

A guaranteed payment that the partner got on June 30th for a partnership with a FY ending in march is recognized when.

The year after it's paid because the 1099's wouldn't go out until the year ends? Guess so.

9

Now for distributions of partnership property that are liquidating:
What matters:
adjusted basis
FMV

I think we're back to the boot thing, no boot, no gain
Now as far as adjusting the basis for the property received not sure, FMV, if you took the partnerships basis what about gain or loss to the partnership

10

80% concurrent, if cash and property OK, if services that's not. the one who contributes services can't be over 20% and if so no 251 qualification

s

11

What is a Testamentory Trust

A testamentary trust (sometimes referred to as a will trust or trust under will) is a trust which arises upon the death of the testator, and which is specified in his or her will. A will may contain more than one testamentary trust, and may address all or any portion of the estate.[1]

Testamentary trusts are distinguished from inter vivos trusts, which are created during the settlor's lifetime.

There are four parties involved in a testamentary trust:

the person who specifies that the trust be created, usually as a part of his or her will, but it may be set up in abeyance during the person's lifetime. This person may be called the grantor or trustor, but is usually referred to as the settlor;
the trustee, whose duty is to carry out the terms of the will. He or she may be named in the will, or may be appointed by the probate court that handles the will;
the beneficiary(s), who will receive the benefits of the trust;
Although not a party to the trust itself, the probate court is a necessary component of the trust's activity. It oversees the trustee's handling of the trust.

12

What is an intervivos trust


created while still alive
versus
testamentory (think last will and testament)

13

What is the Ultramares doctrine

Ultramares doctrine, a CPA is not liable to third parties for mere negligence, but may be held liable to any party who suffered a loss as a result of fraud or gross negligence. These third parties need not be in privity of contract with the CPA and need not be specifically known to the CPA.

If the client was aware of the fraud and did not rely on the opinion, the client w

14

This surprised me sole proprietorships with gross receipts under 1 million have to use accrual if the have inventories, under 10 million if not. But no way if your in mining, manufacturing, retail and wholesale, IT

Looks like just pure service.

Unless the Internal Revenue Service consents to a change of method, the accrual method of tax reporting is mandatory for a sole proprietor when there are year-end retail trade merchandise inventories.

Any taxpayer (including farmers) that has inventories must use the accrual basis of accounting for purchases and sales.

The accrual method is not required because of having accounts receivable for services rendered.

Regulation Section 1.446-1(c)

Small business exception: The IRS allows small businesses with average annual gross receipts of less than $1 million to use the cash method, even if they have inventories. The cost of items otherwise required to be inventoried are not deductible until sold.

Revenue Procedure 2001-10

Qualified small business exception: The IRS also allows certain taxpayers with qualifying businesses to use the cash method if they have average annual gross receipts under $10 million. Ineligible businesses include mining activities, manufacturing, retail and wholesale trade, and information industries (effective 2002).

15

Partnership Year
It's the same year as used by the partner or partners that own more than _____ of the partnership

If not more than ___ %, then use tax year of all of it's Principal Partners (partners holding more than ____%

If that doesn't work, then tax year that results in _______________________

More than 50%
More than 5%
Least aggregate deferral, if you used 1st partners year 0, calculate to next from1st, calculate to next from first. Add up, average. Move onto next do the same thing. Compare

16

Tax year of partnership is determined by

partner having 50% interest tax year of 50% in profits and capital
then 10% called principal
then deferral

17

The hot assets issue when a partner sells his assets. The question is how much of the cash you get is for ________ versus ________ or ____________. It seems like punishment, but what it's saying is that the unrealized receivables are like boot, or actually they are for income that should have been recognized by the cash based taxpayer during the partnership, but wasn't (because it's in a receivable or in inventory).

Be sure to calculate realized gain first.

Example: Guy gets 154,000 for partnership, plus relief of 20K liabilities, A/R shown on the "cash based" balance sheet are $420. He has a 30% interest (I'm always forgetting to factor this in) and so his share of the receivables are $140,000. This is his realized (ordinary) gain. Now if his basis is 34,000.

REalized = 154+20= 174 -34 basis = Realized 140 Amount of receivables is 140 so this is ordinary gain.

Now basis is 0.

18

What's the first calculation you do when a partner sells his interest.
What's the first thing you notice.
Are the hot assets added to the proceeds in a partnership sale?
Does appreciation matter in a partnership as far as the hot assets?

Compute realized gain - proceeds - basis
What the partnership % is
NO hot assets are not proceeds, used to see how much is ordinary gain.
I don't think so for A/R, maybe for inventory? Yes looks like for inventory it's the appreciation, but not the A/R.
Inventory - Appreciation
Property - Section 1231 Depreciation, rest of appreciation is gain