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Flashcards in Partnership taxation Deck (29):

Rule about Partner's Deductible Loss

Limited to his basis plus any amounts that he is personally liable for:

Basis - $60,000
(Add) LT Cap gain:
(less) Cash Distributions received
= $55,000


Formula for Parnter's Basis in Newly Formed Partnership

cash contrib ($20K)
PLUS Adj. basis of prop (eg. $26K)
(LESS) share of P-ship liabilities as distributed among partners (EG $10K mortgage * 50%)


What does a partner's share of partnership liabilities do to a partner's basis in the partnership?

Increases partnership basis.


What is p-ship basis in land upon distributions?

Reduce original basis by cash received (Distribution), and land value is the LESSER of either that difference, or the actual Adj. Basis of the land


What happens when more than 50% of p-ship interests change hands in 12 months?

Pship terminates


What happens when partnership is considered terminated for tax purposes? (hint: RE distributions and contributions)

There is a "deemed distribution" of assets to remaining partners and purchaser

There is "Hypothetical re-contribution" of assets to a new partnership


What are guaranteed payments in a partnership?

A: they are salaries.

They cannot be "% interest in partnership profits" because the % interest is calculated irrespective of profits


When is partnership income taxable to a partner?

It is taxable whether or not it is distributed.

partner X (a 1/3 partner) received a guaranteed payment of $3000.

Pship has undistributed net income of $30,000

What is Partner X's taxable income reported this yr?

=$3K + $10K


What is Section 444 of the IRC? (hint - partnership tax year election rule)

Choose a tax year where the deferral period is not longer than 3 months.


When you compute ordinary income of a partnership, do you deduct guaranteed payments first?



When does partnership terminate when more than 50% of interest is sold off w/in the 12 month period?

On that day


When is there "ordinary gain" to a partner EG upon liquidation of his share of p'ship interest?

A: Unrealized receivables and/or appreciated inventory items


What reduces p'ship basis FIRST upon liquidation?

A: Cash.

Land cannot be counted as a gain if cash distributed already exceeds basis.

Gain from land received is actually NOT recognized in LIQUIDATING distributions only.


When you contribute services to a partnership, what do you consider to be income?

The FMV of partnership interest received.


Rule about partnership elections (EG when are PARTNERS as opposed to whole p'ship allowed to make decisions)

A: When it relates to taxability of income, as the p'ship is generally a flow-through entity


When you render services to a p'ship an receive compensation in exchange, what is it? (hint - 2 aspects)

1) Deal with FMV of compensation

2) Treat as ordinary income since it is a payment for services


When is distributive share to partner taxable?

A: When allocated.
EG allocated in Dec. Y1, it doesn't matter if you receive it all then.



What limitations apply when determining a partner's deduction for partner's share of partnership losses? (Hint - 2)

1) At-risk losses
2) Passive losses


What are the rules about a partnership tax year?

A partnership should have a tax year with one or more partners with Greater than 50% interest in Profits and Capital

(IRC Section 706(b))


Are withdrawals/distributions a taxable event in a partnership?


HOWEVER, they do affect basis calculation.


Do you recognize gains on ANY partnership distributions, incl. liquidating and non-liquidating?

NO you do not.

The p'ship assets take on your basis resulting in $0 taxable gain.


Are the negative (which become $0) bases of partners taxable to the partners?


Basis is zero, but partner recognizes any excess liabilities on personal tax return.


Do you calculate partner's share of ordinary income before or after losses on sales?

BEFORE losses on sales.

Add loss on sales back into ordinary inc. when looking to calculate a partner's distributive share of ordinary inc. for the year.


What are deductions of ordinary losses limited to in p'ship?

Limited to basis and any at-risk amounts.
If there is an ordinary loss for the year, calculate other elements of basis first.

What is left of the basis, is what you will deduct that year RE: ordinary loss.


What are Parnership rules for recognizing the BASIS of a contributed machine?

This property will have a carried-over basis from before.

Liabilities EG mortgages, dealt with as sep. line item.


How do you calculate NON-separately stated (AKA BUSINESS) income for the sake of a partnership?

Revenues, salaries, guaranteed payments rent expense, depreciation expense

Capital Gains, Charitable Contributions


What is the meaning of "At-risk amount"?

It's actually THE BASIS


Common E&P adjustments

1) Unrealized Gains/Losses - No effect
2) Fed. Income Taxes Accrued/paid - Decrease E&P; reduce stockholders' equity

-NOL deduction - NOT ONE
-Subtract WHOLE Char. contribution instead of tax-deductible part
-Subtract related-party Gains on sale that are ignored for tax purposes
- Recognize Gross Profit of installment income instead of taxable amnt. of installment income


How does Current E&P Allocation hit distributions?

What about acc. E&P?

Current E&P hits distributions proportionally for the year, EG:

$24K Current E&P x (Dist A/Total Dists)

$24K Current E&P x (Dist B/Total Dists)

Add to find CURRENT E&P.

For Acc. E&P, treat distributions according to earlier order. So ACC E&P treatment may run out earlier in the year.

You can recognize DIV INC. up to the percentage of:

SH Total Dist * (Curr+Acc E&P / Total Dist)

E&P calculations are kind of like the GAAP version of taxable income.