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Flashcards in REG 21 Deck (24):
1

Built in Gain - Do you have for partnerships, s corps except for what (F* Them)

Except for if somebody transfers securities to the partnership, and they sell them, the appreciation at the time of sale goes to the partner who contributed, the rest to the partners in %, I don't see anything about special rates.

2

Non-Liquidating distribution of property
I can't seem to get this, what do you care about when recognizing a gain or loss
The basis of the asset to the partnershpip?
The FMV of the asset?
The partners basis?

Is the basis less than the partners interest - yes
Then he gets the asset and that's his basis in it, reduces p'nrshp basis by this amount
No gain or loss

but if there's boot gain is recognized to the extend of. Ques 1357

3

Says received distribution to which 751 does not apply - WTF Question 1359
How would you value these as far as what was received
Basis/FMV
Cash 3000/3000
Inventory 15,000/17000
Land 10,000/15000
Land 20000/25,000
What is the basis after the partner gets the distribution

The FMV of all that is $60,000
Her basis is 39,000
Gain of 21,000 - irrelevant not a sale, just stick to the distribution and I've been remembering that the distributed properties basis is the FMV because the partnership recognizes that b4 they distribute
Now I'm supposed to know that the hot assets stuff doesn't apply because that's 751
So it was basically:
Cash 3000
Inventory@ Cost $15,000
then you had to allocate what was left between the basis of the two properties. There was 21000 left and the cost of land 1/2 was 2 to 1 so 7000 for 1 and 14000 for 2

4

Distributions Property to Shareholders:
Corporations - FMV (amount of distribution is reduced by liability assumed, but property is FMV). Corp recognizes any gain but never a loss. Dividend to the extent of current year earnings or accum E and P. TAx free to extent of basis, gain as capital gain.

Partnerships - Basis to partnership up to the amount of interest. So you take the FMV of everything you got. Apply to cash and inventory at cost if not 751), then if there's enough left record assets at partnerships basis. If not reduce in proportional share. This is really horrible. I can't make sense out of it, rule wise, so far I guess it's corps - FMV and partnerships origninal basis.

1. For corporations, contributed property by a shareholder is simply the basis of the contributor + any gain recognized by shareholder or boot received (lower of the two). Gain recognized by the shareholder is to the extent that liabilities assumed by the corporation exceed the basis in the assets contributed by the shareholder. Distribution of corporate property for shareholder: the amount distributed is the FMV less any liability assumed by the shareholder. Basis of that property to the shareholder is FMV. It is important to remember that whenever appreciated property is distributed by a corp, a gain must be recognized but not a loss. Distribution to the shareholder is treated as follows: 1. ordinary dividend to the extent of earnings and profits (remember that current year is treated separately from accumulated E&P. If no accumulated, still use current year earnings (don't net them), 2. tax free to the extent of basis in the stock 3. gain treated as capital gain.

2. For partnerships, the basis for the Partnership when a partner contributes property is the Partner's basis. Partnership distributed property for the Partner is the adjusted basis of the Partnership property right before distribution. Partner's basis is cash and property contributed (partner's basis) less: 100% of mortgage assumed by partnership + partner's portion of the mortgage based on ownership + partners's share of debt (recourse is only assumed by GPs while non-recourse is assumed by all partners) + value of services contributed +/- partner's share of income/loss from the Partnership - debt reduction of the partnership (partner's share) - Distributions to partner. For Partnerships, No gain can be recognized unless cash is also distributed. However, in a liquidating distribution, the property basis distributed is a plug since the ending basis must be zero (so, less any cash received in the distribution). Note that the capital account shown on the Partner's K-1 is NOT the same as basis. The accounts can differ.

5

I really could not get the distributions down liquidating and non-liquidating.
People talk, but if you don't know whether to use the FMV or the carrying basis your f(((
Plus corps are diff from partnerhsips
I put a document in I books partnership folder

1. For corporations, contributed property by a shareholder is simply the basis of the contributor + any gain recognized by shareholder or boot received (lower of the two). Gain recognized by the shareholder is to the extent that liabilities assumed by the corporation exceed the basis in the assets contributed by the shareholder. Distribution of corporate property for shareholder: the amount distributed is the FMV less any liability assumed by the shareholder. Basis of that property to the shareholder is FMV. It is important to remember that whenever appreciated property is distributed by a corp, a gain must be recognized but not a loss. Distribution to the shareholder is treated as follows: 1. ordinary dividend to the extent of earnings and profits (remember that current year is treated separately from accumulated E&P. If no accumulated, still use current year earnings (don't net them), 2. tax free to the extent of basis in the stock 3. gain treated as capital gain.

2. For partnerships, the basis for the Partnership when a partner contributes property is the Partner's basis. Partnership distributed property for the Partner is the adjusted basis of the Partnership property right before distribution. Partner's basis is cash and property contributed (partner's basis) less: 100% of mortgage assumed by partnership + partner's portion of the mortgage based on ownership + partners's share of debt (recourse is only assumed by GPs while non-recourse is assumed by all partners) + value of services contributed +/- partner's share of income/loss from the Partnership - debt reduction of the partnership (partner's share) - Distributions to partner. For Partnerships, No gain can be recognized unless cash is also distributed. However, in a liquidating distribution, the property basis distributed is a plug since the ending basis must be zero (so, less any cash received in the distribution). Note that the capital account shown on the Partner's K-1 is NOT the same as basis. The accounts can differ.

6

LIQUIDATING DISTRIBUTION PARTNERSHIPS
USE THE COST OR WHAT'S LEFT OF THE COST IN THIS ORDER
PARTNERS BASIS
Less: CASH
Less: INVENTORY
AND ALLOCATE BETWEEN THE REST OF THE CAPITAL ASSETS

If you then sell inventory wi/5 years and make a profit it's ordinary not capital gain
Sell anything else it's capital gain

7

Liquidating distributions Partnerships
You have to get that basis to 0 and the remaining asset absorbs it
Again cost is always key
Basis 70K
liquidating 10K plus land with FMV of x (who cares) and adj basis of 58
what is basis of land

Basis 70
less 10 cash
equals 60
land is only worth 58 but you have to use up so basis is 60

8

Liquidation when get more than partnership basis
Cost, cost, cost, but guess what
Basis 60k
61K cash
Land with adj basis of 14K

Gain of 1,000
They won't make you recognize a 14K gain on the land cause who knows if you'll sell it for that I guess
Your basis is 0 so they'll take care of it that way (i.e., your gain will be larger when sell)

9

NON LIQUIDATING DISTRIBUTION PARTNERSHIP STRATEGY

Basis
Less Cash Received
Whatever is left goes to land or assets received as basis
If nothing is left basis is 0

10

Liquidating a partnership and who has to pay up.
Capital Accounts = 50K (30, 15 and 5)
Only get 20K
Share - 40%, 25%, 35%

Loss was 30K
So first allocate it to the capital accounts in same proportion
12,000, $7,500, $10,500
BALANCE of accounts after
28 (30-12) 7.5 (15-7.5) Negative 5.5 (5-10.5)
If one of them has a negative account, that person has to kick in the negative amount

11

Partnership liquidation get less cash than capital accounts
Steps

Compute the loss
Allocate in Percentage of Profit
Compute the net basis left
If anyone. has a negative net basis they have to pay in and it'll be allocated between the remaining partners

12

The next question about liquidation had the partner who should have contributed money telling them he wouldn't. So he should have contributed 9,000 and it was clear that needed to be allocated to the partners. The go-to was to use the original percentages (40, 30%, 20%), but it was very easy to forget that the partner who dropped out had 10%. Note that the 40/30/20 doesn't add to 100. So now need to recalculate the allocation based on 90% not 100 so it was 4/9*9000, 3/9*9000 and 2/9*9000 to allocate the loss. Net these out of the capital accounts and you had the distribution for whatever cash they got.

See front

13

Dissociation in a partnership (if a partner dies) versus dissolution. Are the partners obligated to purchase the partners interst.

Yes if they want it to continue.

14

Do Corps care if gain or loss is ST or LT

No they can just net them out, not different tax rates so don't care.

15

For corps estimated tax liability has to be what to make payments

500 or more

16

Are declared dividends included in gross estate?

Yes if they die after the record date (date entitled to receive dividend)

17

Are life insurance proceeds included in gross estate?

Yes if estate is payee

18

Are mortgages deductible from gross estate?

Yes if property is included in gross estate (and that's the case if jointly held with spouse)

19

Are charitiable contributions deductible in full from gross estate?

Yes, those and funeral expenses as well.

20

Short Period Return How to calculate tax due

Annualize icome and calculate the tax on it, then multiply the computed tax by the number of months in the short period/twelve.

IOW annualize the income and then multiply it (in percentage terms) by however long the short year is

21

Gotta learn the installment method
600 Price - adjusted basis= gross profit
gross profit/sales price = % profit
Apply that profit % to the cash collected to get recognized gain each year

Question 1628

22

When does a c corp have to use accrual accounting

If 5 million or more average annual gross receipts in the preceding 3 years.

23

Are leasehold improvements income?

NO unless they are in lieu of rent.

24

Who can use the completed contract method (defers income until contract is complete)

Construction contract of a small business not expected to take more than 2 years.

Small business = Gross receipts not greater than 10 million for 3 preceding tax years.

Non non housing projects lasting three years no, no, no
Any non-housing project by a larger business.

ONLY home construction can use completed contract.