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Tax Flashcards

1
Q

How is Gift taxation different from Estate taxation?

A

Property transferred while taxpayer is living

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2
Q

What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?

A

$14,000 per year per spouse to each individual

In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits

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3
Q

If a Gift is an annuity, what value is used for the Gift?

A

If the Gift is an annuity, use Present Value to determine the gross Gift

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4
Q

What is the basic Gift tax calculation?

A

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $14,000 exclusion
= Taxable Gift

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5
Q

How is a Gift taxed if a recipient gains a future ownership in the Gifted property?

A

Recipient must gain ownership and all rights to property to get the annual exclusion. If recipient merely gains a future ownership, then the present value of the Gift is 100% taxable to donor and cannot exclude from Gift tax calc

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6
Q

What are the deductions for Gift tax, besides the annual exclusion?

A

Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)

Political contributions

Charitable Gifts

Unlimited Gifts to spouse

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7
Q

What is the basis of Gifted property for the recipient?

A

If a loss on sale, basis is FMV on the date of the Gift

If a gain on sale, basis is same as donor’s basis

No G/L if donor basis is less than sales price, and sales price is less than FMV @ Gift date

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8
Q

How/when are Gift tax returns filed?

A

Calendar-year basis only

Due April 15

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9
Q

What are the basic characteristics of complex Trust?

A

Income distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100

Key Point: Distribution of Trust corpus (principal) ok

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10
Q

What are the basic characteristics of a Simple Trust?

A

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

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11
Q

How are Net Operating Losses handled in a Trust?

A

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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12
Q

How are expenses and fees related to tax-exempt income handled in a Trust?

A

Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust

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13
Q

When is property transferred in an Estate?

A

After the death of the donor

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14
Q

What amount of a decedent’s Estate is exempt from Estate Tax?

A

The First $5,430,000 is exempt with a 40% tax on amount above that

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15
Q

How are a decedent’s medical expenses handled with respect to an Estate?

A

Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return

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16
Q

How is an Estate’s NOL handled?

A

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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17
Q

What does a gross Estate consist of?

A

Cash and Property FMV at death, or alternate valuation.

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18
Q

What is joint tenancy with respect to an Estate? How is it calculated?

A

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

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19
Q

What is tenancy by entirety?

A

1/2 of marital assets go to deceased spouses Estate

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20
Q

What is tenancy in common in an Estate?

A

A, B, and C own property

If A dies, FMV of As share goes to heirs

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21
Q

How is Estate tax handled with respect to a beneficiary?

A

Property received through inheritance not income to recipient

Property value is FMV at date of death or 6 months later

If property is sold prior to 6 month date and the alternative date is used, FMV at date of sale is used to value property

Basis in property automatically assumes LT holding period

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22
Q

What is distributable net income (DNI)?

A

DNI = Taxable Income Expenses (from income production)

Trust beneficiaries only pay tax if earnings are distributed

Estate beneficiaries pay tax on DNI, regardless if distributed

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23
Q

When must a tax exempt organization file a 990-T for Unrelated Business Income?

A

If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T

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24
Q

What are the requirements for a 501(c)3 organization?

A

Organized and Operated exclusively for exempt purposes

No earnings can benefit an individual or private shareholder

Cant attempt to influence legislation as a major part of its activities

Cant campaign politically

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25
Q

How is Gift taxation different from Estate taxation?

A

Property transferred while taxpayer is living

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26
Q

What is the annual exclusion amount for a taxpayer’s Gift taxation? What is required to get the exclusion?

A

$14,000 per year per spouse to each individual

In order to get the exclusion, the recipient must immediately acquire a present interest in the property and get unrestricted access to the property and all of its benefits

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27
Q

If a Gift is an annuity, what value is used for the Gift?

A

If the Gift is an annuity, use Present Value to determine the gross Gift

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28
Q

What is the basic Gift tax calculation?

A

Gross Gifts
- 1/2 of Gifts (treated as given by spouse)
- Total # of donees x $14,000 exclusion
= Taxable Gift

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29
Q

How is a Gift taxed if a recipient gains a future ownership in the Gifted property?

A

Recipient must gain ownership and all rights to property to get the annual exclusion. If recipient merely gains a future ownership, then the present value of the Gift is 100% taxable to donor and cannot exclude from Gift tax calc

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30
Q

What are the deductions for Gift tax, besides the annual exclusion?

A

Tuition and medical expenses paid directly to the provider organization (note: NOT books or dorm fees)

Political contributions

Charitable Gifts

Unlimited Gifts to spouse

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31
Q

What is the basis of Gifted property for the recipient?

A

If a loss on sale, basis is FMV on the date of the Gift

If a gain on sale, basis is same as donor’s basis

No G/L if donor basis is less than sales price, and sales price is less than FMV @ Gift date

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32
Q

How/when are Gift tax returns filed?

A

Calendar-year basis only

Due April 15

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33
Q

What are the basic characteristics of complex Trust?

A

Income distributions are optional
Accumulation of income ok
Charitable contributions ok
Contributions using tax-exempt income are not deductible
Allowed personal exemption of $100

Key Point: Distribution of Trust corpus (principal) ok

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34
Q

What are the basic characteristics of a Simple Trust?

A

Income distributions mandatory

Accumulation of income disallowed

No charitable contributions

Distribution of Trust corpus DISALLOWED

Allowed personal exemption of $300

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35
Q

How are Net Operating Losses handled in a Trust?

A

Trusts can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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36
Q

How are expenses and fees related to tax-exempt income handled in a Trust?

A

Expenses and fees from tax-exempt income are not deductible for either a Complex or Simple Trust

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37
Q

When is property transferred in an Estate?

A

After the death of the donor

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38
Q

What amount of a decedent’s Estate is exempt from Estate Tax?

A

The First $5,430,000 is exempt with a 40% tax on amount above that

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39
Q

How are a decedent’s medical expenses handled with respect to an Estate?

A

Medical expenses paid after death, but incurred within 1 year of death go on decedents personal tax return

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40
Q

How is an Estate’s NOL handled?

A

Estates can have a Net Operating Loss

Any unused NOL flows through to the beneficiaries

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41
Q

What does a gross Estate consist of?

A

Cash and Property FMV at death, or alternate valuation.

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42
Q

What is joint tenancy with respect to an Estate? How is it calculated?

A

When two non-spouses jointly own property

FMV at death X % Ownership = Amount in Estate

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43
Q

What is tenancy by entirety?

A

1/2 of marital assets go to deceased spouses Estate

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44
Q

What is tenancy in common in an Estate?

A

A, B, and C own property

If A dies, FMV of As share goes to heirs

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45
Q

How is Estate tax handled with respect to a beneficiary?

A

Property received through inheritance not income to recipient

Property value is FMV at date of death or 6 months later

If property is sold prior to 6 month date and the alternative date is used, FMV at date of sale is used to value property

Basis in property automatically assumes LT holding period

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46
Q

What is distributable net income (DNI)?

A

DNI = Taxable Income Expenses (from income production)

Trust beneficiaries only pay tax if earnings are distributed

Estate beneficiaries pay tax on DNI, regardless if distributed

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47
Q

When must a tax exempt organization file a 990-T for Unrelated Business Income?

A

If a tax exempt organization has more than $1,000 of UBI, it must file a Form 990-T

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48
Q

What are the requirements for a 501(c)3 organization?

A

Organized and Operated exclusively for exempt purposes

No earnings can benefit an individual or private shareholder

Cant attempt to influence legislation as a major part of its activities

Cant campaign politically

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49
Q

Under what accounting basis are individual tax returns prepared?

A

Cash Basis. Note: This basis is NOT allowed for Corporations, Partnerships with a C-Corp partner, or for inventories.

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50
Q

What are the deductions to arrive at Adjusted Gross Income (AGI) for individuals?

A

*MSA/HSA contributions
*Investment penalties for early withdrawal
*Self-employed medical insurance premiums
*Self-Employment Tax (approx. 50%)
*IRA Contributions
*Student loan interest (can’t be another taxpayer’s dependent)
*Moving expenses
*Alimony
*Attorney fees in discrimination lawsuit

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51
Q

Which items can be carried over to future years on an individual tax return?

A

Investment interest expense in excess of investment income
Charitable contributions
Excess Section 179
Capital losses
AMT Paid
Passive Activity Losses

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52
Q

Characterize the following carryover: Passive Activity Loss

A

No carryback

Can carry forward indefinitely

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53
Q

How is excess 179 expense carried forward?

A

Carry forward to next year.

Use in any year is limited to taxable income.

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54
Q

How long can investment interest expense in excess of investment income be carried forward?

A

Indefinitely.

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55
Q

How long is the carry forward for charitable contributions?

A

Can be carried forward 5 years.

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56
Q

How long is AMT paid carried forward, and how is it applied?

A

It can be carried forward indefinitely.

It may be applied against future regular income tax, but not against future AMT tax liability.

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57
Q

How are capital losses applied in individual taxes?

A

$3,000 net capital loss can be taken in each year, the rest is carried forward indefinitely.

The loss retains its character (STCL or LTCL).

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58
Q

How does an individual capital loss carryover differ from a corporate capital loss carryover?

A

Corporate capital loss carryovers may be carried back 3 years and forward 5 years. Individual capital losses are carried forward indefinitely.

Individual capital loss carryovers retain their character (STCL or LTCL). Corporate loss carryovers are carried forward as STCL only.

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59
Q

What ratio is applied to principle payments in an installment sale to determine the gain in a given year?

A

Gross Profit / Contract Price

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60
Q

What is the contract price in an installment sale for income tax purposes?

A

Contract Price = Sales Price - Liability assumed by buyer

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61
Q

On an individual return, regular mortgage interest on what loan amount is deductible?

A

$1,000,000

62
Q

Interest on home equity loans up to what amount are deductible on an individual tax return?

A

$100,000

63
Q

What business gift amounts are deductible on Schedule C of form 1040? What amount for service awards?

A

$25 per person for gifts

Service awards up to $400

64
Q

What income can business losses offset on a 1040?

A

They may only offset active business income.

Note: W2 wages are considered active business income.

65
Q

What income can passive losses offset on a 1040?

A

Only passive income such as rental income or limited partnership income.

Note: Wages are ACTIVE (cannot be offset by passive) and Interest/Dividends are PORTFOLIO (cannot be offset by passive)

66
Q

Are interest and dividends active or passive income?

A

Neither. They are portfolio income.

67
Q

What is (are) the depreciation convention(s) for personal property?

A

Mid-year/Mid-quarter

68
Q

When is the mid-quarter convention used?

A

For depreciation when 40% or more of all purchases occur in 4th quarter.

69
Q

What depreciation convention is used for real property?

A

Mid-month

70
Q

What depreciation life and convention are used for leasehold improvements?

A

15 year straight line (S/L)

71
Q

What amount of business start-up costs can be deducted? How is it expensed?

A

Up to $5,000

Amortized over 180 months

Reduced dollar-for-dollar by amount over $50,000

72
Q

How are medical expenses deducted on a 1040?

A

On Schedule A:

Amounts in excess of 10% of AGI may be deducted

73
Q

Which personal insurance premiums are not deductible as medical expenses on Schedule A?

A

Accident or disability insurance premiums are not deductible.

74
Q

Under what circumstances can medical expenses paid on behalf of another be deducted on someone’s Schedule A?

A

Must be a citizen of North America

Must live with you, or if they do not, must be mother/father or a relative closer than a cousin.

Benefactor must provide more than 50% support to the beneficiary.

75
Q

Which foreign taxes are deductible?

A

Foreign INCOME and REAL ESTATE taxes are deductible.

Foreign personal property taxes are NOT deductible.

Foreign tax assessments are not deductible- they are added to the basis.

76
Q

How is net investment income calculated, for the purpose of deducting excess investment interest expense?

A

Gross investment income - investment expense in excess of 2% of AGI = net investment income

Investment interest expense in excess of net investment income is deductible.

77
Q

What investment interest is never deductible?

A

Investment interest expense on tax-free securities is not deductible.

78
Q

When are mortgage points deductible and how are they deducted?

A

They are deductible if they represent prepaid interest on purchase of a new home or improving a home.

Refinance points are amortized over the life of the mortgage.

79
Q

How are charitable contributions of LTCG property and property related to a charity’s function deducted?

A

Deducted at fair market value (FMV), up to 30% of AGI

80
Q

How are charitable donations for STCG property and property not related to the charity’s function deducted on Schedule A?

A

Deduction is taken for adjusted basis in the property, up to 50% of AGI.

81
Q

Does a casualty loss affect the basis of property?

A

No. It decreases the fair market value (FMV) of the property.

82
Q

How is the deductible portion of a casualty loss calculated?

A

Take the lower of either A) Decrease in FMV or B) Basis in property (call this number GROSS LOSS)

GROSS LOSS - insurance proceeds received - $100 - 10% of AGI = Deductible casualty loss

83
Q

What are the miscellaneous deductions on Schedule A, and how are they deducted?

A

Deductible in excess of 2% of AGI

Continuing Education - if required to keep your job
Business travel
50% Meals and entertainment
Union Dues
Tax prep fees
Legal fees to collect alimony
Appraisal fees to value casualty loss of charitable contributions

84
Q

Which itemized deductions are not subject to phaseout based on income or other factors?

A

Medical
Casualty
Gambling
Investment Interest Expense

85
Q

Define qualifying child for most individual tax factors.

A

Must be resident of North America

Under age 19, or under age 24 if a student

86
Q

Define qualifying relative for most individual tax factors?

A

Must be citizen of North America

Must live with you, unless mother/father or relative closer than a cousin

You must provide more than 50% support to the individual

87
Q

How is minor income taxed at a parent’s rate calculated (AKA kiddie tax)?

A

Child’s unearned income
- early withdrawal penalties
- $1,050
- Greater than $1,050 or child’s itemized deduction related to unearned income
= Amount taxed at parents’ rate

88
Q

Can spouses married filing jointly use different accounting methods?

A

Yes, if they each own a small business. All non-business income is cash basis.

89
Q

At what rate is self-employment tax assessed?

A

15.3% of net earnings from self-employment

(Note: executor of an estate is NOT self-employment income)

90
Q

What is a refundable tax credit? Which individual tax credits are most commonly refunded?

A

A tax credit which takes the taxpayer’s tax owed on the return below zero, resulting in a refund to the taxpayer.

Earned Income Credit (EIC), American Opportunity Credit and the Additional Child Tax credit.

Note: the REGULAR child tax credit is NOT refundable.

91
Q

How many education credits may be taken on a tax return?

A

American Opportunity Credit - per student

Lifetime Learning Credit - per taxpayer

Note: The American Opportunity Credit is refundable.

92
Q

What estimated tax payments must be paid in by an individual taxpayer either via withholding or by quarterly tax payments?

A

The lesser of:

90% of current year’s total tax

100% of prior year’s total tax

110% of prior year’s total tax (if AGI is $150,000 or more)

93
Q

Which farming costs related to land are deductible? Which aren’t?

A

Deductible: Costs incurred to PRESERVE soil/water

Non-deductible: Costs incurred to drain wetlands or prep for irrigation (i.e. improve land)

94
Q

Which depreciation table is used for personal tangible property related to farming?

A

MACRS 150

95
Q

How long does the taxpayer have to petition the court for appeal after an audit?

A

90 days

96
Q

If no petition to appeal is filed, how long does a taxpayer have to pay tax due after an audit?

A

10 days

97
Q

What is the statute of limitations for a tax audit?

A

3 years, generally

6 years if 25% or more of gross income was omitted

The clock starts on the LATER of the due date or the filing date of the return.

There is NO STATUTE OF LIMITATIONS for either fraud or failure to file a required return.

98
Q

How long does an individual taxpayer have to file a claim for refund?

A

Refunds must be claimed within 3 years of the return due date or within 2 years of being paid, whichever is later.

99
Q

When are life insurance premiums of an employee includable in income?

A

Premiums paid by an employer for coverage in excess of $50,000 per employee are includable in income.

100
Q

When are scholarships not taxable?

A

When they are not in return for services rendered,

AND

The money is used only for tuition and books

Note: Scholarships for room and board are includable in income.

101
Q

What interest income is tax free?

A

State & municipal bond interest

US EE Savings Bond interest (note: HH bond interest is taxable)

102
Q

Which dividend income is tax free?

A

S-corporation (actually distributions)

Life insurance

103
Q

How much social security income can be taxed for individuals in higher income brackets?

A

Up to 85%

104
Q

Is unemployment compensation taxable?

A

Yes.

105
Q

Which damages awarded in lawsuits are taxable? Which are not?

A

Payments made to make you whole are NOT taxable (i.e. to pay for losses of property, body parts or earning ability)

Any payments for punitive damages ARE taxable.

106
Q

Are workman’s compensation insurance benefits taxable?

A

No - similar to an award for damage to make a person whole.

107
Q

Which of the following are taxable: Child Support, Divorce Property Settlements, Alimony

A

Alimony IS taxable.

Child support and divorce property settlements are NOT taxable.

108
Q

Adoption expenses - Are they deductible?

A

NO, they are not deductible. However tax benefits are available through the adoption CREDIT.

109
Q

Describe alimony recapture.

A

2nd Year: (3rd year - 2nd year - $15,000)

1st Year:
1st Year Alimony Paid
- Avg alimony paid in 2nd & 3rd years
- $15,000
- Recapture from 2nd year
=1st Year Alimony Recapture

Total Recapture = 1st Year Recapture + 2nd Year
Recapture

110
Q

How are Net Operating Losses (NOLs) utilized?

A

Can be carried back 2 years

If any left, can be carried forward 20 years.

111
Q

Which IRA contributions are deductible?

A

Traditional IRA = deductible

Roth IRA = not deductible

112
Q

When can a couple file married filing jointly?

A

They must be married at the end of the year.

If one spouse dies, they must be married at the end of the year.

113
Q

What are the requirements for filing as Head of Household?

A

Must have a dependent child

Must provide more than 50% of the child’s support

Must live with them more than 50% of the year

114
Q

What are the requirements for filing as qualifying widower?

A

Must have a dependent child.

Essentially gets MFJ status for the year of death + 2 tax years

115
Q

What is the Interstate Income Act of 1959?

A

Restricts a state’s authority to tax interstate commerce

116
Q

What are the principles of the Interstate Income Act of 1959?

A

A state can’t collect income tax on sales within its borders as long as the orders are filled and shipped outside of the state

Applies to tangible property only

Does not protect a Corporation in the state where incorporated

Does not protect from taxes using metrics other than income (Ex: Sales Tax)

117
Q

What is the Uniform Division of Income for Tax Purposes Act (UDITPA)?

A

Uniform criteria for determining taxable income of multi-state corporations

Also known as the Multi-State Tax Compact

118
Q

What are the basic principles of UDITPA?

A

Designed to ensure a company is not taxed more than once on its income

Forces a corporation to segregate Business Income from Non-Business Income

119
Q

What is considered Business Income?

A

Part of the corporation’s regular course of business

Includes acquisition of tangible and intangible property if such activities are part of the regular trade or business

120
Q

True or false? Partnerships are a taxable entity.

A

False. Income and expenses flow through to the partner to be taxed via a
Form K-1.

121
Q

When exchanging property for a partnership interest; how is gain or loss recognized?

A

Neither gain nor loss is recognized in an exchange of property for a partnership interest. It is a non-taxable event.

122
Q

What is a partner’s basis in partnership property?

A

Initial basis for partnership property is the basis of the property that was contributed or exchanged for the partnership interest.

123
Q

When services are exchanged for a partnership interest; how is this treated for tax purposes?

A

It is a taxable event; treated the same as compensation for the services. The taxable income equals the % of partnership interest received times the FMV of the partnership.

i.e. the FMV of the interest received is the taxable income for the service provider.

124
Q

What is the partner’s basis in a partnership when they provide a service in exchange for the interest?

A

The basis in the partnership interest is the amount of taxable service revenue provided by service provider.

125
Q

What is the holding period of an asset that has been contributed to a partnership?

A

The partnership inherits the holding period of the asset contributed.

The exception of inventory- the holding period begins when contributed.

126
Q

What is the tax treatment of startup costs for a partnership?

A

Tax treatment is the same as that of an individual taxpayer.

However syndication fees are not deductible or amortized.

127
Q

What deductions are subtracted from gross revenues to arrive at partnership income?

A

COGS
Wages - except for partners
Guaranteed payments to partners
Business bad debt (if on accrual basis)
Interest paid
Depreciation (except section 179)
Amortization (Startup costs; goodwill; etc)

128
Q

How are partnership losses taken on an individual’s return?

A

Losses cannot be taken beyond a partner’s basis in the partnership

Losses in excess of basis are carried forward until basis is available

129
Q

When are guaranteed payments to a partner includable in taxable income?

A

They appear in partner’s income during the year in which the partnership’s fiscal year CLOSES.

130
Q

How are partner benefits paid by the partnership treated?

A

Health insurance; life insurance and other benefits paid on behalf of the partner are treated as guaranteed payments and are includable as self-employment income.

131
Q

How is net self-employment income from a partnership interest calculated?

A

Partner’s % share of ordinary income from partner’s K-1
+ Guaranteed payments
- Partner’s % share of section 179 expense from K-1
= Self-employment income (subject to SE tax)

132
Q

In general; what is a partner’s basis in partnership property purchased?

A

Partner’s basis is basis of goods exchanged or for services exchanged is FMV of partnership interest received.

If purchased; purchase price less liabilities incurred = basis.

For a gifted interest in a partnership; gift basis rules apply.

133
Q

Which items are not deductible on Schedule K of form 1065?

A

Foreign tax paid
Investment interest expense
Section 179 expense
Charitable contributions

Mnemonic: IFC179

134
Q

Which items are not counted as income on Schedule K of form 1065?

A

Passive Income
Portfolio Income
1231 Gain or Loss

Mnemonic: PP1231

135
Q

How is adjusted partnership basis calculated?

A

Beginning partnership basis
+ Capital contributions
+ Share of ordinary partnership income
+ Capital gains
+ Tax-exempt partnership income (DON’T FORGET!)
= Ending partnership basis

136
Q

What items DECREASE partnership basis?

A

Money distributed
Adjusted basis of property distributed
Partners’s share of ordinary losses
Partnership is relieved of a liability (considered a distribution)

137
Q

What INCREASES partnership basis?

A

Partnership getting a loan
Capital contributions
Ordinary income
Capital gains
Tax-exempt income

138
Q

How do liabilities either INCURRED or RELIEVED affect a partner’s basis in a partnership?

A

If the partnership gets a loan; this INCREASES basis.

If partnership is relieved of a liability; this DECREASES basis.

139
Q

How do guaranteed payments affect partnership basis?

A

They do not affect basis- they are already included in ordinary income; which affects basis.

140
Q

What is the order in which basis is adjusted in a partnership?

A
  1. Increase basis (all items; including tax-exempt income)
  2. Distributions
  3. Losses (limited to basis)
141
Q

How is the taxable year of a partnership determined?

A

It must be the same as 50% of the partners and use the same tax year for 3 years once adopted.

142
Q

How does death of a partner affect the partnership’s taxable year?

A

The taxable year closes with respect to the decedent partner’s interest ONLY.

143
Q

When CAN’T a partnership use cash basis?

A
  1. They have inventories
  2. Partnership is a tax shelter
  3. Has a corporate partner
  4. Gross receipts are $5 Million or more

Exception: If gross receipts are $1 Million or LESS and Partnership maintains inventories; Cash method is ok.

144
Q

When does a partnership terminate?

A

When there is less than 2 partners (only one partner)

When 50% of the partnership interests sell within a 12 month period- partnership IMMEDIATELY terminates.

145
Q

How is gain or loss on sale of a partnership interest calculated?

A

Gain or Loss = Amount realized on sale - basis in partnership interest

146
Q

What is the new basis of a partnership interest sold?

A

Basis = Capital account + Liabilities assumed

147
Q

How is the sale of non-capital partnership property treated?

A

As ordinary gain/loss.

Items that fall into non-capital category would be unrealized receivables; appreciated inventory; and similar.

148
Q

How is a partner’s share of an ordinary gain calculated?

A

FMV of Assets (non-capital)
- Adjusted basis of assets
= Ordinary gain
x Partner’s % interest
= Partner’s share of gain

Note: No gain or loss will be recognized by a partnership upon distribution of property.

149
Q

What is the order of basis reductions for distributions from a partnership?

A
  1. Money distributed
  2. Adjusted basis of unrealized receivables and inventory
  3. Adjusted basis of other property

Note: Only MONEY distributions will trigger a gain in a partnership distribution.

150
Q

When can a LOSS occur in a partnership distribution?

A

Only in a liquidating distribution.

151
Q

What are the requirements for recognizing a gain in a partnership liquidating distribution?

A
  1. Money was distributed
  2. Unrealized receivables were distributed
  3. Appreciated inventories were distributed

Otherwise; no loss recognized.

REG (3 decks)

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