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Flashcards in Tax - Partnership Taxation Deck (32):

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

Partnership taxation


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

Partnership taxation


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

Partnership taxation


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.

Partnership taxation


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

Partnership taxation


The partnership inherits the holding period of the asset contributed.

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

Partnership taxation


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

However syndication fees are not deductible or amortized.

Partnership taxation


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)

Partnership taxation


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

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

Partnership taxation


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

Partnership taxation


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.

Partnership taxation


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)

Partnership taxation


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.

Partnership taxation


Foreign tax paid
Investment interest expense
Section 179 expense
Charitable contributions

Mnemonic: IFC179

Partnership taxation


Passive Income
Portfolio Income
1231 Gain or Loss

Mnemonic: PP1231

Partnership taxation


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

Partnership taxation


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

Partnership taxation


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

Partnership taxation


If the partnership gets a loan; this INCREASES basis.

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

Partnership taxation


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

Partnership taxation


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

Partnership taxation


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

Partnership taxation


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

Partnership taxation


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.

Partnership taxation


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.

Partnership taxation


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

Partnership taxation


Basis = Capital account + Liabilities assumed

Partnership taxation


As ordinary gain/loss.

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

Partnership taxation


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.

Partnership taxation


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.

Partnership taxation


Only in a liquidating distribution.

Partnership taxation


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

Otherwise; no loss recognized.

Partnership taxation