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45 Cards in this Set
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- Back
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Partnership (definition) |
an association of two or more persons (or other entities) that conduct business with an intent to share profits and losses. |
Partners can be individuals, corporations, estates and trusts. |
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General Partner |
Liable for all the debts and actions of the partnership. |
At least one General Partner |
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Limited Partners |
Limited Partner is liable fo the debts and actions of the partnership only to the extent of the partner's basis in the partnership interest plus any debt |
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Partnership Return Form
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1065 Return |
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Partnership Filing Dates and Requirements |
is due by the 15th day of the 4th month after end of partnerships FYE or April 15 for calendar year partnerships |
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Partnership Calendar Year Extended Date
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5 month extension September for calendar year |
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Partnership Late Filing Penalties |
Code imposes penalty on partnership if not filed by due date. 100 per month X partners Not to exceed 500 per X partners |
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1065 Form (Page count) |
5 pages |
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1065 Page 1 |
Gen information, calculation of Ordinary Income |
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1065 Page 2-3 |
Schedule B - Other information about the partnership |
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1065 Page 4 |
Schedule K - All separately stated items are listed
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1065 Page 5 |
Schedule L - Balance Sheet M1 Reconciliation book and tax M2 Analysis of partner's cap acct |
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Partnership Income Reporting |
Partners taxed on their shares in their tax year up to last day of partnership's tax year |
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Required Tax Year |
Partnership must select same tax year as the majority partners (majority >50%) Or Least aggregate deferral |
Own in total more than 50% |
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Scenario 1 Tax year Prtnr A 70% tax year 6.30 Prtnr B 30% tax year 12.31 |
6.30 Partnership Tax Year Majority tax year at 6.30 |
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Scenario 2 Tax year Prtnr A 40% tax year 6.30 Prtnr B 30% tax year 12.31 Prtnr C 30% tax year 12.31
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12.31 Partnership Tax Year Majority tax year at 12.31 |
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Scenario 3 Tax year Prtnr A 40% tax year 6.30 Prtnr B 30% tax year 12.31 Prtnr C 30% tax year 10.31 |
Least Aggregate method Calendar Year |
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Scenario 3 Tax year Prtnr D 25% tax year 6.30 Prtnr D 25% tax year 6.30 Prtnrs X 50% tax year 10.31 Prtnrs X <5% each |
Principal partners 6.30 |
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Least Aggregate Deferral Method |
Method used if partnership's rule and majority rule are not relevant |
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Partnership's Required Tax Year |
1 = to partner's who own more than 50% of partnerships profits 2 If majority partners have diff tax year, then year end of all principal partners 3 If principals have different tax year, then least aggregate deferral method |
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Tax Year Exceptions |
1. Natural Business Year =>25% gross receipts 3 cnsq years
2. Allows selection with no more than 3 mo deferral
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Thus a calendar year business could choose Sep, Oct, Nov 8716 |
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Natural Business Year |
One in which at least 25% of gross receipts are received in the last 2 months of 12 month period for at least 3 years |
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Change in Tax Year |
To change tax year, partnership must get IRS permission - Form 1128 |
1128 Application to Adopt, Change, or Retain a Tax Year |
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Form 1128 |
Change in Tax Year - Application to Adopt, Change, or Retain a Tax Year |
Partnership will file a short form covering prior year end to its new year end |
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Form 8716 |
Choose tax year no more than 3 mo deferral |
Requires quaterly tax reports |
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Form 8716 |
Election to Have a Tax Year Other Than a Required Tax Year |
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Changes in Partnership |
Events may or may not terminate partnership. However tax year closes in regards to partner who may be terminated. |
Cumulative events that change 50% of owner ship may not terminate partnership but will end tax year |
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Reporting Partnership Income Deductions |
Since partnership is flowthrough entity application of conduit principle is used. Separately reported items treated differently for indivs and corps |
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Both the limited and general parners are fully liable for the actions of the partnership (T/F) |
False |
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Conduit Principle |
A partnership passes through income and expenses to each of its partners |
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Treatment of Flowthrough Income |
If not a separately reported item, than it is ordinary income |
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Majority Partner's Rule |
Req tax year is that of partners that own more than 50% of capital and profits
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Separately Stated Items Reporting |
For Partnerships Separately Stated Items are reported in for 1065, Sched K |
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K-1 (1065) |
Each partner receives a Sched K-1 showing each partner's share of ordinary income |
When partners deduct losses basis is reduced. Can not be reduced below 0 |
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Commonly Reported Separately Reported Items |
Rental Income Interest Income Dividend Income Royalty Income Net Short-term Cap Gains/Loss Net Long-term Cap Gains/Loss Other Investment Income Net Section 1231 Gains/Losses Charitable Contributions Section 179 Deductions Investment Expenditures Credits and recapture of Cr Guaranteed Payments AMT Adjustments and Pref Foreign Taxes Tax-exempt Income Nondeductible Expenses Personal Expenses (paid by partners) |
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K-1 Deduction Items |
Relatively few deduction items are separately stated on Sched K-1 |
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NOL |
Net operating losses generally equal the excess of allowable deductions over gross taxable income |
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NOL Carryover (partnership) |
NOLs may be carried back 2 years and forward 20 |
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Foreign Taxes |
Partnerships engaging in business outside of US may pay taxes to foreign countries and receive tax credit in own returns |
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Credits (partnership) |
Partnerships do not pay income tax, they do not take credits |
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Credits |
Benefits of credits pass to the partners |
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Calculating Ordinary Income (Partnership) |
Gross Sales Less: Returns & Allowances Less: COGS (1125) Gross Profit Ord Income/loss other entities Net Ord gain/loss (4797) Other Income/Loss Total Income/Loss Less: Nonsep Stated Expe Guaranteed Payments Ord Bus Income/Loss |
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Guaranteed Payments to Partners |
Provided to partners as compensation in recognition of their talent, skills, and time |
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Guaranteed Payments (Tax Treatment) |
Partners receive payments not as employees, not subject to employee deductions. Subject to self employment taxes K-1s no W2s |
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Personal Expenses Of Partners (treatment) |
Treated as withdrawals or distributions - Generally no taxes paid |
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