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34 Cards in this Set

  • Front
  • Back

Types of Partnerships & LLC


General Partnership


Define

2 or more partners, no limited partners. Creditors can collect from both personal and business assets, liable for partner malpractice. Used for both operating activities and corporate joint ventures

Types of Partnerships & LLC


Limited Partnership


Define

at least one GP, and one or more LP, used to raise capital, for liability protection GP are usually corps or LLC’s, only GP are personally liable to creditors, LP loss restricted to capital investment

Types of Partnerships & LLC


Limited Liability Company


Define

limited liability, benefits for taxation (single level taxation/special allocations), owners considered members, treated as a partnership for tax purposes, service-oriented businesses and professional service-providing companies

Types of Partnerships & LLC


Limited Liability Partnership


Define

similar to a GP, not liable for any partner malpractice



Types of Partnerships & LLC


Limited Liability Limited Partnership

all partners accorded limited liability, must file a request to switch from LLP

Partnerships & LLC


What is included in calculation?

Original basis + partners distributed share of ordinary income, capital gains and other special income items, tax-exempt income, excess of the deduction for depletion – distributions of property and money, partnerships ordinary loss, special expense items, nondeductible items not chargeable to capital, deduction for oil & gas wells

Partnerships & LLC


How do the following situations effect the partners basis?


Increase/decrease in Partnership liabilities:


Increase/decrease in individual liabilities:



Increase in Partnership liabilities: increase partners basis in the partnership by each partner’s share of increase


Decrease in Partnership liabilities: considered to be a distribution of money to each partner’s basis in the partnership by each partner’s share of decrease


Increase in individual liabilities: considered to be a contribution of money to the partnership by the partner, partners basis increased


Decrease in individual liabilities: considered to be a distribution of money to the partnership by the partner, partners basis decreased

Partnerships & LLC


Order basis adjusted by item:

Increased for all income items (excluding tax exempt)


Decreased for all distributions


Decreased by deductions and losses (including nondeductible items not charged to capital)

Partnerships & LLC


Sale of partnership basis


Usual result?


Amount of ordinary gain?





Usual result = capital gain/loss


Amount of ordinary gain: is the “hot asset”

Partnerships & LLC


Define: hot asset

gain attributable to unrealized receivables/appreciate inventory/assets (not counted as CG)

Partnerships & LLC


What happens when there is a pro-rata distribution from partnership?

No gains/loss can be recognized

Partnerships & LLC


Single distribution reduces partner’s basis in what order?

(1) money


(2) adjusted basis of all unrealized rec and inv


(3) adjusted basis of other property

Partner Partnerships & LLC


recognizes gain to what extent?

The extent that money received exceeds the partners partnership basis

Partner Partnerships & LLC


When does partner recognize loss?

If (1) the partner receives only cash, unrealized receivables, or inventory. AND


(2) The partner’s outside basis in the partnership interest exceeds the partnerships inside basis for the assets distributed. This excess amount is the loss recognized by the distributee partner.

Partner Partnerships & LLC


When can a partner have a negative basis in the Partnership interest?

Never, ever

S-Corp


S-Corp election requirements (6)

o Is a domestic corporation


o Is an eligible corporation


o Issues only one class of stock


o Is limited to a theoretical maximum of 100 shareholders


o Has only individuals, estates, certain trusts, and 501(c)3’s as shareholders


o Has no nonresident alien shareholders

S-Corp


Form for election?

Form 2553

S-Corps


Examples of ineligible corporations? (3)

Non US corporations, certain banks and insurance companies

S-Corps


One class of stock requirement:

A small business corporation may have only one class of stock issued and outstanding.

S-Corps


Straight debt characteristics (5)

The debtor is a subject to a written, unconditional promise to pay on demand or on a specific date a sum certain in money


The interest rate and payment date are not contingent on corporate profits, management discretion, or similar factors


The debt is non-convertible to stock


The debt is held by a creditor who is an individual, an estate, or a qualified trust


Can be held by creditors actively and regularly engaged in the business of lending money

S-Corps


Number of shareholders rules:


Family members rules:

Number of shareholders rules: 100 shareholders or less


Members of family rule: common ancestors, lineal descendants, spouses of these parties, and family estates count as 1

S-Corps


Reason for loss of election (4)

o Shareholders owning a majority of shares (voting & nonvoting) voluntarily revoke election
o A new shareholder owning more than ½ of the stock affirmatively refuses to consent to the election
o The corporation no longer qualifies as a small business corporation
o The corporation does not meet the passive investment income limitation (if they have sub corp that contributes over 25% of gross receipts for 3 consecutive years)

S-Corps


Computation of taxable income:

Sales
(less) COGS
= Gross profit on sales
(-/+) Non-separately stated items
= Book income from operations
(-/+) Separately stated items
= Net income per books


S-Corps


Short year tax election:

If a shareholders interest is completely terminated during the tax year, all shareholders holding stock during the year and the corp may elect to treat the S taxable year as 2 taxable years. The first year ends on the date of the termination

Tax Exempt Entities


Requirements for tax exempt entities (4)

o Must serve some sort of common good


o The organization is a not-for-profit entity


o Net earnings do not benefit the members of the organization


o The organization does not exert political influence

Tax Exempt Entities


Formula for ceiling for lobbying activities

Formula for ceiling for lobbying activities: 150%

UBIT


Definition of trade or business:

It includes any activity conducted for the production of income through the sale of merchandise or the performance of services

UBIT


Special rule for corporate sponsorship: (3)

(1) There is no arrangement or expectation that the trade or business making the payment will receive any substantial benefit other than the use or acknowledgment of its name, logo, or product lines in connection with the activities of the exempt organization.


(2) Such use or acknowledgment does not include advertising the payor’s products or services.


(3) The payment does not include any payment for which the amount is contingent upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events.

UBIT


Bingo games:

Under this provision, a qualified bingo game is not an unrelated trade or business if both of the following requirements are satisfied. (1) The bingo game is legal under both state and local law. (2) Commercial bingo games (conducted for a profit motive) ordinarily are not permitted in the jurisdiction.

UBIT


General tax model:

Gross unrelated business income – deductions = net unrelated business income +/- modifications = UBIT

Tax Exempt Entities


Form Used: (1)


Annual reporting requirements: (4)



501(c)(3), 501(C)(9), and 501(C)(20) are required to file form 990


If annual gross receipts normally don’t exceed $50,000, Form 990-N


Form 990-EZ for exempt organizations with receipts less than $200,000 and assets less than $500,000


Private foundations file Form 990-PF


Religious and federal agencies have no filing requirement

Gift Tax


Gift tax requirements (5)

Donor competent to make the gift


Donnee capable of reception/possession


Donative intent


Actual or constructive delivery


Acceptance

Gift Tax


Amount of annual inclusion:


Form:

Amount of annual inclusion: $14,000


Form: 709



Gift Tax


Donnee's basis of gift

Adjusted basis of donee, unless they pay gift taxes