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26 Cards in this Set

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PARTNERSHIP FORMATION

Is there a gain if FMV > AB of contributed property?
In general, no gain or loss is recognized by partner when contribute appreciated property to partnership
NON-RECOGNITION RULE OF GAIN
PARTNERSHIP FORMATION

When is gain recognized?
when property contributed is subj to a liability
-result is decrease in indvl partner's liability exceeds partnership basis
PARTNERSHIP FORMATION

How will gain be treated?
ordinary income
to extent property transferred was subj to depr recapture under Sec 1245 & Sec 1250
PARTNERSHIP FORMATION

Partner gets % of partnership interest in exchange for services -

what happens?
Partner must recognize ORDINARY INCOME when a capital interest is recvd as compensation for services rendered (FMV of interest rcvd x %)
PARTNERSHIP FORMATION

Holding period of partnership interest
begins when? & includes what?
depends on nature of contributed property
If Sec 1231 or capital asset, holding period includes the time that the sec 1231/capital asset was held by the partner
-all other's - begins when the partnership interest is acquired
-includes the period during which the property was held by the contributing partner
PARTNER'S BASIS

Partner receives 25% interest in partnership in exchange for services
and asset with AB=25,000 FMV=40,000
FMV of 25% interest = 50,000

How much is P's basis in Partnership?
P must recognize compensation income 50,000 -40,000=10,000
P's basis = 25,000 c/o basis in assets
plus 10,000 income recognized for services = 35,000
PARTNER'S BASIS
BEG BASIS
+LONGER TERM CAPITAL GAIN
-CASH DISTRIBUTIION
=END BASIS
ORD LOSS IS LIMITED TO BASIS
PARTNER'S & PARTNERSHIP BASIS
Initial contribution
+/- Income/Loss
-Cash/Property Distribution Recvd
+% of Partnership Liabilities
-Contributed Liabilities
= Net OUTSIDE basis
PARTNER'S BASIS
amount the partner has at risk in the partnership
PARTNER'S BASIS

INCREASES
+contribution of assets by partner to partnership
+debts incurred by partnership
+allocation of partnership to partner
PARTNER'S BASIS

DECREASES
-distributions of assets from partnership to partner
-allocation of partnership losses to partner
-repayments/reductions of debt of the partnership
PARTNERSHIP FORMATION

Partner contributes cash

What happens to basis?
Basis is increased by amount paid
PARTNERSHIP FORMATION

Partner contributes property

What happens to basis?
C/O Basis

FMV is ignored
PARTNERSHIP FORMATION

Partner contributes property with mortgage? What happens to basis?
-Partner's net contribution is reduced
(decreases basis)

-each partner's basis is increased by indvl shares of the liability the partnership has assumed
Partner gets 20% interest by contributing asset FMV=10,000 C/O AB = 4,000 MTGE = 6000
-basis never goes negative
-cash distribution exceeds basis = gain
-contributed asset subj to higher liability = gain

INITIAL OUTSIDE BASIS (P'S C/O BASIS = 4,000
+ % OF LIAB (6,000 X 20%) = 1200
-LIAB CONTR TO PTP -6000 =

-800 GAIN, BASIS IS 0
PARTNERSHIP

SEP STATED ITEMS
-capital gains/losses-limit on cap loss
-section 1231 gains/losses-net cap gain
-dividends and interest - limitation
-passive activities - limitation
-charitable contribution - must item to deduct/up to 50% of AGI
-sec 179 election-$ limit / year
-tax credits -limited to tax liability
PARTNERSHIP

GUARANTEED PAYMENT
payment to partner for services or use of capital, like salary
-not based on partnership inc/loss
-incld in determining ordinary income to partnership
PARTNERSHIP TAX YEAR
-required to adopt the same tax year as that of the partners or a majority of partnership interests
-can have a tax year with valid business reason but limited to using one of 3 months prior to the required year end
-result -up to 3 months of partnership income is deferred before being taxed on the returns of the partners
PARTNERSHIP OWNERSHIP
OF 50% OR MORE
-Losses from sales of property between controlling partner and his partnership are not allowed
-Gains from sale of property is Ordinary Income
PARTNERSHIP DISTRIBUTION
Got cash & property that depreciated

What gain must report?
What is Ps basis in distribution?

P's partnership interest 50,000
recvd cash distribution 20,000
property AB = 40,000
fmv = 35,000
P's beg basis 50,000
-20,000 (must be reduced by cash 1st, then property. Since cash does not exceed 50,000 basis in interest,
no gain recognized
-50,000 basis is reduced by cash recvd, 30,000 is basis for the property recvd
GUARANTEED PAYMENT
-must be subtracted from partnerships business income before guaranteed payments to determine the net business income to be allocated to partners
p's basis at beg of yr 60,000
p got cash 20,000
partnership - ord loss 65,000
net ltcg 15,000

What is P's loss for the year?
beg basis 60,000
+ltcg 15,000
-20,000 cash
55,000 -ordinary loss is limited to 55,000, the rest 10,000 can be carried forward when P has enough basis
TERMINATION OF PARTNERSHIP
-it no longer has at least 2 partners
-sale or exch of 50% or more of the total interests
-merger - 50%
-division - 50%
SALE OF PARTNERSHIP INTEREST
-results in capital gain/loss
-gain is ordinary to extent of unrealized receivables or appreciated inventory
P has 25% in Partnership
beg AB - 20,000
recvd non-liquidating cash distribution 8,000
partnership:
muni bond interest income 12,000
ordinary income 40,000

What is P's tax basis at end of year?
20,000 ab
-8,000 cash (decrease)
+ (ord income 40,000 x 25%)=10,000
+ (muni interest inc 12,000 x 25%=3000
CONTROLLED PARTNERSHIPS
Loss is disallowed - transaction between a partnership and a person owning more than 50% capital or profits