Lesson 1. Aggregate vs. Entity Approach
1. Aggregate approach: the partnership as a separate entity is disregarded and each partner is viewed as directly owning an undivided interest in the partnership's assets operations.
If the tax law used only aggregate concepts, the partnerships and their partners would be treated:
- Each partner would be taxed on share of partnership income and would be viewed as owning a direct interest in each partnership asset.
- Contributions and distributions would be viewed as taxable transfers.
2. The portions of Subchapter K that reflect the aggregation approach: taxation of partnership income to the partners and the nonrecognition provisions for contributions to and distributions from partnerships.
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Ordinarily, nonrecourse liabilities are not included in the at-risk basis. However, after 1986, qualified nonrecourse financing is included in a partner's at-risk amount. Qualified nonrecourse financing generally means any loan from a qualified lender that is secured by real property and borrowed for the purpose of owning the real property.Limited partners are not at-risk for any liabilities of the partnership except to the extent of their capital contributions. Consequently, additional partnership liabilities will not increase their amount at risk. There may be instances where, pursuant to the partnership agreement, the limited partner is obligated to make additional capital contributions to the partnership. Such amounts are included in the partner's basis but generally are not included in the at-risk amount until actually contributed. Deductions disallowed due to at-risk limitations carry over to subsequent years and are deductible whenever sufficient at-risk amounts are established. There is no limit to the number of years to which a taxpayer may carry over such disallowed deductions. Passive loss limitations Code Section 469 provides that income as well as losses are classified into three separate categories: 1. active income, 2. portfolio income;