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Partnership Tax Outline - USE THIS

Partnership Tax Outline - USE THIS

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Published by: crowlan2 on Aug 04, 2011
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10/07/2014

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1
LWAYS NOTE ASSUMPTIONS RE: HOW P-TSHP AGREEMENT DIVIDES INCOME
P-SHIP FORMATION & OPERATIONS
P-SHIP FORMATION (CH.1, 2)
Choice of Entity-
 
Partnership (P-ship)
o
 
76
1(a): Partnership includes any syndicate, group, pool, joint venture, or other unincorporated organization through or bymeans of which any business, financial operation, or venture is carried on
 
Profit-sharing
sign of a P-ship
 
Except:
 
Any Corp, trust, or estate;
 
Investment purposes only or use of property may be exempted if the income of members may be adequatelydetermined-
 
Corp (Corp)
 
o
 
The tax structure of Corps is much more simple.
o
 
Publicly traded entities
always taxed as Corps
o
 
A P-ship cannot merge into a Corp, unless the owners of the P-ship own 80% or more of the Corp
 
-
 
L
imited
L
iability Company
o
 
Single Member
LL
C
 
For Federal tax purposes, disregarded as an entity thats separate from its owner
 
Instead, taxed as an extension of its owner
 
Tax nothing-
 
Check the box
o
 
If only one owner
:
 
Entity treated as a tax nothing, even if called a corporation
 
For tax purposes
Entity treated like a sole proprietorship (e.g., no need for a TIN)
 
For liability purposes
Entity generally treated as the entity chosen (see state law)
 
Single owner could be an individual, Corp, LLC, trust, etc.
 
However, most single owners apply for a TIN and lose this advantage
o
 
If two or more owners:
 
Treas. Reg. §§ 301.
77
01-2, 301.
77
01-3
 
Is the entity called a corporation under the applicable state law?
x
 
Y
ES:
o
 
Reg. § 301.
77
01-2(b): The entity is taxed as a Corp under Subchapter C.
x
 
NO:
o
 
Is the entity a foreign entity?
 
Y
ES:
y
 
The entity defaults to being taxed as a Corp under Subchapter C.
 
NO:
y
 
The entity defaults to being taxed as a P-ship under Subchapter K.
y
 
The entity however may elect to be treated as a Corp (association) underSubchapter C.
 
2Organization/Syndication Expenses-
 
§
7
09 | Treatment of Organization/Syndication Fees
o
 
709
(a) 
 
G
eneral Rule
 
No deductions allowed by P-ship or Ptrs for any expenses related to
x
 
Organizing P-ship; or
x
 
Promoting or selling any P-ship interests
o
 
709
(b)(1) 
 
E
xceptions
 
If P-ship elects to apply this subsection, it can deduct (in year P-ship business begins) the lesser of:
 
x
 
Amt of org expenses w/ respect to P-ship; OR
x
 
5
k, less amt of org expenses in excess of 
5
0k (but not below 0)
o
 
NOTE: Remainder of expenses not deducted can be amortized over 180 months
o
 
709
(b)(3)Org
E
xpenses, defined
 
 
Expenses applicable in this section are those that are:
x
 
Incidental to P-ships creation
x
 
Are chargeable to capital account
x
 
Are amortizable over life and incidental to P-ships creation
 
3
CONTRIBUTIONS TO P-SHIP (CH.2)
Contributions of Property -
 
Non-Recognition Principles (in general)
o
 
§
7
21 | Non-recognition of Gain/Loss (G/L) on contribution
 
7
21(a)
 
G
eneral Rule
 
No G/L recognized by P-ship or Ptrs when Ptr contributes prop in exchange for P-ship int
 
7
21(b)
 
Special Rule
 Non-recognition does not apply if P-ship treated as investment company under§3
5
1 
o
 
Control not a requirement
o
 
W
hen non-recognition
will not
apply
 
 
If Ptr acts in his individual capacity (and not as a Ptr) in transacting w/ P-ship
x
 
If Ptr provides services for P-ship or transfers prop to his P-ship & acts as outsider
x
 
If Ptr transfers prop to P-ship where:
o
 
P-ship assumes liability on behalf of Ptr; AND
o
 
That assumption is treated as a distribution from P-ship to contributing Ptr
x
 
If Ptr contributes appreciated stocks/securities or other appreciated prop to P-ship
o
 
W
here P-ship treated as an investment company under§3
5
1 
 
§
1
00
1(a)Amt of Recognition
x
 
G/L from sale/exchange of property
AR  AB-
 
Basis Rules
o
 
Treatment of Contributed Property (Prop)
 
INSID
E
BASIS
 
P-ships basis in its assets
x
 
§
7
23
|
Basis of prop contributed to a P-ship (i.e., Inside Basis)
o
 
AB of prop as it was to contributing Ptr +
o
 
Any G recognized by contributing Ptr where P-ship treated as investment co under
§
7
21(b)
x
 
Definition of Property
o
 
Not defined in subchapter K
o
 
Thus, rely on §3
5
1 for guidance:
 
Property INCLUDES:
y
 
Money,
y
 
Goodwill,
y
 
Intangibles (accts receivable, patents, loans)
 
Property DOES NOT INCLUDE:
y
 
Services rendered by Ptr for P-ship
o
 
Treatment of Ptrs Interest
 
OUTSID
E
BASIS
 
Ptrs basis in his P-ship interest
x
 
§
7
22
|
Basis of contributing Ptrs interest (i.e., Outside Basis)
o
 
Amt of money contributed +
o
 
AB of prop contributed (as it was in Ptrs hand) +
o
 
Any G recognized by contributing Ptr where P-ship treated as investment company under
§
7
21(b)

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