Cheat Sheet pdf - Chapter 2 What is a partnership An unincorporated business carried on by two or more individuals or entities for profit Conduit entity

Cheat Sheet pdf - Chapter 2 What is a partnership An...

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Chapter 2: What is a partnership? An unincorporated business carried on by two or more individuals or entities for profit. Conduit entity. Reports, but doesn’t pay income tax. No limited liability. Know the tax advantages / disadvantages of operating as a partnership Adv : No partnership-level taxes. Income only taxed at partner level. Losses offset other income of partner (with limitations). Distributions generally not subject to taxation Disadv : Profits taxed as earned, whether they are distributed or not. Partners not employees. Profits pay SE tax Sect. 351 the control requirement p. 2-13. Property is transferred for stock AND transferors have control (ie. 80%) immediately o Contribution of services and property Sect. 351 what is property? Includes money and almost any other asset. Does NOT include services. Sect. 351 effect of Sect. 351 transfers on the transferors - enacted to allow taxpayers to incorporate without incurring adverse tax consequences. - applies to property transfers in exchange for stock. No gain/loss recog. Basis in stock same as basis in property. Holding period of stocks = same as assets. Gain recog. Lesser of gain realized or FMV of boot received. Gain recog when liab transferred exceed basis in assets transferred. Basis in stock increased by gain recognized. Basis in boot property is fmv. Holding period of boot begins day after exchange. Sect. 351 taxable contribution If 80% ctrl req. is not met, FMV A/B = taxable gain. Someone else can help by putting in 10% of stock owned Sect. 351 contributions by non-shareholders - Basis of property acquired is zero Liabilities assumed by corporation in excess of basis example: basis in land transferred + cash transf + gain recog liab assumed by corp = was 0 Chapter 3: An election to forgo an NOL carryback must be made on or before the return due date (including extensions) for the year in which the NOL is incurred. (True) Deduction order 1. All other deductions 2. Charitable 3. DRD 4. NOL Dividend received deduction (DRD) - The purpose of the dividends received deduction is to mitigate triple taxation. Without the deduction, income paid to a corporation in the form of a dividend would be taxed to the recipient corporation with no corresponding deduction to the distributing corporation. Later, when the recipient corporation paid the income to its individual shareholders, the income would again be subject to taxation with no corresponding deduction to the corporation. The dividends received deduction alleviates this inequity by causing only some or none of the dividend income to be taxable to the recipient corporation.
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