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Lecture Slides 4_Presentation

Lecture Slides 4_Presentation - Business Law II Spring 2008...

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Business Law II Tax Issues in Comparing Business Forms Spring, 2008 PowerPoint Slides Slide 1 ANNOUNCEMENTS Reading: Text: 869-875; 879-891; Dunn, Patane. Next paper assignment available on February 27 and due Thursday, March 6. Midterm exam during class on March 12. Exam will begin at 8:15 a.m. No make up exam is planned. Is your cell phone silent? ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 2 Taxation of Business Organizations Tax issues in forming a business entity. Basis in contributed property and basis in partnership interest/corporate stock Tax implications of terminating the business form Income taxation of each business entity ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 3 Forming a Partnership General rule tax free under IRC §721 Major exceptions: Property contributed for consideration other than partnership interest Services contributed Partnership used to swap property not qualified for tax-free exchange treatment Contributed property subject to liability in excess of basis ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________
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Business Law II Tax Issues in Comparing Business Forms Spring, 2008 PowerPoint Slides Slide 4 Basis of Partnership Interest – Why Is this Important? Partnership is a capital asset so adjusted basis important for calculating realized/recognized gain/loss on disposition. Amount of loss suffered by partnership that any partner may take as a deduction is limited to his/her adjusted basis in partnership interest at close of year when loss occurred. ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 5 Basis of Partnership Interest – How Is It Determined? Purchased interest – amount paid. Inherited interest – generally value on estate tax return [FMV at date of death] Gifted interest – generally donor’s basis [FMV on date of death usually irrelevant] Money and/or property contributed for interest – basis in property will carryover If gain/loss recognized or ordinary income results, basis must be adjusted. ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ ___________________________________ Slide 6 Calculating Basis, con’t Basis in partnership interest may fluctuate. Will be increased by: Partnership’s income items Increases in partnership debt Will be decreased by: Partnership losses Reductions in partnership debt Reconciliation done annually on Form 1065 Schedule M.
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