Chap3StudentSlides - Chapter 3 Operations of a Partnership...

This preview shows page 1 - 10 out of 31 pages.

Chapter 3: Operations of a Partnership
Partnership as an EntitySec. 702(b)Sec. 703Although a partnership is not a taxable entity, but a conduit through which items flow through to the partners, these sections require a partnership to determine taxable income, character of income, select an accounting method, select a taxable year, make certain elections.
Revenue Ruling 68-796/1/66Ptsp buys 300 shs of X CorpABC Partnership with 3 equal partners2/1/67A sold ptsp interest to D5/1/67Ptsp sold X stock for a gainAt this time, the long-term holding period was 6 months. What is the character of the gain to D?
Demirjian v. Commissioner11/3/60Building conveyed to Kin-Bro Real Estate Co, a partnershipAnne and Mabel conducting business as Kin-Bro Real Estate Company, a partnership9/12/62Building conveyed to Newark Housing Authority in involuntary conversion2/7/64Mabel invested portion of her proceeds in similar propertyUnder 703(b), the election and replacement under Sec. 1033 (involuntary conversions) must be made at the partnership level. Reinvestment of proceeds and election by individual partners was not respected.4/15/63Anne invested portion of her proceeds in similar property
Schneer v. CommissionerBSIB & KSSG & Memployeepartner$$Fees for services performed by Schneer$$
Schneer v. CommissionerIssues:Who earned the income, Schneer or partnerships?Was income earned before or after Schneer became a partner in B&K and SSG&M?Were services similar to the partnerships’ business?What werethe services that earned the income?Is the pooling of income in a partnership context the same as assignment-of-income?Must a partner be acting as agentof partnership in order for the income to be partnership income?Was there any tax avoidance motive here?
Schneer v. Commissioner“The pooling of income is essential to the meaningful existence of subchapter K. If partners were not able to share profits in an amount disproportionate to the ratio in which they earned the underlying income, the partnership provisions of the Code would, to some extent, be rendered unnecessary.”-from Judge Gerber, 97 TC 643 (1991)
Taxable YearSec. 706(b)(1)(B)1. Majority interest year2. Principle partner year3. Year with least aggregate deferral4. Year chosen for “business purpose”Natural business year (25% test)5. Sec. 444 ElectionNo more than 3-month deferralRequires paymentNo real benefit
Taxable YearWhen do partners take into income their allocable share of partnership income? 706(a)1/112/31

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture