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ContentsBusiness Entity Taxation Overview............................................................................................................................1Choice of Entity Question..........................................................................................................................................1Defining a Partnership §§ 761 and 7701(a)(2)............................................................................................................1Defining a Corporation (§7701(a)(3))..........................................................................................................................2Reg. § 301.7701-2 Business Entities; definitions.........................................................................................................2Check the Box Regs: Reg. § 301.7701-3 Classification of certain business entities.....................................................3Changing Tax Treatment Reg. § 301.7701-3(g)............................................................................................................3Publicly Traded Partnerships - § 7704.........................................................................................................................3Social Security and Medicare Taxes.............................................................................................................................3Ordinary Trusts v. Business Trusts Reg. § 301.7701-4..................................................................................................4Formation of a Partnership.......................................................................................................................................5Contributing Property In Exchange for Interest of Partnership...................................................................................5Contributing Services for Partnership Interest............................................................................................................6Single Person Entity to Partnership (Rev. Rul. 99-5)....................................................................................................7Organization and Syndication Expenses § 709............................................................................................................7Operations of a Partnership......................................................................................................................................8Partnerships Generally § 701......................................................................................................................................8Income to the Partners § 702......................................................................................................................................8Income to the Partnership § 703.................................................................................................................................9Partnership Taxable Year...........................................................................................................................................10Partnership Borrows Money or Reduces Debt § 752................................................................................................11Partnership Distributes Money to Partners...............................................................................................................11Partnership Sells Asset..............................................................................................................................................11Partnership Revalues Assets § 1.704-1(b)(2)(iv)(f)....................................................................................................12Partnership Allocations...........................................................................................................................................12Allocating Sales or Exchanges of Contributed Assets § 704(c)..................................................................................14Allocation of Partnership Liabilities...........................................................................................................................14Allocations where Partners' Interest Vary Throughout Year......................................................................................15Allocations in Family Partnerships § 704(e)..............................................................................................................15Transactions Between Partner and Partnership § 707.............................................................................................16Sales/Exchanges of Property Between Partnership and Partner § 707(b) [Issue Spot This]......................................17Sale of a Partnership Interest..................................................................................................................................18Operating Distributions...........................................................................................................................................20Liquidating Distributions.........................................................................................................................................22Liquidation of Entire Partnership..............................................................................................................................23Death of a Partner...................................................................................................................................................23
Business Entity Taxation OverviewC Corp (“Double Tax”)oThe corporation pays tax if it earns a profit.IRC § 11 governs corporate taxation.The rates are high and the brackets are skinny.oIf the corporation distributes profits to the shareholder, then the shareholders are also taxed.§ 61: dividends are income.Dividends are taxed at capital gains rates under § 1(h)(11). But see, § 1411: high-income individuals also pay 3.8% healthcare tax on dividends.oThis means, at its maximum, corp. profits can be taxed at 48% rate.oLossesShareholders may lose stock value, but it’s only deductible when the tock is sold and only if it’s lowerthan shareholder basis.The corporation may take a deduction for losses on its tax return.S CorpoGoverned by subchapter S, § 1361 et seq.oTaxed a lot more like partnerships than c corps.Not taxed on profits, § 1363Profits and losses pass through to the shareholders, § 1366TrustsoGrantors are not taxed on the income to the trust, but only if they retain absolutely NO interest in the trust.oEither the beneficiaries pay tax or the trust pays tax.If the income is not distributed within the year, then it is taxed to the trust.If the income is distributed within the year then it is taxed to the beneficiaries.

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