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Partnership Taxation - Spring 2008 Professor Maule Course is going to: deal with the basics some intermediate material (e.g. tiered partnerships) no time for advanced topics Federal Income Tax (only occassionally a mention of or reference to state law) Primarily Subchapter K Pre-class preparation: do assignments in order presented but reread Code before attempting problem effort more important than outcome failed effort is more important than no effort preparation should take between 2-4 hours In class learning methods primarily problems some case analysis (in context of problems) some introductory lectures goal is understanding - not mere information gathering Post-class Assimilation Create summaries (graphs, charts, outlines) Be able to explain things to others Exam is open book (75% of grade) Quizzes (25% of grade - 5 quizzes) ===================================================================== Course Overview
Planning: favorable timing, including nonrecognition Favorable characterization (CG, OL) advantageous allocations The challenges of partnership taxation concept: aggregate v entities (tax the partnership or the partners) Dual focus: tax shelters v. business partnerships Parallel tracks: partnerships v. larger partnerships Circularity of interrelationships Multiple items to keep track of (e.g.:) partner adjusted basis in partnership partnership adjusted basis in assets capital accounts basis adjustments Complexity computational complexity (impact of OI and CG rate differences, basis adjustments, basis allocations) complicance complexity (record keeping, basis v. capital accounts) technical complexity (poor drafting, poor organization, volume, redundancies, ambiguities) interpretational complexity (conflicting provisions, valuations, terms of partnership agreement) transactional complexity (complicated deals) revision complexity (frequent changes, sunset provision of 2001 legislation) The (interrelated) issues: Formation is it a partnership? formation contribution of property (section 721 - nonrecognition - "basis in property = basis in partnership interest") liability on the property (section 752 - liability relief treated as a operating distribution) contribution of services admission of a new partner Operations computing taxable income distributable share (passthrough) reporting of income = increase in basis sale of contributed property (Section 704(c) - built-in gain goes to contributing partner) allocations: new partner throughout the year (Section 706(d)) loss limits Sale of Partnership Interest Ordinary income assets (Section 751)
Carve out capital gain and ordinary gain Basis adjustment (Section 743) Operating Distributions reduces basis (gain if in excess) liability relief is treated as a distribution (phantom distribution) Liquidating distributions section 736 - must break it into pieces - sum of distribution is treated as distributive share or guaranteed payment and what's left is treated under the distribution rules