Exam I Content Sheet.docx - Chapter 1 What constitutes a \u201cpartnership\u201d for tax purposes 3 critical questions o Who will own the business What type

Exam I Content Sheet.docx - Chapter 1 What constitutes a...

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Chapter 1 What constitutes a “ partnership” for tax purposes? 3 critical questions: o Who will own the business? What type of economic relationship among them is contemplated? o How and when do owners intend to realize a return on their investment? How- ordinary v. cap gains Reforms – drop all business tax to 15% including flow throughs Not all income but “reasonable compensation” at ordinary, and the rest is business tax o Is the business initially expected to generate losses and for how long? Considerations in entity choice: o Rates on ordinary income o Preferential cap gains rates o Pass through of losses o Sub k versus sub s o Employment tax considerations o State tax issues o If existing entity, what is cost change? When may a partnership “elect out” of Subchapter K? o Sub K – Sections 701-761 A business activity “incorporated” under law is a CORPORATION for federal income tax purposes Section 7701 - corporation includes “associations” with corporate characteristics o Choice of entity: LLCs emerged in 1980s and Treasury responded with proposed regs in 1997 “Check-the-box” regulations o Make it easier to determine classification o “corporation” under state law, then taxed as a C corporation o Not a corporation, then it has a freedom to choose corporation or non- corporate tax treatment Does an entity exist? o Check the box only apply to an entity SEPARATE from owners o So not a corporation but an entity can check the box Entity needs to exist and be separate o Whether an entity exists is a matter of TAX LAW, not local or state law Podell v. Commissioner – taxpayer claims “no entity” and IRS claims there is Podell: capitalize for real estate with many houses Argument: trade and business of flipping houses is ordinary income not capital gains Is it a joint venture? Determine character at business level o 1. Contract implied (yes) o 2. Contribution – in service and capital (yes) o 3. Joint control and ownership of assets (yes) o 4. Agreement to split profits (yes) Yes. A partnership so the real estate is ordinary income. Allison v. Commissioner – taxpayer claims they established partnership and IRS says “no entity 75 lots - loan broker loaned own $, find financing, and added capital to investment group No income when title to lots o Contract? Maybe implied o Contribution? Property and capital yes o Joint ownership of assets – investment company only so no o Agreement to split profit no Not a joint ventures Ordinary income- doing ordinary business as a loan broker but being paid in lots FOUR ATTRIBUTES OF JOINT VENTURE (tax law) o Contract, express or implied, that a joint venture be formed o Contribution of money, property, and/or services by the venturers o Agreement for joint proprietorship (ownership) and control o Agreement to share profits o Texas Law +1 = Sharing or agreement to share losses or liabilities (not under tax law) o
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