UCLAOLPSclassnotes9 - Partnership Tax Week 9 Notes: 1)...

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Partnership Tax Week 9 Notes: 1) Where we are a) We’re talking about the tax impact of partnership distributions b) Last time, we learned that distributions are generally tax-free to recipient partners and to the partnership, with exceptions c) We also learned the impact on inside and outside basis of a partnership distribution d) Next week is final Week! i) Exam will be Available next Wednesday ii) And will be due back to me by 9 a.m. on the following Wed. (see announcement for details) 2) Now, on to the Sec. 734(b) adjustment – distributions a) Overview i) Recall from last time that basis in PS assets NOT changed for a distribution, generally ii) This can create inside/outside basis discrepancy – same concept as with sale of an interest (1) this creates problems, as we have seen – potential for double-counting/mismatch of income, which is at least a timing problem for partners (a) recall example from sale of PSI – selling partner recognizes gain on sale, but then buying partner could recognize gain on same sale, if PS sold appreciated assets right after new partner came into PS (2) can similarly be a problem with distributions (3) an inside/outside basis difference can be created on a distribution IF, in general, (a) gain/loss recognized on distribution (b) OR, distributee partner takes a different basis in assets than PS had (4) Rather than creating double gain to the new partner, this can create double gain to the partnership (a) Partner already paid tax on gain on distribution (b) There will be gain to the partnership, again, when partnership sells relevant asset (examples below) iii) Correct with the 734(b) adjustment – similar procedure to section 743(b) adjustment (1) Elective – must be a sec. 754 election in place (a) New for 2004 (AJCA of 2004) – 734(b) adjustment is MANDATORY (i.e., required even if no sec. 754 election in place) IF a distribution causes a negative adjustment of greater than $250,000 (to prevent abuse) (2) Then, figure gross amount of sec. 734(b) adjustment (a) Unlike 743(b), this is an actual adjustment to PS asset basis (3) And then allocate it to assets, using methodology of sec. 755 b) Gross amount of 734(b) adjustment i) We know how to make Sec. 754 election –same as with 743(b) adjustment; so turn immediately then to gross amount of 734(b) adjustment ii) When is it triggered? Any time a distributee partner receives more or less than her share of inside basis in partnership property (1) If there is gain on distribution, the 734(b) adjustment increases PS “inside” asset basis by amount of gain (2) If there is a loss on distribution, 734(b) adjustment decreases basis on PS assets by amount of loss (3) If P takes basis in distributed property LOWER than PS basis in property right before distribution, the 734(b) adjustment increases the basis in remaining property by the difference (4) IF P takes a basis in distributed property HIGHER than PS basis in property right before distribution, 734(b) adjustment
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This note was uploaded on 02/24/2010 for the course ACCOUNTING 578844 taught by Professor Mctosh during the Spring '10 term at UCLA.

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UCLAOLPSclassnotes9 - Partnership Tax Week 9 Notes: 1)...

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