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Unformatted text preview: Becker 2009 Edition Chapter 4 Page 1 of 10 Chapter 4 Partnership Taxation FORMATION General Rule barb2right No gain or loss is on a contribution of property to a partnership in return for a partnership interest. Exceptions to non-recognition of gain (taxable events): Capital interest acquired for services rendered (FMV) barb2right Value of partnership interest acquired for services is ordinary income to the partner Property subject to a (excess) liability barb2right Property contributed subject to excess liability, the excess amount is taxable boot as a gain to the partner Basis: Cash Amount contributed Property Adjusted basis (NBV) <Liabilities> - Put in by partner and is assumed by other partners is a reduction Services FMV and taxable to incoming partner Liabilities Other partners put in liabilities, and is assumed by incoming partner Income Basis Taxable barb2right FMV barb2right FMV Non-taxable barb2right None barb2right NBV Property subject to a excess liability = taxable boot barb2right Property is contributed which has liability where the decrease in the partners individual liability exceeds his partnership basis, the excess amount is taxable boot = taxable gain to the partner Partnerships barb2right Subtract only the liabilities assumed by the other partners and not the entire liability Corporations barb2right Subtract 100% of liability Partners capital account in a partnership can never begin with a negative balance (when liabilities assumed by partnership are greater than the basis (NBV) of assets contributed). The excess liability is treated like taxable boot, not a negative capital account. The partners original holding period (before the partnership) remains as the partnerships holding period if it is a capital asset or Section 1231 asset. (Partner bought asset in 1981, gave to partnership in 2007. Holding period = 1981). If ordinary income asset (i.e. inventory), the holding period restarts when the partnership acquires it (in 2007). Contributions = increase basis Withdrawals = decrease basis When a partner contributes property (which has a FMV that is higher or lower than basis), the built-in gain or loss with respect to the contributed property (when sold) must be allocated to the contributing partner. Partnerships basis for contributed property = NBV Partnership takes the contributors basis for any contributed property (plus any gain recognized by the incoming partner). Becker 2009 Edition Chapter 4 Page 2 of 10 BASIS B Beginning Capital Account Cash FMV services NBV assets <liability> A + % All Income Ordinary Capital Tax-free S <% All Losses> <Withdrawals> Partner may take a partnership loss as a tax deduction up to his/her basis Property distribution reduce by adjusted basis (NBV) of distributed property; up to -0- in capital account E Ending Capital Account + % Recourse Liabilities = Year-End Basis ***Difference between capital account and partnership basis:...
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This note was uploaded on 05/11/2010 for the course CPA 2010 taught by Professor ?? during the Spring '10 term at Becker College.
- Spring '10