2009 R-4 Class Notes - Becker CPA Review Regulation 4 Class...

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Becker CPA Review – Regulation 4 Class Notes 1 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. REGULATION 4 CLASS NOTES This lecture covers partnership taxation, estate/trust/gift tax, tax return preparer issues, the Sarbanes- Oxley Act of 2002 and ethics and professional responsibilities. According to the AICPA's Content Specification Outline, these items and the items included in R3 should make up between 37% and 48% of the Regulation examination. PARTNERSHIP TAX I. PARTNERSHIPS - FORMATION A. Partner General Rule No gain or loss recognized on a contribution of property in return for a partnership interest. Exceptions – Capital interest for services rendered = ordinary income . Property subject to excess liability – when the decrease in the partner's individual liability exceeds his partnership basis, the excess amount is taxable (a taxable gain similar to boot). Cash (amount contributed) + Property (adjusted basis (NBV)) <% Liabilities> (incoming partner's liabilities assumed by the other partners) + Services (FMV and taxable to partner) + % Liabilities (other partner's liabilities assumed by the incoming partner) Initial basis in partnership interest B. Partnership No Gain or Loss Recognized. Partnership's basis is the contributing partner's basis in the contributed property. II. PARTNERSHIPS - OPERATIONS A. Partner's Basis Formula B: Beginning Capital Account A: + % All income (including tax-free) S: <All losses> (including non-deductible expenses) <Withdrawals> (property distribution reduced by NBV) E: Ending Capital Account + % of Recourse liabilities Year-End Basis B. Partnership Tax Returns – A partnership should be thought of as a collection of sole proprietors. Because of this, the income is taxed only once in a partnership, unlike a corporation, where it is taxed twice. Form 1065 is an information return because it is used to calculate partnership income. No tax is paid on this return. Income is shown on this return and it "flows through" to the partner's individual tax returns on their K-1 . C. Transactions between Partner and Partnership – Generally, if a partner enters into a transaction with his partnership, the transaction is deemed to have occurred between the partnership and an outsider, unless the partner is a controlling partner (over a 50% interest in the partnership, in which case the losses are related party (W R aP) and not permitted. Any gains are always treated as ordinary gains.
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Becker CPA Review – Regulation 4 Class Notes 2 © 2009 DeVry/Becker Educational Development Corp. All rights reserved. D. Partner's share of income, credits, and deductions. A partner must include his distributive share of partnership income (even if not received) on his individual tax return. Partner's tax loss deductions are limited by his basis in the partnership ("at-risk" provision). Any unused loss can be carried forward to future years. Note that losses may be subject to the passive activity loss limitation rules. E.
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This note was uploaded on 05/15/2010 for the course ACCOUNTING 342 taught by Professor Judelee during the Spring '10 term at Cal Poly Pomona.

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2009 R-4 Class Notes - Becker CPA Review Regulation 4 Class...

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