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lecture7 - Week Seven Partnerships Formation and Operation...

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Week Seven Partnerships – Formation and Operation Operation of the Partnership ¶19,301 Liability for Tax The partnership does not pay an income tax, although it must make a deposit for estimated income tax if it elects a fiscal year as mentioned above. ¶19,335 Gross Income of Partner The character of any items of income or loss are determined at the partnership level. Any items that could potentially require special treatment by the partners are separately stated on Schedule K of Form 1065. All items not separately stated are netted together to calculate the partnership’s ordinary income. TRA ’97 simplified the reporting rules for “electing large partnerships,” defined as partnerships with 100 or more partners in the preceding year who elect to report using the new rules. The large partnership rules allow the partnership to aggregate more items at the partnership level, which simplifies the reporting to the partners. ¶19,345 Allocation of Items The separate allocation of deductions may be desired in order to compensate existing partners for lost tax benefits (e.g., depreciation) when property is contributed with a value greater than its basis. Precontribution built-in gains and deductions economically incurred by a contributor prior to the contribution must be allocated to the contributor. Other partnership allocations of income or loss items must have an “economic effect and that economic effect must be substantial. Partner-Partnership Transactions ¶19,425 Indirect Ownership The Code Sec. 267 attribution rules are applicable in determining indirect ownership in partnership relationships.
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