Partnerships Chapter 7

Partnerships Chapter 7 - Partnerships Chapter7...

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Click to edit Master subtitle style Partnerships Chapter 7 Operating Distributions by Partnerships
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A. Review of Basis Concepts n A partner's outside basis n undistributed, taxed partnership income n + cash contributed n + basis of contributed property n + liabilities assumed. n Capital account: n the book value of a partner's partnership interest. n Proceeds received on liquidation of partnership assets and special allocations of income and deductions must be reflective of capital account values.
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Review of Basic Concepts Continued n A partner's inside basis is his share of the partnership's tax basis. It is the same as his outside basis if — n 1.He is the original partner n 2.He buys into the partnership and a Sec. 754 election is made to write up his share of the partnership tax basis
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The purpose of the rules in this chapter are to ensure: 1. That the partner only has to recognize gain to the extent that a distribution exceeds outside basis 2. Keep taxpayers from converting ordinary gain into capital gain 3. The capital accounts reflect the economic interests of the partners after a distribution
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B. CONSEQUENCES TO THE DISTRIBUTEE PARTNER n Nonrecognition Rules on the Distribution: n Distributions of Cash n Include reduction in share of partnership liabilities. n General Rule under Section 731(a) - a partner recognizes neither gain nor loss on a current distribution of cash. n Under Section 733 - a partner's outside basis is reduced but not below zero by the amount of the distribution. n CASH Distributions in excess of basis are taxed.
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Distributions of Property n Sec. 732 (a) n The partner's outside basis is reduced by the partnership's tax basis of the property distributed. n Sec. 731 (a) (1) n No loss is recognized on a distribution of partnership property. An excess distribution of cash is taxed as a capital gain n The basis of the distributed property to the distributee is a carryover basis. n If partnership property distributed has a basis greater than the partner's outside basis for his entire partnership interest, n The property takes a substituted basis equal to the partner's outside basis.
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Allocation of Basis to Distributed Properties n If the partnership's basis in property exceeds the partner's
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This note was uploaded on 01/20/2011 for the course ACC 617 taught by Professor Staff during the Fall '08 term at Kentucky.

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Partnerships Chapter 7 - Partnerships Chapter7...

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