chapter_10_notes

chapter_10_notes - 10-1 Chapter 10 Partnership: Formation,...

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10-1 Chapter 10 Partnership: Formation, Operation and Basis (2011 edition) updated: February 23, 2011 Learning Objectives: Explain the tax results of a contribution of property or services in exchange for a partnership interest Differentiate between items that must be separately stated and those that are included in ordinary partnership taxable income or loss Calculate a partner’s distributive share of partnership income, gain, loss deduction or credit items Calculate a partner’s basis in a partnership interest Determine the limitations on a partner’s deduction of partnership losses Determine the tax consequences of a guaranteed payment I. Understand the Tax Factors Associated with Partnerships (Subchapter K) A. Partnership 1. partnership (defined) – an association of two or more “persons” who contribute money, property, or labor to carry on a trade or business and expect to share in profits and losses 2. for tax purposes, this includes: joint ventures syndicates groups pools other unincorporated organizations (under the “check-the-box” regulations) 3 for tax purposes, this does NOT include: estates, trusts or corporations however, individuals, estates, trusts, corporations, and even other partnerships can all be partners in a partnership B. A partnership is a flow-through (or pass-through) entity 1. a partnership is not a separate taxable entity 2. the partnership files a tax return to provide information to the IRS about the amounts to be reported by the partners 3. partnership income is taxed once 4. income of the partnership is reported by the partners, regardless of the amount distributed to partners
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10-2 C. Some advantages of partnerships 1. greater flexibility in allocating income (losses) to partners 2. relatively simple (inexpensive) administrative & filing requirements 3. no recognition of income when appreciated assets are distributed to owners in liquidation 4. unrealized appreciation must be recognized by a corporation on distributions in liquidation 5. no recognition of income when a partner contributes appreciated assets to a partnership
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10-3 II. Describe the Different Type of Entities Taxed As Partnerships A. General partnership 1. consists of at least 2 partners 2. partners are jointly and severally liable (vs. proportional liability) creditors can collect from both partnership assets and partners’ personal assets general partner’s assets are at risk for malpractice, or other torts of other partners even though not personally involved B. Limited partnership 1. has at least one general partner 2. one or more limited partner(s) 3. only general partner(s) are personally liable to creditors (personal assets at risk) 4. limited partners’ loss is limited to their capital contributions C. Limited liability partnership (LLP) 1. an LLP partner is not liable for malpractice, or other torts committed by other partners 2. provides some limitations on liability – is liable for own malpractice or torts 3. popular organizational form for law & accounting firms, medical
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chapter_10_notes - 10-1 Chapter 10 Partnership: Formation,...

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