Income earned by flow-through entities is usually taxed once at the entity level.
Partnerships tax rules incorporate both the entity and aggregate approaches.
The term "outside basis" refers to the partnership's basis in its assets; whereas, the term "inside basis"
refers an individual partner's basis in her partnership interest.
A partnership can elect to amortize organization and startup costs; however, syndication costs are not
Nonrecourse debt is generally allocated according to the profit-sharing ratios of the partnership.
Partners must generally treat the value of profits interests they receive in exchange for services as
A purchased partnership interest has a holding period beginning on the date of purchase regardless of the
type of property held by the partnership.
Tax elections are rarely made at the partnership level.
The least aggregate deferral test uses the profit percentage of each partner to determine the minimum
amount of tax deferral for the partner group as a whole.
10. A partnership with a C corporation partner must always use the accrual method as its accounting
11. The character of each separately-stated item is determined at the partner level.
12. Guaranteed payments are included in the calculation of a partnership's ordinary business income (loss)
and are also treated as separately-stated items.
13. A general partner's share of ordinary business income is similar to investment income; thus, a general
partner only includes their guaranteed payments as self-employment income.
14. Partnerships can use special allocations to shift built-in gains and built-in losses on contributed property
from a partner who contributed the property to other partners.
15. A partnership can request a five month extension by filing Form 7004 prior to the original due date of the
16. A partner's outside basis must first be decreased by any negative basis adjustments and then increased by
any positive basis adjustments.
17. Actual or deemed cash distributions in excess of a partner's outside basis are generally taxable as capital
18. Adjustments to a partner's outside basis are made annually to prevent double taxation on the sale of a
partnership interest or at the time of a partnership distribution.
19. Partners adjust their outside basis by adding non-deductible expenses and subtracting any tax-exempt
income to avoid being double taxed.
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