Unit 2 Partnership Formation Basis Holding Periods and Tax Impact Upon Formation

Unit 2 Partnership Formation Basis Holding Periods and Tax Impact Upon Formation

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Partnership Formation – Basis, Holding Periods and Tax Impact Upon Formation
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Objectives Determine a partner’s basis in his partnership interest Determine the partnership’s basis in its assets Determine tax consequences to the partner and the partnership upon contribution of property to a partnership
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Partnership Formation - §721 3 Note: There is no "control" requirement similar to Corporate rules Partners Amount of interest each partner receives depends upon the partnership agreement
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Definition of Property Money Installment obligations [Treas. Reg. §1.721-1(a)] Personal note of transferor-partner Contract negotiated by Technical know-how, secret formulas, etc. Accounts receivable Goodwill Letter of intent 4
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Basis Inside Basis vs. Outside Basis
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“Inside Basis - IRC §723 ” Basis that the partnership has in its assets, including assets contributed by the partner to the partnership. These take a carryover basis from the contributing partner. 6
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Inside Basis IRC §723 P/S basis in P/S assets Basis and holding period transferred from partner to P/S Increased by 721(b) gain 7
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Determining Inside Basis 8 A Land FMV - $10,000 Basis - $ 2,000 Inside Basis = ? A-B Partnership B 50% Partner 50% Partner
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Determining Inside Basis 9 $ 2,000 A Land FMV - $10,000 Basis - $ 2,000 A-B Partnership B 50% Partner 50% Partner Inside Basis =
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“Outside” Basis IRC §722 This is the basis the partner has in his ownership interest in the partnership. If he contributes property, his outside basis will generally include 10
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Outside Basis Partner’s basis in P/S interest Used to determine gain/loss 11
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Unit 2 Partnership Formation Basis Holding Periods and Tax Impact Upon Formation

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