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 his basis in the 10
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Outside Basis Partner’s basis in P/S interest Used to determine gain/loss 11
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