Adjustments on Distributions. If a Sec 754 election is in place a partnership makes the adjustments listed on p. 10- 27. For sales and exchanges after October 22, 2004 a mandatory basis adjustment is required if the partnership has a substantial built-in loss and has no Sec. 754 optional basis adjustment election in effect. The built-in loss is considered substantial if the difference between basis and FMV exceeds $250,000.
69 Special Forms of Partnerships Limited partnerships are discussed in the beginning sections of Chapter 10. Here, we examine a series of special partnership forms, including tax shelters that are organized as limited partnerships, publicly traded partnerships, limited liability companies and limited liability partnerships and electing large partnerships. Tax Shelters and Limited Partners. Prior to the 1986 Tax Act, limited partnerships were the primary vehicle for tax shelter investments. The passive loss rules have changed this. Limited partnerships that generate passive income are now becoming popular investment vehicles.
Publicly Traded Partnerships. A publicly traded partnership which meets req. of Sec. 7704 is taxed as a corp instead to being taxed as a partnership under Subchapter K unless they are grandfathered by being in existence on December 17, 1987, and have not added a substantial new line of business since the date they are grandfathered, or earn primarily qualifying income. A publicly traded partnership is a partnership whose interests are either traded on an established securities exchange or are traded on a secondary market or the equivalent thereof. The Taxpayer Relief Act of 1997 added an election which will allow the grandfathered partnerships to continue to be taxed as partnerships after the original 10-year window and until the election is revoked. In order to elect to be taxed as a partnership, the publicly traded partnership must agree to pay a 3.5% annual tax on gross income from the active conduct of any trade or business. The election may be revoked by the partnership, but once revoked, cannot be reinstated.
71 Special Forms of Partnerships Limited Liability Companies (LLCs). The limited liability company (LLC) combines the legal and tax benefits of the partnership and S corporation forms of doing business. All 50 states have adopted limited liability company rules or are considering them. The LLC business form combines the advantage of limited liability for all its owners with the possibility of achieving the conduit treatment and the flexibility of being taxed as a partnership.
72 Limited Liability Partnerships (LLPs). Many states have added limited liability partnerships (LLP) to the list of business forms, which can be formed. Most LLPs are service partnerships. Under state laws, the primary difference between a general partnership and a limited liability partnership --- in a limited liability partnership, a partner is not liable for damages due to failures in the work of other partners or of people supervised by other partners.
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- Spring '08
- Accounting, Corporation, Types of business entity, partner, Limited liability partnership, Partnership X Partnership