C guaranteed payments for deduction purposes reduce

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C. Guaranteed payments (for deduction purposes) reduce partnership income and thereby reduce each partner's distributive share of such income. D. Guaranteed payments are deemed to be paid to the partner on the last day of the partnership's tax year, regardless of when payment was actually made.
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2.Precontribution (Built-In) Gains and Losses These are allocated back to the original contributing partners when the property is sold . Definition Built-In Gain (or Loss) Property : Property that has appreciated (declined) in value at the time of its contribution to the partnership (the value of gain property is greater than its adjusted basis, whereas the value of loss property is less than its adjusted basis). Misconception There is no time limit on the allocation of the amount of built-in gains and losses from sales of property. A time limit (five years) applies to the characterization of these gains and losses as ordinary or capital. Another time limit (seven years) applies to the distribution of built-in gain property (to partners). ii. The built-in gain or loss is allocated to the contributing partner up to the gain or loss realized on the sale. iii. The character of the built-in gains and losses is generally determined by the use of the property by the partnership, with two exceptions. 1. Sales of contributed ordinary income or loss property (e.g., inventory and accounts receivable) generate ordinary income or loss to the contributing partner. 2. The characterization of income or loss as ordinary from a sale of inventory is limited to five years (five years after the property was contributed to the partnership). 3. There is no time limit for the ordinary income characterization for accounts receivables . 3.Note that all gain or loss on the sale is treated as ordinary if the above rule is met. It is not limited to the built-in gain or loss at the time of contribution. Example Partner A is an art dealer and a partner in ABC Partners, a consulting firm. A contributes a painting (he held as inventory) to ABC to decorate the ABC office (a Section 1231 asset). The painting has a FMV of $10,000 and an adjusted basis of $6,000. If ABC sells the painting
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within five years of the contribution, any gain or loss will be allocated to A (up to the built-in gain or loss) and will be characterized as ordinary income . Thus, if the painting is sold four year later for $11,000, the $5,000 gain ($11,000 − $6,000) is characterized as ordinary income. If ABC sells the painting after five years, then the $5,000 gain is Section 1231 gain . Note that in both cases, since the built-in gain was only $4,000 ($10,000 − $6,000), the first $4,000 of gain is allocated to Partner A. The remaining $1,000 of gain is allocated to A and the other partners based on their profit-sharing ratios. 1. Sales of contributed capital assets with built-in capital losses generate capital losses to contributing partners (again only for five years after the contribution). However, for built-in capital losses, the amount of loss that can be recharacterized as capital is limited to the built-in loss at the time the asset was contributed.
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  • Spring '17
  • Wendy Achiles
  • partner

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