Payments are taxed either as a distributive share or a guaranteed payment . If the payment is a function of partnership income, it is a distributive share of partnership income. If payment for other property is determined without regard to partnership income, the payment is a guaranteed payment. The payment is taxable to the retiring partner as ordinary income, and is deductible by partnership.
50 On June 30, 2010, Berk retired from his partnership, when his capital account was $50,000 and his share of the partnership's liabilities was $30,000. Berk's retirement payments consisted of being relieved of his share of the partnership liabilities and receipt of cash payments of $5,000 per month for 18 months, starting July 1, 2010. How much of these total payments ($90,000) will be deductible by the partnership? (CPAN93#60)
51 Berk’s capital account was $50,000 & his share of the partnership's debt was $30,000. Berk's retirement payments consisted of being relieved of his share of the partnership liabilities and receipt of cash payments of $5,000 per month for 18 months, starting July 1, 2010. This is $30,000 debt, plus $90,000 in cash payments for a total of $120,000. Assuming his capital was worth $50,000, he is getting $40,000 in cash which are other payments. The answer is $40,000.
52 Exchange for Another Partnership Interest. An exchange of a partnership interest in one partnership for a partnership interest in a different partnership will trigger the recognition of gain or loss from sale or exchange of partnership interest. Exchange for Corporate Stock. A partnership interest may be exchanged for corp. stock in an exchange that qualifies under Sec. 351. The basis of the corp. stock is determined by the basis in the partnership interest. The holding period for the stock includes the holding period for the partnership interest. As a result of the exchange, one of the corp's assets is an interest in a partnership, and the corp. reports its distributive share of the partnership income in the corp. tax return along with its other earnings .
53 Exchange of a Partnership Interest. Incorporation. When a partnership becomes extremely profitable or when limited liability is important, the entire partnership may choose to incorporate. Normally the transaction can be structured under Sec. 351 and be partially or totally tax-exempt. There are three ways a partnership can choose to incorporate. These methods may have different tax consequences. See additional slides near end of this file.
54 Income Recognition & Transfers of a Partnership Interest. Partnership year closes with respect to any partner who sells or exchanges his entire interest in a partnership or any partner whose interest in the partnership is liquidated. The year closes on date of sale or exchange, or the final payment in the case of a liquidation. As a result, that partner's share of all items earned by the partnership must be reported in the partner's tax year that includes the transaction date. A partner's tax year now closes on the date of death.
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- Accounting, Corporation, Types of business entity, partner, Limited liability partnership, Partnership X Partnership