Limited Liability Limited Partnership [LLLP]. An LLLP is a limited partnership in which the general partners are not liable for the negligence or misconduct of the other general partners.
7 of 59 Chapter 19, Exhibit 2b Limited Liability Company [LLC]. An LLC is a state-registered association generally taxed as a partnership if it “checks the box” to be treated as a partnership. LLC members, like corporate shareholders, are not personally liable for the debts of the LLC. Unlike limited partners, LLC members may participate in management without risking personal liability. However, guaranteed payments to members are subject to self- employment tax, along with the members’ share of ordinary income or loss from the LLC. Partnerships—Types of Partnerships
8 of 59 Classification as a Partnership “Check the Box” Regulations allow an entity to choose what type of tax entity it will be Default classification – More than one owner – Partnership One owner – Sole Proprietorship Incorporated entity – must be a tax corporation, but can elect S corporation status to get “flow-through” status Chapter 19, Exhibit 3
9 of 59 Partnership Reporting Code Sec. 702(a)(8) Ordinary Business Income (Reported on page 1 of Form 1065 and on line 1 of Schedule K) = Operating Expenses – Gross Income from Business Operations = Exclusions and Cost of Goods Sold – Ordinary (nonseparately stated) Income (including Code Sec. 1245 recapture) [Taxation at Owner Level] Chapter 19, Exhibit 4
10 of 59 Definition. Earned income from operations generally follows the same rules as for individuals (i.e., all income from whatever source derived, unless specifically excluded). It is offset by cost of goods sold and operating expenses to produce Partnership Ordinary Business Income (Loss). (Line 22, page 1 of Form 1065) The following items are included in the Partnership Ordinary Business Income (Loss) computation because they always get ordinary (nonseparately stated) treatment: Code Sec. 1245 depreciation recapture Cost of goods sold Depreciation and other operating expenses Amortization of organizational expenditures Chapter 19, Exhibit 5 Partnership Ordinary Business Income (Loss)
11 of 59 Separately Stated Items Items other than partnership operating income and expenses must be separately stated. The reason for showing these items separately is that their ultimate tax treatment may vary from partner to partner. Separately stated items are first computed at the partnership level (same computation method as with individuals). Next, each partner’s distributive share of each separately stated item is reported on his Schedule K-1 of the partnership return. Finally, the K-1 is sent to each partner who transfers his distributive share of ordinary business income (loss) and each separately stated item listed from the K- 1 to the appropriate section of the partner’s return. For example, a distributive share of charitable contributions reported on the K-1 is transferred to Schedule A of Form 1040 if the partner is an individual. There, it is subject to certain AGI
- Fall '14
- Types of business entity, partner, Limited liability partnership, Code Sec.