The Nelson partnership is required to adopt a tax year which runs from October 1 through September 30 because that produces the least aggregate deferral (3.36). Assuming that there are no changes in the make-up of its partners, it will file its first Form 1065 for the short tax year, July 17, 2012, through September 30, 2012. The return must be filed by January 15, 2013. Fee for Services v. Distributable Partnership Income Ozone’s income, exclusive of Archie’s arrangement, is $40,000. Apparently there would be no problem allocating 37. $10,000 of the income to Archie since he contributed cash for his 25 percent interest. However, the $25,000 cash payments, in view of the relative certainty of their payment, would not be recognized as either a distribution of partnership income or a deductible fee. Probably they would be treated by Ozone as a capitalizable construction charge, a fee earned by Archie for his architectural services and depreciated by the partnership. Archie would recognize each $25,000 as income for services rendered. Sale of Assets by Minority Partner to the Partnership $5,000 short-term capital gain. As a 20 percent partner, Henry is treated as if he were a stranger dealing with the 38. partnership. Accordingly, the gain on the sale is reported in full even though in fact he is selling 20 percent of the asset to himself.
363Instructor’s Manual©2012 CCH. All Rights Reserved. Chapter 19 Sale of Assets by Partnership to the Majority Partner As this was a sale by Henry to the partnership, there is no carryover basis or carryover holding period; the basis of 39. the stock to the partnership is its $10,000 cost, its acquisition date commencing with its holding period. Thus, the partnership would have a short-term capital gain of $5,000 upon the sale to Isaac, $1,000 of which would be reportable by Henry. If Isaac were a dealer in securities, the $5,000 gain would not be a short-term capital gain but would be classified as ordinary income. This is a sale of an asset to a more-than-50-percent partner in whose hands the asset is not a capital asset. Time of Reporting Guaranteed Payments: Concurrent Reporting of Items 40. Baker's distributive share of partnership ordinary income FY 11-12 $30,000Baker's salary (guaranteed payment) 12,000Total $42,000Baker must report his distributive share of partnership ordinary income and his guaranteed payments from the partnership for the partnership year ending with or within his taxable year as reported by the partnership whether or not those funds are actually paid over to the partner within that same year. Ordinary Income Insufficient to Cover Guaranteed Payments 41. Partnership ordinary loss prior to guaranteed payment $(8,000)Guaranteed payment “salary” to Bob 12,000Partnership ordinary loss $(20,000)BobJackShare of partnership ordinary loss $(10,000)$(10,000)Guaranteed payment 12,000Ordinary income (loss) $2,000$(10,000)Long-term capital gain 3,0003,000Tax-exempt interest 1,0001,000Net Operating Loss Carryovers 42.
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