Exam w answers Essay

Then the Partnership DISTRIBUTES to Partner A the property contributed by Partner B, only THEN will you have tax consequences. The general rule is that there are NO tax consequences when a Partner receives NON-cash Property.

IRC §702(a) emphasizes that partners must report their distributive shares of partnership income. §704(a) says that the partnership agreement determines the partner’s distributive shares of income, gain, loss, deductions, and credits, pursuant to the limitations set forth in §704(b). Such limitations were calculated and phrased in terms of the “tax avoidance test” prior to 1976. This test stated that allocations of income, gain, loss, deductions, or credits would be disregarded if the principal purpose for said allocations was tax avoidance per §704(b)(2). In 1976, a new “substantial economic effect” test was adopted in 1976 to determine the limitations relating to a partner’s distributive share. §702(a)(9) requires an allocation of bottom line income or loss to have economic substance that reflects the actual division of such items when viewed from an economic rather than a tax viewpoint.

Is a limited partnership treated as a separate entity for all purposes? If not, give an example of an instance in which a limited partnership is treated as an aggregate of its partners.

Liability All liabilities are the responsibility of each partner. In the event of litigation, any creditors can go after the personal assets of each partner to recover any debt owed. But since liability is spread out between the owners, one may feel less risk is being taken. 2. Income Taxes General partnership may also benefit from pass-through taxation, meaning the partners are taxed like sole proprietors. Business income is reported on the personal tax filing while business losses can be deducted to reduce personal tax liability. The partnership itself is not subject to federal income tax. However the partnership needs to file an information return utilizing the IRS Form 1065. 3. Longevity or continuity of the organization Once the partnership agreement is fulfilled, the general partnership may dissolve. A buy/sell agreement may be included in the articles of the partnership to allow the

6.4 Purchase of Defaulting Partner’s Interest. If a Partner defaults as defined in Paragraph 7 below, the non-defaulting Partner may purchase the defaulting Partner’s interest in the Partnership.

Liability- The general partner would be liable for all unlimited responsibility on all tasks and debt, while the limited partner will not loss more than their investment.

11. [LO 1] Absent any special elections, what effect does a sale of partnership interest have on the partnership?

| Any new domestic eligible entity having at least two or more members is classified as a partnership.

A partner contributes property to a partnership; the basis of the property carries over to the partnership (outside basis). This concept is known as basis –in, basis –out. So, Denise’s beginning basis should be:

9. Clemente Co. owned all of the voting common stock of Snider Co. On January 2, 2009, Clemente sold some equipment to Snider for $125,000. The equipment had cost $140,000. At the time of the sale, the balance in accumulated depreciation was $40,000. The equipment had a remaining useful life of five years and a $0 salvage value. Straight-line depreciation is used by both Clemente and Snider. At what amount should the equipment (net of depreciation) be included on the consolidated balance sheet dated December 31, 2009?

INCOME TAXES – This partnership is not subject to federal income tax. All earned and lost income from this business is taxable on the individual’s tax return.

At the date of contribution, the partnership took a carryover holding period in the land that Bobby contributed. As a result of the distribution, Larry will also take a carryover holding period of April 14th, 2003. The character of the gain recognized by Bobby is determined by how it was used by the partnership. Capital gain property is not subject to the five year character provisions under Section 724. Assuming that Boxes held the land as a capital asset rather than inventory, the gain recognized by Bobby would be capital in nature. Because Larry is not at least a 50% owner of the partnership, his intentions for the land are irrelevant in this matter.

Part VI: Discuss, in detail, how the individuals are taxed (if at all) with respect to the net profits from this entity and what filing requirements they will each have with the IRS. Individuals in a partnership are normally liable for filing personal income taxes, self-employment taxes and estimated taxes for themselves, according to the Internal Revenue Service. Each individual will file a Schedule K-1. The partnership itself is not responsible for paying taxes. The credits and

(2) Is the management fee paid to the general partner, Tambour, treated as a guaranteed payment or part of their distributive share?

. (TCO 2) Barry owns a 30% interest in a partnership that earned $300,000 this year. He also owns 30% of the stock in a C corporation that earned $300,000 during the year. The partnership did not make any distributions, and the corporation did not pay any dividends. How much income must Barry report from these businesses? (Points : 2)