PARTNERSHIPS: FORMATION, OPERATION, AND BASIS

11097 Words Oct 24th, 2013 45 Pages
Chapter 10

Partnerships: Formation, Operation, and Basis

Lecture Notes

SUMMARY OF CHANGES IN THE CHAPTER
The following are notable changes in the chapter (and these Lecture Notes) from the 2013 Edition. For major changes, see the Preface to the Instructor’s Edition of the text.

News Boxes
Updated Tax in the News titled Trends in Partnership Usage.

Updated Tax in the News titled LLC Members Not Automatically Treated as Passive.

The Big Picture – Why use a Partnership, Anyway?
Removed the Red Robin Partnership example from this Instructor Guide, and added an example tax return based on the second year of operations of Beachside Properties, LLC. (Corresponds to various examples in Chapter 10.)

Clarified
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c. Combined Concepts. Rules governing the formation, operation, and liquidation of a partnership contain a blend of both the entity and aggregate concepts.

Comparison of Partnerships and Subchapter C Corporations

4. Partnerships and S corporations provide tax advantages over regular C corporations.

a. Partnerships and S corporations are flow-through or pass-through entities because owners are taxed on their proportionate share of the entity’s taxable income; thus avoiding double taxation because they are not separate taxable entities.

b. Administrative and filing requirements are usually simple for a partnership.

c. Partnership offers planning opportunities not available to C or S corporations. For example:

(1) Both C and S corporations have rigorous allocation and distribution require-ments. Partnership allocations and distributions are not required to be proportionate.

(2) Gains on appreciated assets are recognized at entity level for both C and S corporations upon liquidation. Partnership liquidation is generally tax-free.

What is a Partnership? 5. A partnership is defined under common law as a contractual relationship between two or more persons who join together to carry on a trade or business, each contributing money, property, labor, or skill, and with the expectation of sharing in the profits and losses. a. For tax purposes a partnership includes syndicates, groups, pools, joint ventures, or other unincorporated

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