Table of Contents

Chapter 1 - Partnership Taxation - Section 1. 1

Introduction. 1

Definition of Partnership. 1

Section 761(a) 1

Factors. 1

Husband-Wife Partnerships. 2

Limited Partnerships. 2

Taxed as Corporations. 2

Analysis. 2

Continuity. 2

Centralized Management 2

Limited Liability. 3

Transferability. 3

Ruling Policies. 3

Corporate General Partner 3

Co-tenancies. 4

Definition of Trade or Business. 4

Joint Ventures. 5

Partnership Agreement 5

Modifications. 5

Partners Share of Tax Items. 5

Limited Partners. 5

Family Partnerships - '704(e) 6

Capital Partnerships. 6

Gifts & Interfamily Sales. 6

Material Use of Capital 7

Minor Children as Partners. 7

Non-Capital Partnerships. 8

Advantages. 8

Disadvantages. 8

Termination Of Partnership. 8

Partnership Income. 10

Partners Taxed as Individuals. 10

Self-Employment Tax. 10

Exception - Separate Entity for Some Purposes. 10

Individual Returns & K-1s. 11

Partnership Expenses Paid By a Partner 11

Separately Treated Items. 11

Character of Items & Limitations. 12

Deduction of Losses. 13

Outside Basis Limitation - '704(d) 13

Loss Ultimately Deductible. 13

Effect of Losses on Outside Basis - '705. 14

Partnership Tax Return. 14

Organization & Syndication Fees - '709. 14

Capitalized Syndication Fees. 14

Business Start-up Costs - '195. 14

Definition. 15

Filing Requirements. 15

Due Date of Return. 15

Failure to File. 16

Failure to Furnish Copies to Partners. 16

Year Taxable - '706(a) 16

Limitation on Choice of Taxable Year 17

Required Tax Year 17

Business Purpose - '706(b) 18

Rev. Proc. 87-32. 18

Highest Average Requirement 18

47-Month Exclusion. 18

Restrictions. 18

Form 1128. 19

Section 444 Election. 19

Limitations on Changing a Tax Year 19

Making the Election - Form 8716. 19

Back-Up Election. 19

Required Payment 20

When to File. 20

Termination of Election. 20

Transactions between Partner and Partnership. 20

Treating Partner as Stranger - '707(a) 20

Payments by Accrual Basis Partnership to Cash Basis Partner 21

Guaranteed Payments - '707(c) 21

Capitalization. 21

Prepaid & Capital Expenses - '707(c) 22

Organization & Syndication Expenses - '709. 22

Guaranteed Minimum... 22

Year Taxed - '706(a) 22

Salary vs. Distribution. 22

Stranger Payment vs. Guaranteed Payment 23

Payments Resulting in Loss. 23

Recipient of Salary as an Employee. 23

Exception. 23

Accident & Health Insurance Premiums. 23

Certain Losses Disallowed - '707(b) 23

Two Partnerships. 24

Constructive Ownership. 24

Sales at Gain. 24

Chapter 1 - Section 1 Review Questions 25

Chapter 1 - Partnership Taxation - Section 2. 27

Contributions to Partnerships 27

Contributions of Property - '721. 27

Contribution vs. Sale or Exchange. 27

Disguised Sale - '707(a) 27

Disguised Taxable Exchanges - '704 & '737. 28

Precontribution Gain or Loss Property. 28

Property Distribution to Contributing Partner - '737. 28

Anti-Abuse Rules Under '737. 29

Contributed Property Distribution to Another Partner - '704(c) 29

Seven Year Period (Formerly Five) 29

Allocation Methods for Precontribution Gain or Loss. 29

Transfers to Investment Company Type Partnerships - '721(b) 30

Contributed Assets Inside (Partnership) Basis - '723. 31

Allocations as to Contributed Property - '704(c) 31

Liabilities. 31

Earlier Optional Application of '704(c) 31

Character of Subsequent Gain. 32

Taint On Contribution - '724. 32

Character of Subsequent Loss - '724(c) 32

Contribution of Services. 32

Basis of Partners Interest - Outside Basis. 33

Original Basis - '722. 33

Adjustments to Basis. 33

Effect of Liabilities - '752. 34

Deemed Distribution & Contribution. 34

Special Rule for Liabilities of Cash Basis Partnership. 34

Partners Share of Partnership Liabilities. 35

Limited Partnerships. 35

Exception. 35

Guarantees. 35

Sales & Exchanges of Partnership Interests 36

Capital Asset Treatment - '741. 36

Importance of Capital Treatment 36

Regs on Gain on Sale of Passthrough Entities - '1(H) 36

Exchanges & Transfers. 37

Like-Kind Exchanges - '1031. 37

Transfers to Controlled Corporations - '351. 37

Partners Interest Basis. 37

Foreign Person Sale of U.S. Partnership Interest 38

Hot Assets - '751. 38

Liabilities of Partnership. 38

Inside Basis after Transfer of Partnership Interest 39

General Rule - '743(a) 39

Substantial Built-in Loss - '743(d) 39

Special Inside Basis Adjustment - '754 & '743(b) 39

Allocation of Basis - '755. 40

Death of Partner 40

Basis Exception. 40

Permanency of Election. 40

Partnership Distributions 41

General Nonrecognition Rule - '731. 41

Exceptions to General Rule. 41

Basis Adjustments. 41

Partners Interest - '733. 41

Property Received - '732. 42

Nonliquidating Distribution. 42

Basis Limitation - '732(a) 42

Liquidating or Complete Distribution. 42

Allocation of Basis When Limited - '732(c) 42

Partnerships Basis Greater Than Partners Basis. 42

Partners Basis Greater Than Partnerships Basis. 43

Special Adjustment to Basis. 43

Mandatory Application. 43

Holding Period - '735. 44

Partnership Property - '754 & '734. 44

Basis Allocation on Properties Distributed By a Partnership. 44

Partnership Liquidations 45

Flexible Treatment 45

Types of Liquidating Distributions. 45

Liquidating Distributions of Money. 45

Section 736(a) Payments. 45

Section 736(b) Payments. 46

Effect 46

Exclusions From '736(b) Treatment 46

Basis Adjustment after Distributions. 47

Election - '754. 47

Additional Adjustments Required by '734. 48

Limited Liability Companies 49

Introduction. 49

LLC Benefits. 49

Disadvantages. 49

Federal Tax Consequences. 50

Check-the-Box Regulations. 50

Chapter 1 - Section 2 Review Questions 53

Answers & Explanations 54

Glossary. 61

Index of Keywords & Phrases a

CPE Exam Answer Sheet d

Final Examination. e