Table of Contents

Chapter 1 - Introduction - Section 1. 1

Definition of Partnership. 2

Section 761(a) 2

Factors. 2

Husband-Wife Partnerships. 2

Election for Husband & Wife Unincorporated Businesses. 2

Qualified Joint Venture. 3

Making the Election. 3

Duration. 3

Limited Partnerships. 5

Taxed as corporations. 5

Analysis. 5

Continuity. 5

Centralized management 5

Transferability. 5

Limited Liability. 6

Chapter 1 - Section 1 Review Questions. 8

Chapter 1 - Introduction - Section 2. 10

Ruling Policies. 10

Corporate General Partner 10

Tax Shelters. 10

Check-the-Box Regulations. 11

Co-tenancies. 14

Definition of Trade or Business. 14

Joint Ventures. 14

Investment Clubs. 14

Chapter 1 - Section 2 Review Questions. 15

Chapter 1 - Introduction - Section 3. 17

Partnership Agreement 17

Modifications. 17

Partners Share of Tax Items. 17

Limited Partners. 17

Family Partnerships - '704(e) 18

Capital Partnerships. 20

Gifts & Interfamily Sales. 20

Bipartisan Budget Act of 2015. 20

Material Use of Capital 21

Minor Children as Partners. 21

Non-Capital Partnerships. 21

Publicly Traded Partnerships - '7704. 22

Exception. 22

Chapter 1 - Section 3 Review Questions. 23

Chapter 1 - Introduction - Section 4. 25

Advantages. 25

Disadvantages. 25

Exclusion from Partnership Treatment - '761. 29

Complete Exclusion Election. 29

Partial Exclusion Election. 31

Loss & Year Limitations. 31

Changing the Choice. 31

Chapter 1 - Section 4 Review Questions. 32

Chapter 2 - Partnership Income - Section 5. 33

Partners Taxed as Individuals. 34

Self-Employment Tax. 36

Proposed Amendments to Limited Partner Regs. 36

Moratorium... 37

Exception - Separate Entity for Some Purposes. 37

Chapter 2 - Section 5 Review Questions. 38

Chapter 2 - Partnership Income - Section 6. 39

Individual Returns & K-1s. 39

Partnership Expenses Paid By a Partner 39

Separately Treated Items. 39

Character of Items & Limitations. 41

Deduction of Losses. 41

Outside Basis Limitation - '704(d) 41

Loss Ultimately Deductible. 41

Effect of Losses on Outside Basis - '705. 42

Chapter 2 - Section 6 Review Questions. 43

Chapter 2 - Partnership Income - Section 7. 44

Partnership Tax Return. 44

Organization & Syndication Fees - '709. 44

Capitalized Syndication Fees. 44

Business Start-up Costs - '195. 44

Definition. 45

Filing Requirements. 45

Due Date of Return. 45

Failure to File. 45

Failure to Furnish Copies to Partners. 46

Chapter 2 - Section 7 Review Questions. 47

Chapter 2 - Partnership Income - Section 8. 49

Special Allocations - '704(b) 49

Economic Effect 49

Substantial Effect. 51

Year Taxable - '706(a) 52

Limitation on Choice of Taxable Year 52

Required Tax Year 52

Chapter 2 - Section 8 Review Questions. 54

Chapter 2 - Partnership Income - Section 9. 55

Business Purpose - '706(b) 55

Rev. Proc. 87-32. 55

Highest Average Requirement 55

47-Month Exclusion. 55

Restrictions. 55

Form 1128. 56

Section 444 Election. 58

Limitations on Changing a Tax Year 58

Making the Election - Form 8716. 59

Back-Up Election. 59

Required Payment 60

When to File. 60

Termination of Election. 60

Chapter 2 - Section 9 Review Questions. 61

Chapter 2 - Partnership Income - Section 10. 62

Closing of Partnership Year 62

Events That Terminate Partnership - '708(b) 62

Discontinuance of Business. 62

Winding Up. 62

Sale of 50% or More Interest (Technical Termination) - Repealed. 64

Events That Do Not Close the Year - '706(c) 64

Sale of Individual Partners Interest 64

Death of Partner 64

Buy/Sell Exception. 65

Change for Closing of Partnership Taxable Year 65

Admission of New Partners - '706(d) 65

Allocation Techniques. 67

Daily Allocation Required for Cash Items. 67

Chapter 2 - Section 10 Review Questions. 68

Chapter 2 - Partnership Income - Section 11. 69

Transactions Between Partner and Partnership. 69

Treating Partner as Stranger - '707(a) 69

Payments by Accrual Basis Partnership to Cash Basis Partner 70

Guaranteed Payments - '707(c) 72

Capitalization. 72

Prepaid & Capital Expenses - '707(c) 72

Organization & Syndication Expenses - '709. 73

Guaranteed Minimum... 73

Year Taxed - '706(a) 75

Salary vs. Distribution. 75

Stranger Payment vs. Guaranteed Payment 75

Payments Resulting in Loss. 75

Recipient of Salary as an Employee. 75

Exception. 76

Accident & Health Insurance Premiums. 76

Certain Losses Disallowed - '707(b) 76

Two Partnerships. 76

Constructive Ownership. 76

Sales at Gain. 77

Chapter 2 - Section 11 Review Questions. 79

Chapter 3 - Contributions to Partnerships - Section 12. 80

Contributions of Property - '721. 80

Contribution vs. Sale or Exchange. 83

Disguised Sale - '707(a) 83

Disguised Taxable Exchanges - '704 & '737. 83

Precontribution Gain or Loss Property. 83

Property Distribution to Contributing Partner - '737. 85

Anti-Abuse Rules Under '737. 85

Contributed Property Distribution to Another Partner - '704(c) 86

Seven Year Period (Formerly Five) 86

Allocation Methods for Precontribution Gain or Loss. 86

Transfers to Investment Company Type Partnerships - '721(b) 87

Chapter 3 - Section 12 Review Questions. 88

Chapter 3 - Contributions to Partnerships - Section 13. 89

Contributed Assets Inside (Partnership) Basis - '723. 89

Allocations as to Contributed Property - '704(c) 91

Liabilities. 91

Earlier Optional Application of '704(c) 91

Character of Subsequent Gain. 91

Taint On Contribution - '724. 92

Character of Subsequent Loss - '724(c) 92

Contribution of Services. 94

Chapter 3 - Section 13 Review Questions. 95

Chapter 3 - Contributions to Partnerships - Section 14. 96

Basis of Partners Interest - Outside Basis. 96

Original Basis - '722. 96

Adjustments to Basis. 96

Effect of Liabilities - '752. 97

Deemed Distribution & Contribution. 97

Special Rule for Liabilities of Cash Basis Partnership. 98

Partners Share of Partnership Liabilities. 100

Limited partnerships. 100

Exception. 100

Guarantees. 100

Chapter 3 - Section 14 Review Questions. 102

Chapter 3 - Contributions to Partnerships - Section 15. 103

Limits on Deduction of Partnership Losses. 103

At-Risk Rule - '465. 103

Computation. 103

Exception for Real Estate Loans. 103

Qualified Persons. 104

Definition of Amounts At-Risk. 104

Chapter 3 - Section 15 Review Questions. 106

Chapter 3 - Contributions to Partnerships - Section 16. 107

Passive Losses - '469. 107

Three Buckets. 107

Material Participation. 107

Portfolio. 107

Passive. 107

Suspended Losses. 107

Fully Taxable Disposition. 109

Rental Real Estate Losses. 109

Application to Corporations. 110

Chapter 3 - Section 16 Review Questions. 111

Chapter 4 - Sales & Exchanges of Partnership Interests - Section 17. 113

Capital Asset Treatment - '741. 113

Corn Products Rule. 113

Importance of Capital Treatment 114

Regs on Gain on Sale of Passthrough Entities - '1(H) 116

Exchanges & Transfers. 116

Like-Kind Exchanges - '1031. 116

Transfers to Controlled Corporations - '351. 116

Partners Interest Basis. 117

Incorporation Methods. 117

Chapter 4 - Section 17 Review Questions. 120

Chapter 4 - Sales & Exchanges of Partnership Interests - Section 18. 121

Hot Assets - '751. 121

Unrealized Receivables. 121

Depreciation Recapture. 121

Inventory. 121

Inventory Items. 122

Substantial Appreciation. 122

Elimination of Substantial Requirement 122

Basis of '751 Property. 122

Tax Reporting & Notification. 123

Effect 123

Liabilities of Partnership. 125

Chapter 4 - Section 18 Review Questions. 126

Chapter 4 - Sales & Exchanges of Partnership Interests - Section 19. 127

Inside Basis after Transfer of Partnership Interest 127

General Rule - '743(a) 127

Special Inside Basis Adjustment - '754 & '743(b) 127

Allocation of Basis - '755. 128

Death of Partner 128

Basis Exception. 128

Permanency of Election. 128

Gifts. 130

Exceptions. 130

Abandonment or Forfeiture. 130

Chapter 4 - Section 19 Review Questions. 131

Chapter 5 - Partnership Distributions - Section 20. 132

General Nonrecognition Rule - '731. 132

Exceptions to General Rule. 135

Basis Adjustments. 135

Partners Interest - '733. 135

Property Received - '732. 137

Nonliquidating Distribution. 137

Basis Limitation - '732(a) 137

Liquidating or Complete Distribution. 138

Allocation of Basis When Limited - '732(c) 138

Partnerships Basis Greater Than Partners Basis. 138

Partners Basis Greater Than Partnerships Basis. 139

Special Adjustment to Basis. 139

Mandatory Application. 140

Holding Period - '735. 140

Partnership Property - '754 & '734. 140

Basis Allocation on Properties Distributed By a Partnership. 140

Distributions of Receivables or Inventory. 141

Proportionate Distributions. 141

Subsequent Disposition Rule. 141

Disproportionate Distribution - '751(b) 141

Asset Allocation. 142

Gain or Loss. 142

Upon Distribution. 142

On Subsequent Sale. 142

Basis for Property Received in Disproportionate Distribution. 143

Exceptions. 143

Effect 143

Chapter 5 - Section 20 Review Questions. 144

Chapter 6 - Partnership Liquidations - Section 21. 146

Flexible Treatment 146

Types of Liquidating Distributions. 147

Liquidating Distributions of Money. 147

Section 736(a) Payments. 147

Section 736(b) Payments. 149

Effect 149

Exclusions From '736(b) Treatment 149

Liabilities. 151

Series of Payments. 151

Contingent Payments. 151

Chapter 6 - Section 21 Review Questions. 153

Chapter 6 - Partnership Liquidations - Section 22. 154

Distributions of Property in Liquidation. 154

Distributions of Unrealized Receivables or Inventory. 154

Liquidating Disproportionate Distributions. 154

Basis of Distributed Property. 155

Gain or Loss Recognition. 155

Basis Adjustment after Distributions. 156

Election - '754. 156

Additional Adjustments Required by '734. 156

Chapter 6 - Section 22 Review Questions. 157

Chapter 7 - Limited Liability Companies - Section 23. 159

Introduction. 159

Check-the-Box Regulations. 160

LLC Benefits. 162

Advantages of LLCs over C Corporation. 162

Double Tax. 162

Basis Adjustment 162

Special Allocations. 162

Contributions. 163

Liquidation. 163

Unreasonable Compensation. 163

Non-Tax Benefits. 163

Advantages of LLCs over S Corporations. 165

Chapter 7 - Section 23 Review Questions. 166

Chapter 7 - Limited Liability Companies - Section 24. 167

Advantages of LLCs over Limited Partnerships. 167

Outside Basis & Debt Share Advantage. 167

Substantial Economic Effect Rules - '704(b) 168

Discharge of Indebtedness Income. 168

Advantages of LLCs over General Partnerships. 168

Disadvantages. 168

Chapter 7 - Section 24 Review Questions. 171

Chapter 7 - Limited Liability Companies - Section 25. 172

Uses. 172

Professional Firms. 172

Venture Capitalists. 174

Leveraged Buyouts - LBO.. 174

Joint Venture. 174

Corporations Filing Consolidated Returns. 174

Foreign Investment 175

Real Estate Ventures. 175

Charitable Investment 175

Estate Planning. 175

Problem Uses. 176

Federal Tax Consequences. 177

Check-the-Box Regulations. 177

Self-Employment Tax. 178

Proposed Amendments to Limited Partner Regs - '1402. 179

Moratorium... 180

At-Risk Rules - '465. 182

Debt Discharge Income. 182

Passive Loss Rules - '469. 182

Method of Accounting. 183

Audit Procedures. 185

TEFRA Rules. 185

Tax Matters Partner (TMP) 186

Notice. 186

Additional Rules & Rights. 186

Bipartisan Budget Act of 2015 Centralized System... 186

Conversion of Partnership to LLC.. 186

Conversion of S Corporation to LLC.. 187

Conversion of C Corporation to LLC.. 187

Local Taxes on Conversion. 188

Sales & Use Tax. 188

Real Property Taxes. 189

Real Property Transfer Taxes. 189

Entity Comparison. 190

Chapter 7 - Section 25 Review Questions. 200

Answers & Explanations. 202

Glossary. 279

Index of Keywords & Phrases. a

CPE Exam Answer Sheet e

Final Examination. g