Partnership Tax Outline

Law Outlines > Partnership Tax Outlines

This is an extract of our Partnership Tax document, which we sell as part of our Partnership Tax Outlines collection written by the top tier of University Of Virginia students.

The following is a more accessble plain text extract of the PDF sample above, taken from our Partnership Tax Outlines. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Partnership Tax Fall 2015 Unit 1: Choice of Entity?

What is a partnership?
o SS761 (**232): joint venture by means of which any business or financial operating is carried on, other than a corporation, trust or estate. o Culbertson: Must have joined together for the purpose of carrying on business and sharing profits/losses. Question of fact.
? Must be a bona fide business purpose other than saving taxes.
? BUT SEE Moline Properties: For corp, "intended to conduct or actually conducted business" Either/or.
? YALE: Regulations may have replaced Culbertson standard with Moline. o Partnership interest may come through capital, service, or gift (SS704(e) (1)). o Interests
? Capital interest: partner gets something at liquidation
? Anyone with a capital interest is a partner regardless of whether they supplied the capital (so long is the partnership is sufficiently capital intensive to require that capital)
? Profits/losses interest: only a share in future profit or loss Partnerships vs. Other Entities/Forms of Taxation o Check the Box (**71)
? (1) Separate entity from the partners for fed tax purposes? IF YES
? (2) Is it a trust, or a business entity? IF BIZ
? (3) Is it a per se corp (publicly traded partnership, joint stock, insurance, bank, anything with "inc", state-owned business orgs)? IF NO
? (4) Is there more than one member?
? If 1: disregarded entity or corporation by election
? If >1: Partnership (or C Corporation by election) o BUT: Still must meet Culbertson to be a partnership. If you only meet Moline and don't elect C, confusion. o Corporations
? SS7704: Publicly traded partnership (stakes traded on securities market) is per se a corporation
? C Corporations (default): no pass-through, double tax, separate entity
? S Corporations (elected once you've established a C corp)
? Benefits: simple, lower overhead, pass-thru, fewer payroll taxes

?

o

o

o

Cons: Less profit-sharing flexibility, doesn't allow for as much depreciation because you can't bump up basis with debt.
SS761(a): Election out of Subchapter K (must meet all 3 requirements)
? Unanimous Election
? Adequate determination of income
? Qualifying activity (**233)
? (1) Investment Club, no actual business
? (2)Joint production/extraction, no resale
? (3) Syndication of securities (must be brief holding period)
SS761(f): Spouses: generally can't form partnership because marital unit is 1 person
? Qualified joint venture: (1) only H+W; (2) both materially participate; (3) both elect into partnership. Partnership Agreements & Logistics
? 1.704-1(h): includes all oral understandings, side agreements, etc.
? SECA: Parrtnership payroll tax that follows FICA. Also either a

3.8% hospital tax, or an equal investment income tax from Obamacare.
? Partners may change agreement.
? SS706(a): partnership year ends on default 12/31, but can be changed. Use this hierarcy.
? (1) Valid business purpose
? (2) Majority interest's (50%+) tax year
? (3) Principal partners' tax years
? (4) Least Aggregate Default Rule: 1.706-1(b)(3) (**375): partnership uses tax year that results in least aggregate tax deferral for all partners.

UNIT 2: Formation?

SS721 (**217): Transfer to a partnership is a nonrecognition event. Neither gain nor loss. o See Cottage Savings, not a recognition event. o Exception: SS721(b), SS351: If it's an investment company (>80% of noncash assets are securities), then contribution is recognition. Basis, Tax Capital Account, and Book Capital Account o Outside Basis, SS722 (**218): The basis of the partner's share in the partnership
? Original partners: Their basis in the property they contributed (not FMV if the asset has built-in gain or loss. Always FMV for cash.)
? Partners who buy shares: Price they paid for share.
? SS704(d): (**209). Losses, depreciation, other deductions limited to the outside basis. All further deductions suspended when OB hits 0.

SS752: Increase or decrease in partner's share of liabilities is considered a contribution or distribution of money.
? When partners contribute debts to the partnership: o First divide the debt among all partners and increase each of their OB's according to their share (assuming debt=contribution) o Then subtract the debt each partner contributed from their OB (partnership taking on debt=distribution) o See 9/10 slides; Unit 2 Question 3. o Inside Basis, SS723 (**218): Partnership's basis in its assets. Equal to the basis the contributing partner had in the asset.
? Tacking of Holding Period: Partnership assumes partner's holding period. o Tax Capital Account: For original partners, equal to their outside basis(?)
? Tax capital account + 704(c) gain = Book capital account (after book-up) o Book Capital Account: The value the partner would receive at liquidation if all assets were sold for book value.
? The total assets of the partnership times that partner's % share
? Booking up: bring assets up to FMV, subtract liabilities, divide by shares to find new book capital account.
? Not required to do so at arrival of new partner, but only way to balance the sheet.
SS709 (**216): Must capitalize organization and syndication expenses that are greater than de minimis. Character of Gains o SS702(b) (**206): Quality of sale fixed at partnership level. Partner generally takes gains/losses as the partnership would. This is the entity theory.
? SS724 (**218): Sticky character rule.
? Unrealized receiveable: perpetual taint. Always use partner's character.
? Inventory, pre-contribution capital losses: 5 year taint. Service Partnerships o If service partner receives a capital stake in exchange for their services: treat like capital partners. They have income in the amount of their capital account, per SS83 (property rec'd for services).
? Use FMV of their share in partnership to find income. o If service partner only gets profits/losses stake: No income until profits/losses. o Notice 2005, **110: Safe harbor for service partner does not exist if he transfers his interest within 2 years (rebuttable presumption). o Circle of Cash Theory: If capital partners supply built-in gain property at the same time a service partner joins, no recognition. If??

Buy the full version of these notes or essay plans and more in our Partnership Tax Outlines.

More Partnership Tax Samples