1 / 18

PARTNERSHIP TAXATION

PARTNERSHIP TAXATION . PRESENTED BY DR. AA NEIDERMEYER. OBJECTIVES . TO KNOW PARTNERSHIP DEFINITION TO UNDERSTAND BASIC TAX RULES TO UNDERSTAND TAX REPORTING TO BE AWARE OF SPECIAL TREATMENTS TO KNOW ADV/DISADV OF LLCs. PARTNERSHIP TAXATION. RETURNS ARE INFORMATIONAL ONLY

mikel
Download Presentation

PARTNERSHIP TAXATION

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. PARTNERSHIP TAXATION PRESENTED BY DR. AA NEIDERMEYER

  2. OBJECTIVES • TO KNOW PARTNERSHIP DEFINITION • TO UNDERSTAND BASIC TAX RULES • TO UNDERSTAND TAX REPORTING • TO BE AWARE OF SPECIAL TREATMENTS • TO KNOW ADV/DISADV OF LLCs

  3. PARTNERSHIP TAXATION • RETURNS ARE INFORMATIONAL ONLY • INCOME IS CLASSIFIED BY TYPE AND ALLOCATED TO PARTNERS • INCOME IS TAXABLE TO PARTNERS EVEN THOUGH THEY DO NOT HAVE TO RECEIVE SAME • PARTNERSHIPS MAKE ELECTIONS

  4. PARTNERSHIP DEFINITION • A SYNDICATE, GROUP, POOL, JOINT VENTURE, OR OTHER UNINCORPORATED ORGANIZATION THROUGH OR BY MEANS OF WHICH ANY BUSINESS IS CARRIED ON AND WHICH IS NOT CLASSIFIED AS A CORPORATION, TRUST OR ESTATE • BUSINESS ACTIVITY IS REQUIRED

  5. SCOPE OF PARTNERSHIPS • LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES ARE TREATED AS PARTNERSHIPS FOR TAX PURPOSES

  6. PARTNERSHIP FORMATION • GENERAL RULE: NO GAIN OR LOSS IS RECOGNIZED BY A PARTNERSHIP OR ANY OF ITS PARTNERS WHEN PROPERTY IS CONTRIBUTED TO A PARTNERSHIP IN EXCHANGE FOR AN INTEREST • RULE APPLIES ON INITIAL AND SUBSEQUENT CONTRIBUTIONS

  7. RULES EXCEPTIONS • RECEIPT OF PARTNERSHIP INTEREST CONSTITUTES INCOME IF RECEIVED FOR RENDERING OF SERVICES • IF ENCUMBERED PROPERTY IS TRANSFERRED, A GAIN WILL BE RECOGNIZED IF LIABILITY EXCEEDS BASIS OF PROPERTY TRANSFERRED

  8. PARTNER’S BASIS • ORIGINAL BASIS IS EQUAL TO THE BASIS OF THE PROPERTY TRANSFERRED PLUS CASH CONTRIBUTED TO THE PARTNERSHIP • IF A GAIN WAS RECOGNIZED, BASIS IS INCREASED BY THIS AMOUNT • IF A LIABILITY WAS ASSUMED, BASIS IS REDUCED BY THIS AMOUNT

  9. REPORTING OF INCOME • TWO-STEP REPORTING REQUIRED • SEPARATE REPORTING FOR: CAPITAL GAINS AND LOSSES, SECTION 1231 GAINS AND LOSSES DIVIDENDS, INTEREST INCOME, CASUALTY GAINS AND LOSSES, TAX-EXEMPT INCOME, RETIREMENT CONTRIBUTIONS, CHARITABLE CONTRIBUTIONS AND MOST CREDITS • ORDINARY INCOME IS REPORTED NEXT

  10. INCOME REPORTING LIMITATION • PARTNERS MUST RECOGNIZE THE AMOUNTS REPORTED ON THEIR INDIVIDUAL K-1 FORMS FROM THE PARTNERSHIP • PARTNER’S DEDUCTIBLE LOSS FOR THE YEAR CANNOT EXCEED HIS/HER BASIS IN THE PARTNERSHIP • UNUSED LOSSES-CARRIED OVER

  11. DISTRIBUTIONS AND GUARANTEED PAYMENTS • NORMALLY WILL NOT RESULT IN A COMPLETE TERMINATION OF THE PARTNER’S INTEREST • GENERALLY, NO GAIN OR LOSS UNLESS BASIS IS ZERO • BASIS OF PROPERTY RECEIVED IS SAME A PARTNERSHIP’S BASIS

  12. GUARANTEED PAYMENTS • PAYMENTS MADE FOR SERVICES RENDERED OR FOR USE OF PARTNER’S CAPITAL AND WITHOUT REGARD TO PARTNERSHIP INCOME • PAYMENTS ARE ORDINARY INCOME TO THE PARTNER AND DEDUCTIBLE TO THE PARTNERSHIP

  13. SELECTION OF A TAX YEAR • MAY SELECT A FISCAL YEAR IF JUSTIFIED ACCORDING TO CODE • USUALLY ADOPTS TAX YEAR OF MAJORITY PARTNERS • IF NOT ABOVE, ADOPT TAX YEAR OF ALL PRINCIPAL PARTNERS • IF NOT ABOVE, LEAST DEFERRAL METHOD

  14. TERMINATION OF PARTNERSHIP • IF BUSINESS ACTIVITY CEASES • IF WITHIN A 12 MONTH PERIOD, THE SALE OR EXCHANGE OF 50% OR MORE OF THE TOTAL INTERESTS IN THE PARTNERSHIP OCCURS

  15. TRANSACTIONS: PARTNER AND PARTNERSHIP • PARTNER IS USUALLY REGARDED AS AN OUTSIDE PARTY • HOWEVER, LOSSES ARE DISALLOWED FOR PARTNERS WITH >50% EQUITY IN PARTNERSHIP • GAINS TAXED AS ORDINARY INCOME IF O/S >50%

  16. AT-RISK RULE • LOSSES LIMITED TO AT-RISK AMOUNTS • NONRECOURSE LIABILITY: NO PERSONAL LIABILITY BEYOND EQUITY IN PROPERTY PLEDGED • ENCUMBERED PROPERTY: ADJUSTED BASIS MINUS NONRECOURSE DEBT ON PROPERTY • UNUSED LOSSES MAY CARRYOVER

  17. LIMITED LIABILITY COMPANIES • ADVANTAGES: • CONDUIT ENTITY • NO GENERAL PARTNER REQUIRED • MAY PARTICIPATE IN MANAGEMENT • O/S IS NOT A SECURITY • INCOME/LOSSES RETAIN CHARACTER • NO LIMIT ON # OF OWNERS

  18. LIMITED LIABILITY COMPANIES • DISADVANTAGES: • LIMITED LEGAL REFERENCE MATERIAL • MOST STATES REQUIRE AT LEAST TWO OWNERS

More Related