Product Image

Taxation Essentials of LLCs, LLPs, LPs and Other Partnerships

Author/Moderator: Robert Ricketts, Ph.D., CPA and Larry Tunnell, Ph.D.,CPA
Publisher: AICPA
Availability: In Stock
See Below To Add To Cart
View Online Catalog
Add This Page

Description

Develop a level of comfort with the basic conceptual framework underlying partnership and LLC taxation, with an emphasis on explaining the tax consequences associated with issues that are most frequently confronted by tax practitioners.

Objectives: 
  • Recognize the differences between the various forms of pass-through entities
  • Determine the tax consequences, for both investors and the entity, of the most common partnership and LLC transactions
  • Understand how to handle tax-reporting issues associated with LLC and partnership operations
  • Apply the at-risk and passive activity loss limitations to pass-through losses from partnerships and LLCs
  • Distinguish between distributions and compensatory payments to partners and recognize the tax consequences of each type of payment

Prerequisite:  None

Table of Contents

  • Chapter 1 - Overview Basic Tax Structure for Partnerships/LLCs
    • Learning Objectives
    • What Is a Partnership for Federal Income Tax Purposes?
    • Partnerships vs Other Entities
      • Legal Protection
      • Layers of Taxation
      • Flexibility
    • Electing to be Taxed as a Partnership . The "Check-the-Box" Rules
    • Overview of the Basic Framework of Partnership Taxation
    • Partnership Operations
      • Measuring and Reporting Partnership Income
      • Effect on the Partners Basis
      • Effect on the Partners Rights to Partnership Assets
      • Self-employment Tax Issues
    • Questions
  • Chapter 2 - Tax Consequences of Partnership/LLC Formation
    • Learning Objectives
    • Determination of Basis
    • Effect of Entity Operations
    • Effect of Liabilities
      • General
      • Gain under Section 731 Deemed Distributions
      • Contribution of Encumbered Property
      • Section 752(c)
    • Determination of Tax Year
      • Exceptions
    • Partnership Interests Obtained for Services
      • Section 721
      • Section 83
      • Profits vs Capital Interest
    • Transfer of a Capital Interest
      • Effect on the Service Partner
      • Consequences for Other Partners
      • Risk of Forfeiture
    • Transfer of a Profits Interest
      • IRS "Safe Harbor"
      • Background
      • Post-Diamond Activity
    • Campbell
      • Application of Section 721
      • Relevance of Section 707
      • Employee vs Partner
      • Importance of Valuation
    • Lessons for Tax Advisers
    • Questions
  • Chapter 3 - Partnership Distributions
    • Learning Objectives
    • Introduction
    • Current Distributions Proportionate
      • General
      • Timing of Cash Distributions
      • Distribution of Non-cash Assets: General
      • Basis in Property Exceeds Basis in Partnership Interest
      • Distribution of Multiple Properties
    • Distributions of Encumbered Property
    • Liquidating Distributions . Proportionate
      • In General
      • Recognition of Loss
      • Series of Distributions
      • Basis in Property Received
    • Holding Period of Distributed Property
    • Sale of Distributed Property
    • Death or Retirement of a Partner from Professional Services Partnerships or LLCs Application of Section 736
      • General Application of Section 736
      • Structuring the Transaction to Avoid Section 736
    • Questions
  • Chapter 4 - Compensatory Payments to Partners
    • Learning Objectives
    • Introduction
      • Distinguishing between Acting as a Partner vs Acting as a Third Party
      • Payments to Partners in Their Capacity as an Independent Third Party
      • Section 707(a)(2) Disguised Payments
      • Payments to Partners in Their Capacity as Partners
    • Tax Treatment of Guaranteed Payments
      • Character of Income and Deduction
      • Timing of Inclusion of a Guaranteed Payment in a Partner's Income
      • Effect of the Guaranteed Payment on a Partner's Basis and Capital Account
      • Guaranteed Payments and Self-Employment Income
      • Payments for Rent and Royalties
      • Capitalized Guaranteed Payments
      • Minimum Guaranteed Payments
    • Self-Employment Income of Partners
      • General Partners
      • Limited Partners
      • Community Property
    • Proposed Regulations Concerning Limited Partners' Self-Employment Income
      • General Definition of a Limited Partner
      • Exception for Holders of More Than One Class of Interest
      • Exception for Holders of Only One Class of Interest
    • Questions
  • Chapter 5 - At-Risk and Passive Activity Limits
    • Learning Objectives
    • Overview
      • Statutory Limitations on the Deductibility of Losses
      • Disallowed Losses are Carried Forward
    • Basis and At-Risk Limitations
      • The Concept of Tax Basis as a Limit to the Deductibility of Losses
      • Accounting for Indebtedness
      • Nonrecourse Debt
      • At-Risk Rules of Section 465
    • Passive Loss Limitations
      • General
      • Passive Activity Losses
      • Passive Activity Credits
    • Gross Income from Passive Activities
      • Gain from Sale or Disposition of Property
      • Gain from Sale of an Interest in a Partnership or LLC
      • Special Rule for Substantially Appreciated Property
    • Passive Activity Deductions
    • Who Is Subject to the Passive Loss Limitations?
    • What Are Passive Activities?
      • Material Participation
      • What Constitutes Participation?
      • Rental Activities
      • Real Estate Professionals
      • Exemption for Rental Activities in which Taxpayer "Actively" Participates
      • Modified Adjusted Gross Income
    • Activities that Are Not Passive Activities
      • Re-characterization of Passive Activities as Nonpassive
    • Rules of Application
      • Installment Sales
      • Gifts
      • Dispositions by Death
    • Grouping Activities
      • Appropriate Economic Units
      • Limitations on Grouping Certain Activities
      • Consistency Is Required
    • Questions
  • Chapter 6 - Overview of Profit and Loss Allocations: General Rules and Restrictions
    • Learning Objectives
    • Introduction
    • Section 704(b): Allocations Must Have "Substantial Economic Effect"
      • General Requirements "Economic Effect"
      • Substantiality
    • Nonrecourse Deductions
      • Overview
      • Minimum Gain Chargeback
    • Allocations with Respect to Contributed Property: Section 704(c)(1)(A)
      • Overview
      • General Rules
      • Gain or Loss on Sale of Contributed Property
      • Cost Recovery Deductions
    • Allocations in Family Partnerships: Section 704(e)
    • Questions
  • Chapter 7 - Reporting Taxable Income for Partnerships and LLCs
    • Learning Objectives
    • Overview Partnership Tax Return
      • The Partnership Tax Return
      • Who Must File?
      • Exception Spouses Jointly Operating a Business
      • Filing Requirements
      • Unified Audit Procedures
      • Accounting Methods and Other Elections
      • The Tax Matters Partner
    • General Tax Payment and Reporting Scheme
      • Payment of Tax Liability
      • Aggregated vs. Separately Stated Items: Form 1065 vs Schedule K
      • Schedules L, M-1, M-2, and M-3
    • Form 1065 Income
      • Gross Profit from Sales
      • Income from Other Pass-through Entities
      • Net Farm Profit (Loss)
      • Sale or Exchange of Property
      • Sale or Exchange between the Partnership or LLC and a Partner or Member
      • Other Income
    • Form 1065 Expenses
      • Salaries and Wages
      • Payments to Partners
      • Repairs
      • Bad Debts
      • Rents
      • Taxes and Licenses
      • Interest Expense
      • Depreciation and Amortization
      • Depletion
      • Retirement Plans and Employee Benefit Programs
      • Other Deductions
    • Schedules K and K-1
      • General Scheme
      • Net Income from Form 1065 and Allocation among Partners
      • Rental Real Estate Activities
      • Other Rental Activities
      • Guaranteed Payments to Partners
      • Portfolio Income
      • Section 1231 Gain or Loss
      • Other Income (Loss)
      • Section 179 Deduction
      • Charitable Contributions
      • Investment Interest Expense
      • Section 59(e)(2) Expenditures
      • Other Deductions
      • Self-Employment Income
      • Credits
      • Adjustments and Tax Preference Items
      • Other Information
      • Classification of Schedule K Amounts
    • Interpreting Schedule K-1
      • Information Provided in Parts I and II of Schedule K-1
      • Basis
      • Amount at Risk
    • Questions
  • Chapter 8 - Latest Developments
  • Appendix A - Sample Partnership Tax Return Form 1065, Form 8825, Schedules D, and K-1
    • Facts and Financial Data
    • Partnership Trial Balance
    • Notes to Accompany Trial Balance
    • Kachina Properties 2008 Tax Return and Accompanying Forms and Schedules
    • Discussion of Key Figures in Return
  • Appendix B - Short Version Partnership Return of Income Checklist 2008 Form 1065
  • Appendix C - Limited Liability Entity (LLC, LLP, et. al.) Addendum to the Partnership Return of Income Checklist 2008 Form 1065

731708

Excerpts

Chapter 2 - Tax Consequences of Partnership/LLC Formation

Learning Objectives

After completing this chapter, you should be able to

• Determine the tax basis of assets transferred to a partnership or LLC at formation;
• Understand the tax consequences of a transfer of liabilities to a partnership or LLC in connection with property transfers at formation;
• Determine the required tax year for a partnership or LLC;
• Analyze the tax consequences associated with the exchange of an interest in a partnership or LLC for services.

Determination of Basis

The rules governing the determination and subsequent adjustment of a partner's basis in her partnership interest are generally straightforward. Consistent with the provision in Section 721 that no gain or loss is recognized upon a transfer of property to a partnership in exchange for an interest in the partnership, Section 722 provides that a partner takes an initial basis in her partnership interest equal to the amount of money and the basis of property contributed. Section 723 provides that the partnership takes a carryover basis in property contributed.1 Thus, initially, the partnership's aggregate basis in its assets is equal to the sum of the partners' bases in their partnership interests. The same provisions apply to limited liability companies electing to be taxed as partnerships.

Effect of Entity Operations

The results of subsequent partnership operations are reflected in each partner's basis in his or her partnership interest. Section 705 provides that a partner's basis is increased by her share of partnership income, including nontaxable income. The positive adjustment for nontaxable income is necessary to maintain its tax-exempt status; otherwise such income would later be converted to taxable income in the form of gain from disposition of the partnership interest. A partner's basis in her interest is also increased by subsequent contributions of cash and/or property to the partnership. Finally, basis is increased by the excess of percentage depletion over an asset's cost in order to preserve the deductibility of percentage depletion (because deductions cannot exceed the partner's basis in the partnership interest).

Basis is decreased by the partner's share of subsequent partnership taxable losses or deductible expenses. A partner's basis is further decreased by her share of the partnership's nondeductible expenditures, for the same reason that nontaxable income increases basis. Basis is also decreased by the amount of money, and the basis to the partner under Section 732 of any property distributed to the partner by the partnership. Finally, basis is decreased by the deduction of depletion, determined at the partner level, to the extent of the cost of the depletable property.

Thus, the basis computation maintains account of a partner's tax investment in the partnership. Basis represents the amount of a partner's potential tax loss in the event the partnership's assets become completely worthless. Additionally, it represents the tax cost of the partnership interest for purposes of determining gain upon disposition.

Effect of Liabilities

General

Because general partners are liable for partnership debts, liabilities increase the amount those partners stand to lose in the event of a partnership failure. Accordingly, partnership liabilities must be included in the partners' bases. The rules governing the adjustment of partner basis to take into account partnership liabilities are provided by Section 752.

Section 752(a) provides that increases in a partner's share of partnership liabilities, or the assumption by a partner of partnership liabilities (e.g., in connection with a distribution of property), are treated as contributions of money by the partner to the partnership. Such deemed contributions increase the partner's basis in his or her partnership interest. Similarly, Section 752(b) provides that decreases in a partner's share of partnership debt, or assumptions by the partnership of a partner's debt, are treated as distributions of money by the partnership to the partner. Deemed distributions under Section 752(b) decrease the partner's basis in his or her partnership interest.

Gain under Section 731 – Deemed Distributions

Section 752(b) poses a potentially dangerous trap for the unwary. Distributions in excess of a partner's basis in her partnership interest trigger taxable gain under Section 731(a). This gain is taxed as gain from the sale of the partnership interest. Since Section 752(b) treats a decrease in a partner's share of partnership debts as a distribution of cash, an unexpected gain under Section 731(a) may often arise as a result of a partnership's payment of its debts, or as the result of a change in the partners' liability sharing ratios.

1 An exception to these rules provides that, where the partnership would be treated as an investment corporation were it incorporated, §721 does not apply. Consequently, the contributing partner does recognize gain and takes a FMV basis in her interest. The partnership's basis in its assets is increased by any such gain recognized by the partner.

731708

Videocourse Details

NASBA Field of Study: Taxes
Level: Basic
Recommended CPE Credit: 17
TAXATION ESSENTIALS OF LLCS, LLPS, and OTHER TX09
Text
Product# 731708
Availability: In Stock
Regular:$211.25
AICPA Member:$169.00
Your Price:$211.25
To receive your AICPA member discount, Sign In now, or Register using your AICPA membership number.
Choose the Standing Order Option and get these discounts on your initial purchase:

Publications--10% discount
CPE Self-Study--20% discount

Each new future annual edition will then be automatically shipped to you at a 10% discount.