TAX 9900 Lecture 39: class39

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7 Apr 2020

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Before the amendment to 704(c), jane would recognize a ,000 tax loss, but her ,000 built-in loss would be preserved in the partnership. A later sale of the land by the partnership would yield a ,000 tax loss (including the ,000 built-in loss) that could be allocated to the other partners. 1. 704-3(a), ,000 would be allocated to the partner that purchased jane"s partnership interest and the remaining ,000 would be allocated among the partners based on their shares of the loss in the partnership agreement. After the amendment the partnership"s basis is only ,000 the fmv when the land was contributed. The partnership will have a ,000 loss which is allocated to the other partners. Note that if the partnership had a 754 election in effect (or if a 743(b) basis adjustment is required due to a substantial built-in loss in partnership property), the purchasing partner"s.

Related Questions

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.

8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

scarletbear126

Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners.

Upon liquidation of the partnership, property will be distributed to the partners in accordance with their capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0.

In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600.

a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.

	Bryan's Basis	Cody's Basis
Capital contribution-Year 1	$	$
Loss allocation-Year 1	$	$
Depreciation allocation-Year 1	$	$
Basis at the end of Year 1	$	$
Income allocation-Year 2	$	$
Depreciation allocation-Year 2	$	$
Basis at the end of Year 2	$	$

Are any losses suspended for either partner?
No/Yes

b. Does the allocation provided in the partnership agreement have an "economic effect"?
No/Yes , because (1) gains, income, loss, etc., allocations are/are not reflected in capital account balances, (2) liquidating distributions are in accordance with average/beginning/end capital account balances, and (3) deficit capital accounts/outstanding loan balances must be restored.

magentaplatypus609

Organization of business as partnership or corporationÂ¬Â¬Â¬ On May 31, six brothers decided to form the Grimm Brothers Partnership to publish and print childrenâs stories. The contributions of the brothers and their partnership interests are listed below. They share the economic risk of loss from liabilities according to their partnership interests. Individual Asset Basis to Pr FMV Partnership Interest Al Cash 15,000 15,000 15% Bob Accts Receivable -0- 20,000 20% Clay Office Equipment 13,000 15,000 15% Dave Land 50,000 15,000 15% Ed Building 15,000 150,000 20% Fred Services ? 15,000 15% The following other information about the contributions may be of interest: â¢ Bob contributes accounts receivable from his proprietorship, which uses the cash method of accounting. â¢ Clay uses the office equipment in a small business he owns. When he joins the partnership, he sells the remaining business assets to an outsider. He has claimed $8,000 of MACRS depreciation on the office equipment. â¢ The partnership assumes a $130,000 mortgage on the building Ed contributes. Ed claimed $100,000 of straight-line MACRS depreciation on the commercial property. â¢ Fred, an attorney, drew up all the partnership agreements and filed the necessary paperwork. He receives a full 15% capital and profits interest for his services. 1. How much gain, loss, or income must each partner recognize as a result of the formation? 2. How much gain, loss, or income must the partnership recognize as a result of the formation? 3. What is each partnerâs basis in his partnership interest? 4. What is the partnershipâs basis in its assets? 5. What is the partnershipâs initial book value of each asset? 6. What effects do the depreciation recapture provisions have on the property contributions? 7. What are the tax consequences to the partners and the partnership when the partnership sells for $9,000 the land contributed by Dave? Prior to the sale, the partnership held the land as an investment for two years.

Now answer the same questions assuming that this is the organization of a corporation instead of a partnership.

TAX 9900 Lecture 39: class39

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