Partnership tax
- 詳細內容
- 分類：美國稅制
- COM_CONTENT_PUBLISHED_DATE_ON
- 點擊數：4667
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Partnership tax l Nature of partnership l Formation of partnership l Basis of partnership interest (outside basis) l Basis of contributed property l Flow through of partnership income and losses l Transactions with controlled partnership l Partnership tax return l Nonliquidating distributions l Liquidating distribution l Termination of partnership |
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Nature of partnership |
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Entity characteristics |
l Two or more taxpapayer l Making profit objective |
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Tax characteristics |
l Not recognized as a taxable entity l The income is taxed to the owners l Distributions : return of capital |
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General partners vs. limited partners |
General |
l Management l Liability l At least one general partner |
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limited |
Not participate in management |
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Outside basis vs. inside basis |
Outside basis |
Basis of PP interest |
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inside basis |
Basis of PP property |
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partnership interests |
l Capital interest l Profit interrest |
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Formation of partnership |
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General rule: no gain or loss |
Effect on the partners |
l Basis of PP interest = basis of property l Holding period:
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Effect on the partnership |
l Basis of property in PP = basis of property in partner l Holding period: 1. Capital assets and sec. 1231:added 2. Ordinary assets: new start |
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exceptions |
Excess of liability over basis of property |
Liab assumed by others less adjusted basis =gain if positive |
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Service rendered in exchange of partnership interest |
Recognized compensation income |
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Investment company if incorporated |
Gain will be recognized on a contribution of property to a partnership in exchange for an interest therein if the partnership would be an investment company if incorporated |
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Basis of partnership interest (outside basis) |
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Initial basis |
Cash |
+Amount |
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Property |
+Adjusted basis (NBV) |
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Services |
+Fair market value |
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Incoming partner’s liab. |
-The amount assumed by other partner |
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Other partner liab. |
+ the amount assumed by incoming partner |
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Subsequent basis of partnership interest |
Item affect basis of partnership interest (distribution ) |
Increase by |
Decrease by |
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Ordinary income |
Ordinary loss |
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CG and other special income item |
CL and other special income item |
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Tax-exempt income |
Nondeductible items |
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The excess depletion over the partnership’s basis of the property |
Deduction for depletion on oil and gas wells |
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Item affect basis of partnership interest (change in liability) Partnership basis will increase in proportion to the partner's economic loss percentage (risk) if the debt is recourse. Partnership basis may increase if the debt in nonrecourse, but there are limitations (beyond the scope of the exam). |
A share of increase in recourse liab.(general partner only) |
A share of decrease in recourse liab.(general partner only) |
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A share of increase in nonrecourse liab.(general partner and limited partners) |
A share of decrease in nonrecourse liab.(general partner and limited partners) |
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Any increase in a partner’s individual liab. by reason of the assumption by the partner of partnership liab. |
Any decrease in a partner’s individual liab. by reason of the assumption by the partner of partnership liab. |
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Partnership interest basis formula |
Contribution |
Capital account, beginning |
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Add: share of income |
Add: additional contributions |
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Add: share of liab. |
Add: % ordinary & other incomes |
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Less: share of loss |
Less: % ordinary & other expense |
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Less: share of liab. receipt |
Less: withdrawals |
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Less: distribution |
Capital account, ending |
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Basis of PP interest |
Add: % of recourse liab.(only general ) |
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Add: % of nonrecourse liab. (both gen & limit partners ) |
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Basis of PP interest |
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Order of calculation of partnership |
Increase for all income items |
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Decrease for distributions |
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Decrease by deductions and losses |
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Basis of contributed property |
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The partnership basis |
Be the contributor’s basis (or carryover basis = plus any gain recognized by the incoming partner) |
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Holding period |
l Capital assets and sec. 1231:added l Ordinary assets: new start |
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Flow through of partnership income and losses |
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Character of gain or loss recognized on the disposition |
General rules |
Determined by the nature of the property in the hands of the partnership |
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Exception |
For contributed property, the character may be based on the nature of the property to the contributing partner before contribution |
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Unrealized receivable |
Ordinary income or loss |
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Inventory |
Ordinary income or loss |
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Capital assets |
Loss (防弊) |
Any loss later recognized by the partnership on the disposition of the property with five years will be treated as a capital loss to the extent of the contributing partner’s unrecognized capital loss at the time of contribution |
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Gain |
General rules |
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Calculation of partnership |
Separately stated(S. K) |
Capital gain and losses |
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Sec. 1231 gains and losses |
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Charitable contributions |
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Foreign income taxes |
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Sec. 179 exp. deduction |
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Interest, dividend, and royalty income |
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Interest exp. on investment indebtedness |
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Net income (loss) from rental real estate activity |
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Net income (loss) from other rental activity |
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Nonseparately stated |
Sales less cost of goods sold |
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Business exp. such as wages, rent, bad debt, and repairs |
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Guaranteed payments to partners |
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Depreciation |
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Amortization (over 180 months) of partnership organization and start-up exp. |
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Sec. 1245 ,1250, etc., recapture |
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Guaranteed payments |
Shown on FORM 1065, schedule K, and K-1 of the recipient partner |
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Be ordinary income to the recipients at the partnership year-end |
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Reduce partnership income and thereby reduce each partner’s distributive share of such income |
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Be deemed to paid to the partner on the last day of the partnership’s tax year, regardless of when payment was actually made. |
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Retirement payments |
Partnership |
Deduction to the partnership |
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Partner |
Ordinary income (As a greater than 2% partner, partner's health insurance premiums paid by the partnership are reported on Schedule K-1 as a separately-stated item.) |
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Organizational exp. and start-up costs |
5 000 of start-up exp. may be deducted, but the 5 000 is reduced by the amount of expenditure incurred that excess 50 000 |
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Exp. not deducted must be capitalized and amortized over 180 months. |
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Syndication costs |
E.g., offering marerals . Be not deductible. |
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Cancellation of debt income |
When a partnership transfers a capital or profits interest in the partnership to a creditor in satisfaction of partnership debt, the partnership recognized cancellation of debt income |
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Conversion from book to tax income |
Book income |
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Add: |
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Charitable contribution |
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Short/long-term capital loss |
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Less: |
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Tax-exempt income |
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Sec. 1231 casualty gain |
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Sec.1231 gain (other than casualty) |
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Long-term capital gain |
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Partnership ordinary income ( Form1065) |
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Determination of distributive share of each partner |
Partnership agreement |
Override default rule |
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A partner’s distributive share of income or loss is generally determined by the partnership agreement.( may be in varying ratios) |
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Special allocation |
Test met |
Special ratio |
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Test not met |
P/L ratio |
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Contributed property |
Allocated among partners in a manner that reflects the difference between the property’s tax basis and its fair market value at the time of contribution |
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Any gain or losses that existed after the contribution date are allocated among the partner in the partnership |
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Change in ownership of partnership |
Per day per share |
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Ex: Z become a 40% partner in calendar-year partnership XY on 12/1. Partnership XY pay $10 000 of interest exp. that relates to its entire calendar year on 12/31. Z’s distributive share of the interest exp. will be $10 000 * 31/365*40%=$ 340 |
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Limit of deduction of partnership loss |
Basis of partnership |
l A partner’s distributive share of partnership ordinary loss and special loss items is deductible by the partner only to the extent of the partner’s basis for the partnership interest at the end of the taxable year. l Unused losses are carried forward and can be deducted when the partner obtains additional basis for the partnership interest |
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At-risk basis |
l The deductibility of partnership losses is also limited to the amount of the partner’s at-risk basis. l At-risk basis= basis of PP interest less nonrecourse debt |
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Passive activity income |
l If limited partners l Mom and Pop exception: to qualify for the $25 000 exception for active participation in a rental real estate activity, a partner (together with spouse) must own at least 10% of the value of the partnership interest. l Passive activity losses are deductible only to the extent of the partner’s income from other passive activities |
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Transactions with controlled partnership |
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If a person engages in a transaction with a partnership other than as a member of such partnership, any resulting gain or loss is generally recognized. However, if the transaction involves a more than 50% owned partnership (i.e., controlled partnership), special rules may apply. |
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Disallowed losses |
l Related party losses (refer to R13-31) l A gain later realized on a subsequent sale by the transferee will not be recognized to the extent of the disallowed loss. |
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Ordinary income |
Will be treated an ordinary income if the property is not a capital assets in the hands of the transferee. |
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Partnership tax return |
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Filing required |
File Form 1065, K, and K-1 |
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A tax return is due on the 15th day of the forth month of the following tax year. (4/15) |
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The extension period for partnership is 5 months |
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Tax years |
General application |
If its principal partners have different taxable years, the partnership must adopt the taxable year that results in the least aggregate deferral of income to partners. |
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Deferral period |
May elect to use a fiscal year if the election does not result in a deferral period longer than 3 months. |
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Admission or dissociation of a partner |
The taxable year of a partnership ordinarily will not close as a result of the death or entry of a partner, or the liquidation or sale of a partner’s interest. |
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But the partnership’s taxable year closes as to the partner whose entire interest is sold or liquidated. |
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The partnership tax year closes with respect to a deceased partner as of date of death. |
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Cash method |
General rule |
Cannot general be used |
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Exceptions |
l Don’t have inventory, and l Have average gross receipts of 5 million or less for any prior 3-year |
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l Have inventory, and l Have average gross receipts of 1 million or less for any prior 3-year |
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Reporting partnership income and losses- schedual K-1 |
Line 17 Form 1040, Schedule E, Form1065,K, K-1 |
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Form 1065: |
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Business income |
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(Business exp.) |
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(guaranteed payments) |
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1.net business income or loss |
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2.guaranteed payments to partners |
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11.partner’s health insurance premiums |
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12.retirement plan contributions( Keogh Plan) |
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Nonliquidating distributions |
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Nontaxable distribution |
Partnership recognized no gain or loss on a distribution |
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Basis reduction |
Amount of distribution |
Reduces the partner’s basis by the cash or adjusted basis (NBV) of the property distributed. |
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Order of distribution |
1.money |
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2. adjusted basis (NBV) of unrealized receivable and inventory |
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3. adjusted basis (NBV) of other property |
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Limit of reduction |
The basis of partnership interest cannot be reduced below zero. |
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Distributed property |
General rule |
The basis of property receive will be the same as the basis in the hands of the partnership immediately prior to the distribution. |
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Exception |
Cannot excess PP interest basis |
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Gain on excess cash |
Gain= cash received or liab. relieved less basis of PP interest |
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Relief from liabilities is deemed a distribution of money |
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liquidating distributions |
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Complete withdrawal |
Nontaxable liquidation |
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Gain recognized |
Gain= cash received – basis in PP interest |
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Loss recognized |
Loss= basis in PP interest- basis of hot assets |
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Ex: Day had a basis of $20 000 for his partnership interest before receiving a distribution in complete liquidation of his interest. The liquidation distribution consisted of $6 000 cash and inventory with a basis of $11 000 Loss = 20 000- (6 000+ 11 000)= 3 000 |
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Ex: Assume the same facts as in the above example except that Day’s liquidating consisted of $ 6 000 cash and a parcel of land with a basis of $11 000. l Since the liquidating distribution now includes property other than money, receivables, and inventory, no loss can be recognized on the liquidation of Day’s partnership interest. l Loss = 0= 20 000 – 6 000 –land basis Land basis = 14 000 |
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Order of distribution |
Up to hot assets |
Money |
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AR |
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Inventory |
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Other distributed properties |
A basis decrease l Unrealized depreciation l In proportion to the respective adjusted basis of the distributed properties. |
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A basis increase l Unrealized appreciation l In proportion to the respective adjusted basis of the distributed properties. |
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Ex: A partnership distributes two items of property (C and D) that are neither unrealized receivables nor inventory to Alan in liquidation of his partnership interest that has a basis of $55 (see buttom) |
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Sale of partnership interest |
General rule |
Partner has a capital gain or loss when transferring a partnership interest |
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Exception (ordinary income) |
Any gain that represents partner’s shares of “hot assets” is treated as “ordinary income”, as if cash were taken. “hot assets” are:
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ex |
X has a 40% interest in the XY Partnership. Partner X sells his 40% interest to Z for $50 000. X’s basis in his partnership is $22 000 and the cash-method partnership had the following receivables and inventory: |
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Adjusted basis |
Fair market vaule |
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AR |
0 |
10 000 |
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Inventory |
4 000 |
10 000 |
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Potential sec.1250 recapture |
0 |
10 000 |
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4 000 |
30 000 |
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Solution: |
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Selling price |
50 000 |
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Less: basis in partnership interest |
(22 000) |
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Gain on sale of partnership interest |
28 000 |
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FMV of hot Assets |
30 000 |
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Less: Basis of hot assets |
(4 000) |
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Unrealized appreciation of hot assets |
26 000 |
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Ownership % of X in partnership |
40% |
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Allocation to X on hot assets’s appreciation(ordinary income) |
10 400 |
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Gain on sale of partnership interest |
28 000 |
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Gain to be treated as ordinary income |
(10 400) |
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Gain to be treated as capital gain |
17 600 |
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Retirement or death |
Payment in exchange of partnership |
General result in capital gain or loss |
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Other payments |
Ordinary income |
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ex |
2014.6.30 Berk retired from his partnership. At that time, his basis of partnership interest was $50 000. Berk’s retirement payment consisted of receipt of cash payment of $5,000 per month for 18 month, commencing 2014/7/1. Assuming Berk makes no election with regard to the recognition of gain from the retire payment, how should Berk report income for the year ended 2014 and 2015? |
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2014: $5 000 * 6 months = $30 000 return of capital Taxable income = 0 |
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2015: $5 000 * 12 months = $60 000 Return of capital = 50 000- 30 000 = 20 000 Taxable income = 60 000 – 20 000 =40 000 |
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Termination of partnership |
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When partnership terminates |
Operations ceases |
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50% or more of the total partnership interest in both and profits is sold or exchanged within any 12-month period. |
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There are less than 2 partners |
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Effect of partnership terminate |
The effects of partnership termination are a : |
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Deemed distributions to remaining partners and purchaser |
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Hypothetical recontribution of assets to a new partnership |
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Continuation of partnership |
Merger of partnership |
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Division of a partnership |
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Ex: A partnership distributes two items of property (C and D) that are neither unrealized receivables nor inventory to Alan in liquidation of his partnership interest that has a basis of $55 (If the unrealized appreciation of property C IS $35) |
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Partnership basis |
FMV |
Allocation $5 |
FMV after allocation $5 |
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Property C |
$ 5 |
$ 40 |
$ 4 |
$ 44 |
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Property D |
10 |
10 |
1 |
11 |
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$ 15 |
50 |
5 |
55 |
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Ex:CPA-05963 The CSU partnership distributed to each partner cash of $4,000, inventory with a basis of $4,000 and a fair market value (FMV) of $6,000, and land with an adjusted basis of $5,000 and an FMV of $3,000 in a liquidating distribution. Partner Chang had an outside basis in Chang's partnership interest of $12,000. In the second year after receiving the liquidating distribution, Chang sold the inventory for $5,000 and the land for $3,000. What income must Chang report upon the sale of these assets? a.$1,000 ordinary gain and $0 capital loss. b. $0 gain or loss. c. $0 ordinary gain and $1,000 capital loss. d. $1,000 ordinary gain and $1,000 capital loss. Explanation Choice "d" is correct. In this liquidating distribution of a partnership, three different assets are distributed. The $4,000 cash distributed reduces Chang's (outside) basis in the partnership to $8,000. At that point, Chang's outside basis is less than the total (inside) basis of the remaining property distributed. The inventory gets $4,000 of basis first and Chang's outside basis is reduced to $4,000. The land gets the remaining $4,000 basis (whatever is left over). The sale of the inventory for $5,000 then produces a $1,000 ordinary gain ($5,000 - $4,000), and the sale of the land for $3,000 produces a $1,000 capital loss ($3,000 - $4,000). |
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Up to hot assets: adjust pp basis other assets: adjust other assets basis |
Note : |
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l Basis in PP interest=12 000- cash 4 000 - inventory 4000(first)= 4 000 l 4 000 less land ( 5000) = (diff 1000) l Decrease land unrealized depreciation |
l GR: capital G/L l Exception: hot assets=èordinary G/L l IF it only exits hot asserts: when PP interest basis less than the hot assets basis=èdecrease PP interest basis |