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1 Chapter 9: Partnership Formation and Operation
PARTNERSHIP FORMATION operation (1 of 2) Partnership definitions Overview of partnership taxation Contributions of Property Partnership elections Ordinary income/loss VS separately stated items Partners' distributive share of items
2 PARTNERSHIP FORMATION & OPERATION (1 of 2) Partnership definitions Overview of partnership taxation Contributions of Property Partnership elections Ordinary income/loss vs. separately stated items Partners’ distributive share of items
PARTNERSHIP FORMATION OPeration (2 of 2) Special allocations Partner's basis in partnership interest Special loss limitations Guaranteed payments Transactions between partner partnership Family partnerships
3 PARTNERSHIP FORMATION & OPERATION (2 of 2) Special allocations Partner’s basis in partnership interest Special loss limitations Guaranteed payments Transactions between partner & partnership Family partnerships
Partnership Definitions (1of3) lllll Tax definition of a partnership Syndicate, group, pool, joint venture or other unincorporated organization that carries on a business
4 Partnership Definitions (1 of 3) Tax definition of a partnership –Syndicate, group, pool, joint venture or other unincorporated organization that carries on a business
Partnership Definitions (2of3) General partnershi Two or more partners All partners are general partners > May participate in mgmt >May make committments on behalf of partnership >Unlimited liability for partnership debts 5
5 Partnership Definitions (2 of 3) General partnership –Two or more partners –All partners are general partners »May participate in mgmt »May make committments on behalf of partnership »Unlimited liability for partnership debts
Partnership Definitions (3of3) Limited partnership One or more general partners and One of more limited partners >Cannot participate in management >)Cannot make commitments for partnership Liability generally limited to amount invested in partnership Electing large partnership(ELP Non-service partnerships w/2100 ptrs
6 Partnership Definitions (3 of 3) Limited partnership –One or more general partners and –One of more limited partners »Cannot participate in management »Cannot make commitments for partnership »Liability generally limited to amount invested in partnership Electing large partnership (ELP) –Non-service partnerships w/ 100 ptrs
Overview of Partnership Taxation Partnership profits and losses Partner's Basis Partnership distributions
7 Overview of Partnership Taxation Partnership profits and losses Partner’s Basis Partnership distributions
Partnership Profits and Losses (1 of 2) Partnership files Form 1065 Information return with no tax due Partners receive a form K-1 Reports partner's share of income or loss and separately reported items
8 Partnership Profits and Losses (1 of 2) Partnership files Form 1065 – Information return with no tax due Partners receive a Form K-1 –Reports partner’s share of income or loss and separately reported items
Partnership Profits and Losses (2 of 2) Partners include profit or loss and separate items on their individual return form 1040 Loss limitation Partner's losses limited to his/her basis in the partnership 9
9 Partnership Profits and Losses (2 of 2) Partners include profit or loss and separate items on their individual return Form 1040 Loss limitation –Partner’s losses limited to his/her basis in the partnership
Partner's Basis Partner's basis increased by share of partnership earnings, additional contributions. additional assumption of partnership debt Partner's basis decreased by losses, distributions, reduction in partnership debt 10
10 Partner’s Basis Partner’s basis increased by share of partnership earnings, additional contributions, & additional assumption of partnership debt Partner’s basis decreased by losses, distributions, & reduction in partnership debt
