Lesson 3.2.3 Concepts II

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En provenance du cours de University of Illinois at Urbana-Champaign

Taxation of Business Entities II: Pass-Through Entities

13 notes

University of Illinois at Urbana-Champaign

Taxation of Business Entities II: Pass-Through Entities

13 notes

Cours 4 sur 5 dans Specialization U.S. Federal Taxation

This course provides an introduction to the U.S. federal income taxation of pass-through business entities, including Subchapter S corporations, partnerships, and limited liability companies. The course focuses on the relevant provisions of Subchapters S and K of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing the formation, operation, and termination of pass-through entities. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.

À partir de la leçon

Module 3 Partnership Distributions

In this module, you will be introduced to the tax treatments of partnership distributions. We will first determine what is a distribution and how it is different from a partner’s share of partnership earnings. Partnership distributions will be further classified into proportionate operating, proportionate liquidating, and disproportionate distributions. We will then discuss the nonrecognition principle of partnership distributions, loss limitations, and exceptions to these general rules.

Lesson 3.2.1 Concepts I5:09

Lesson 3.2.2 Applications I2:48

Lesson 3.2.3 Concepts II2:33

Lesson 3.2.4 Applications II2:18

Lesson 3.2.5 Concepts III1:39

Lesson 3.2.6 Applications III8:45

Lesson 3.2.7 Concepts IV2:18

Lesson 3.2.8 Applications IV11:14

Lesson 3.2.9 Concepts V0:57

Lesson 3.2.10 Applications V6:29

Rencontrer les enseignants

Michael P Donohoe, PhD, CPA
Associate Professor of Accountancy and PwC Faculty Fellow
Department of Accountancy, Gies College of Business

The partnership tsx rules for distributions lean heavily on the aggregate concept,

which treats the entity like a conduit.

As a result, the distribution rules strive to keep the basis of property the same,

regardless of whether the partner or partnership holds them.

Consequently, moving assets in and out of

a partnership should theoretically have little tax consequence.

The basis rules for liquidating distributions focus on allocating

the terminating partner's entire outside basis in

the partnership to the assets the partner receives in the distribution.

The entire outside basis is allocated because after a liquidating distribution,

the partner will no longer hold an interest in the partnership. It all must go.

The allocation, however, depends on two issues.

One, the partnership's inside basis and the distributed assets

relative to the partner's outside basis in the partnership interest.

And two, the type of property distributed,

meaning money, hot assets, or other property.

The combination of these issues creates five possible conditions of importance.

Two of them arise when the partner's outside basis is greater

than the partnership's inside bases of the distributed assets.

And the other three occur when

the partner's outside basis is less than the partnership's inside bases.

Let's examine each condition in turn beginning with the distribution of money and/or

hot assets when the partner's outside basis is

greater than the inside basis of the distributed assets.

Condition one, if the partnership distributes only money and/or hot assets,

that is inventory and unrealized receivables,

and the partner's outside basis is greater than

the sum of the inside bases of the distributed assets,

the partner will recognize a capital loss.

This treatment occurs because the partner assigns a basis to the assets received

from the partnership equal to the partnership's inside basis in the assets.

But, because in this condition,

outside basis is greater than the partnership's inside basis,

and the partner is terminating the interests,

the remaining outside basis after allocating is recognized as a loss.

The code precludes a step up in basis and hot assets to avoid

a situation where a partner converts a capital loss into an ordinary loss.

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