[yomomma]

Is this correct or wrong…

Partnership Liability Relieved = Partner Liability Assumed?

When Partnership is relieved of a liability, which decreases a Partner’s basis in the Partnership,

does it mean that the Partner Assumed the liability or is also relieved from it? I’m confused whether they have

an inverse relationship of some kind or if the Partnership is relieved from it then also the Partner is relieved.

Please Help!

FAR - 79
AUD - 82
REG - 83
BEC - 77 Booya

[lbi18]

If a partnership's liabilities decrease (i.e. partnership relieved of liabilities), then each partner's basis in the partnership will also decrease.

Remember the formula: Basis = Capital Account + % of partnership liabilities

Don't try to confuse yourself. I shouldn't be talking considering I think I confuse myself on a topic each day, but sometimes the concepts are simple and we overthink them. I tend to do that A LOT with REG. Try to keep it simple and it will make sense.

Here's an example: Let's say that A, B, C form a partnership with 1/3 interest each. A contributes cash of $50,000; B contributes an asset with NBV of $20,000; and C contributes an asset with a NBV of $40,000 that has a liability of $30,000 attached to it.

A's basis will be: $50,000 + (30,000 liability x 1/3)

B's basis will be: $20,000 + (30,000 liability x 1/3)

C's basis will be: $40,000 – (30,000 liability x 2/3)

In A and B's case, they are assuming a partnership liability because they take on C's liability and thus, have an increase in basis.

In C's case, he/she is being relived of a liability because the partnership is assuming its liability and thus, have a decrease in basis.

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[yomomma]

Thanks for the detailed explanation and you've got a badass AUD score.

FAR - 79
AUD - 82
REG - 83
BEC - 77 Booya

[lbi18]

Thanks! AUD came easy to me. REG is a beast, but I know I can conquer it.

You're taking BEC 2 days after REG? That's impressive, good luck!

FAR - 85
AUD - 99
REG - 85
BEC - 10/4/13 (Waiting)

Using Becker Self-Study

[Author]

Replies