[jeff]

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Post by Another71.

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

I am waiting for the right answer for Hello's question too.

I am just not little confused with partnership basis/taxation. I am very confused. I wish it's just like property basis. I can answer property questions really well!

Does anybody have tricks for partnership basis please?

[Anonymous]

@Hello – I would assume it would be $36000. The $4000 would be added to the basis of $32000. Just like property basis, the recognized gain would be added to the basis. That's a good question..someone with a firm answer, can you please clarify.

[s2sylvir]

^

I agree with the above… Assuming I'm reading this correctly:

IRC Sec 721: To the extent gain is recognized on the exchange ($4000), and the property's basis in the partnership's hands exceeds the basis in the transferor's hands, the partnership is treated as if it placed the property's increased basis amount in service on the contribution date.

Also check R-42

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[NJPRU]

lalalala 🙂

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[NJPRU]

If you are using Becker, the partnership's basis for contribution of property is indicated on page R4-42. (which is what I think s2sylvir is referring to).

“The partnership basis in the contributed property is the contributor's basis, or carryover basis (plus any gain recognized by the incoming partner).

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[Hello928]

Thank you everyone! I greatly appreciate it.

Below are two more questions from the same book!! I just want little more clarification because I am getting confused with other basis.

George pays $10,000 for a 20% interest in a general partnership, which has recourse liabilities of $20,000. The partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses.

Partners Basis = $14,000

Gain Recognized by George should be $6000

Partnership Basis = $16,000

On the first day of the partnership's tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the non recourse liability. During the year, the partnership incurs a $120,000 loss and a $20,000 increase in liabilities.

Karen Basis = 0

Gain Recognized by Karen = 0

Partnership Basis = 30,000

Does Non-Recourse Debt Increases the Basis?

Can you guys please confirm the above basis for Partner/Parnership/Gain Recognized? Again, I apologize if this is bothering you guys!!

[s2sylvir]

– Recourse liabilities can provide basis for distributions and can also generate basis for purposes of the at-risk rules.

– Nonrecourse liabilities can provide basis for distributions, but generally do not provide basis for purposes of the at-risk rules.

– Thing to get out of what I said above: At-risk affects the amount of loss a partner can take.

Question #1, yes, partner's basis is $14. No idea where you're getting gain from.

Question #2, partner's basis is 0, gain is 0, recognized loss by Karen is $60, suspended loss is $60

No idea what you're referring to when you say “partnership basis”. Their basis in the 30k cash? Yeah it's 30k.

“Partnership basis”: To be honest, aside from property transactions, for me this whole “inside basis/partnership basis” doesn't make sense outside of a textbook setting.

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[NJPRU]

@s2sylvir – I feel like you should stay here the entire time we are studying for 1Q. I always seem to be able to echo what you're saying and use your response as a check to my answer lol

To echo what s2sylvir – for your first question, the only time you would add a gain to the partnership's basis is if there is a gain.. which can only be recognized if property is given and liabilities on the property given exceeds the basis of the property given (like we did in your very first problem). Because there is no gain recognized, I would assume that the partnership's basis would be the cash received, or 10k (no gain). The partner's basis would the amount of cash they gave plus his share of liabilities which is 4k

For the second problem, you have a partner's basis of 0 because of the fact that the basis in what she gave (cash) 30k plus her share of liabilities (20k) so her basis at the beginning was 50k. Now because she receives the loss and profits, her basis will be brought down to 0 due to her share of the loss (60k) – basis cannot go below 0. I think also that it since it would have gone negative (-10k) coupled with her basis in the new liabilities (10k) it's a wash… someone check me on that.. Remember, because she didn't give property and also no excess liability, she doesn't recognize a gain (and therefore' the partnership's basis would only be 30k).

Phew, sorry for writing this out, I hope it made sense, and I hope i explained it right – reviewing while typing. lol

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[s2sylvir]

@NJPRU

I will definitely try… And plus you are explaining it waaaaay better than I am XD I'm like “R-42” expecting everyone to know what I'm talking about xD

You also seem to have a much deeper understanding of the concepts than me xD Especially this partnership's basis. Did I sleep through some Becker lecture or something? The only time I thought they talked about partnership's basis in stuff was with contribution/distribution/sale/purchase of **property**. Because a cash's value is always going to be a cash's value to the partnership?

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[Hello928]

@s2sylvir & NJPRU: Thank you so much for the great explanation. I appreciate it. Now getting more clear idea of those basis.

@s2sylvir: For Question 1, what I did to calculate Gain Recognized = 16,000 (Recourse Liabilities Assumed by Others) – Adjusted Basis (10,000) = 6000. Now, I realize we do not take the recourse/Non-Recourse Liability in calculation of Gain Recognized. Thank you again!!

[NJPRU]

@s2sylvir – I'm almost 100% sure that the basis for cash to a partnership is always (i hate that word for this exam lol) the amount contributed. It's property that you have to watch out for.

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[s2sylvir]

@Hello928

I am sure you know this already, but just to reiterate:

That liability was already owned by the partnership. If she had contributed property with a mortgage liability on it, that's when you adjusted for possible gains.

@NJPRU

What does your name mean XD?

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[Mika]

I am reviewing my notes and one question just pop up in my mind.

Say my initial basis of the company is $10,000 ,AEP is $40,000, CEP on every quarter is $15,000, so total CEP is $60,000

and I received a distribution in the middle of the year, i.e. June of $100,000, how should I treat this distribution. How much should I allocate to dividend, how much is Return on basis and how much should be cap gain.

REG - 80 (02/13/2015) Roger + Ninja Flash Card + Ninja MCQ + Becker's Note
FAR - 84 (05/29/2015) Roger + Ninja MCQ + Some Wiley book questions
BEC - 77 (08/27/2015) Roger + Ninja MCQ + Half Wiley book questions
AUD - 87 (08/28/2015) Roger + Ninja MCQ + Half Wiley book questions

[NJPRU]

@Mika, hopefully i do this right.. but let's say we are talking about a C Corp (i say this because there are somewhat different rules for S Corp) and that they are distributing a cash dividend (rules are a little different for property dividends)..

you recognize income to the extent the corporations current and accumulated earnings.. so @ June, it looks like there are total earnings of 100k (since they are both positive you can net them; however, the general rule is that you wouldn't net them because distributions would come out of current E/P and then accumulated E/P). I would assume, based off the rule, that your taxable income is 100k.

Now, let's say a 100k cash distribution was made in March. At which point (with the details you provided), you have accumulated E/P of 40k and current E/P of 15k (15k each quarter).. for a total of 55k. You would first take the distribution out of E/P for a total of 55k dividend income… you'll then have 45k remaining. The second string to this is to then take out the distributions to your basis in common stock (in this case it's 10k which is not taxable and is referred to as return of capital).. this then leaves you with 35k which is taxable as a capital gain (because you exhausted your E/P and basis).

Again, this is my assumption based on the fact that you are referring to a C Corp and are giving out a cash distribution (non liquidating).

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[NJPRU]

@s2sylvir – good question and you are the first one to ask me that here… I live in New Jersey and the three extra letters are the stock exchange symbol of my current employer. 🙂

AUD: DONE
FAR: DONE
BEC: DONE
REG: DONE

IM GOING TO BE A CPA!!!!!

[Author]

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