ACC 410 Chapter Notes - Chapter 21: Debt Relief, Ordinary Income

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tanhyena210

3 Aug 2020

School

Ball State University

Department

Accounting

Course

ACC 410

Professor

Stanfield

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Document Summary

Chapter 21: dispositions of partnership interests and partnership distributions. To the extent the tax rules follow the entity approach, the interest is considered a separate asset and a sale of the partnership interest is similar to the sale of corporate stock. Partner recognizes capital gain or loss on sale, based on difference of sale price and the partner"s tax basis. Adds complexity: holding periods of partnerships assets ordinary, capital, 1231. -to the extent of aggregate approach: the disposition represents a sale of the partner"s share of each of the partnership"s assets. The seller"s primary tax concern in a partnership interest sale is calculating the amount and character of the gain or loss on the sale. The selling partner calculates the gain or loss as the difference between the amount realized and her outside basis in the partnership. Debt relief increases the amount the partner realizes from the sale.

Related Questions

true and false questions

A redemption is always "essentially equivalent to a dividend"where a corporation's sole stockholder causes part of his shares tobe redeemed by the corporation.

When a partner receives a cash distribution from a partnershipthe partner always recognizes a gain on such distribution.

If a partner receives a non-liquidating cash distribution, thepartner will recognize a loss if the cash distributed is less thanthe partner's outside basis at the time of the distribution.

When a partnerâs share of partnership liabilities and debts isreduced or relieved, such reduction or relief is treated as adeemed cash distribution which increases the partnerâs outsidebasis.

A partner contributes property used in a trade or business to apartnership in return for a partnership interest. The partner heldthe property for 2 years prior to contribution. The partner thensells his partnership interest three weeks later. The contributingpartner will realize a short-term capital gain/loss on the sale ofhis partnership interest.

A distribution by a C-corporation that has Earnings and Profitsis always a dividend.

John is a 30% partner in the ABC Partnership with an outsidebasis of $42,000. ABC partnership distributes $15,000 of cash incomplete liquidation of Johnâs interest. John recognizes anordinary loss of $27,000 on the distribution

Like partnerships, an S corporation shareholder's stock basismust be adjusted annually.

A related party individual that receives a liquidatingdistribution from a corporation can recognize a loss

If a partnership makes a non-liquidating distribution oftangible property, and the inside basis of the property exceeds theoutside basis of the recipient-partner, the partnerâs basis in thedistributed property is equal to his outside basis and he realizesgain on the difference between the inside basis and outsidebasis.

roseskunk442

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.

8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

scarletbear126

Jesse and Karla form a â50/50â partnership. Jesse contributes property FMV of $40,000 9basis of $20,000). Karla contributes $40,000 in cash. The property is later sold for $30,000. If the partnership uses the traditional method of allocation, how much gain does each partner recognize for both book and tax purposes?

	A.	Jesse recognizes a $10,000 gain for tax purposes and also a $10,000 gain for book purposes because the adjustment for book purposes cannot be less than the amount for tax purposes. Karla recognizes no gain or loss for book or tax purposes.
	B.	Both recognize a gain of $5,000 for tax purposes and a loss of $5,000 for book purposes because it is an equal â50/50â partnership.
	C.	Jesse recognizes a $10,000 gain for tax purposes and a $10,000 loss for book purposes because the adjustment for book purposes must be made so as to set his basis in the partnership interest equal to his capital account balance. Karla recognizes no gain or loss for book or tax purposes.
	D.	Jesse recognizes a $10,000 gain for tax purposes and a $5,000 loss for book purposes resulting in a disparity between his basis in the partnership and his capital account balance. Karla recognizes no gain or loss for tax purposes and a $5,000 loss for book purposes, also resulting in a $5,000 disparity between her basis in the partnership interest and her capital account balance.

ACC 410 Chapter Notes - Chapter 21: Debt Relief, Ordinary Income

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