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UC - ACCT 6072 - Acct6072-TaxII Partnership Exam Review Notes - Study

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UC - ACCT 6072 - Acct6072-TaxII Partnership Exam Review Notes - Study

School: University of Cincinnati
Department: Accounting
Course: Tax II
Professor: Pr.richshafer
Term: Fall 2016
Tags: Taxes; and CorporationTax;
Name: Acct6072-TaxII Partnership Exam Review Notes
Description: These notes cover the main questions on the Partnership Exam. It includes all the class examples and the calculation process and answer which professor mentioned in the class. The part II is the class notes, including the example pictures.
Uploaded: 11/13/2016
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background image Tax definition of a Partnership General Partnership Limited Partnership --> Limited Partner has some risk. You could loss investment Limited Liability Limited Partnerships (LLLPs) CPA Limited Liability Companies (LLCs). (Note: not corporation)  single member  Limited Liability Partnerships (LLPs) --lots of firms; most service industry (Law, Acct) --> not personally liability Electing Large Partnerships (no service, have product; at least 100 partners) These two pages notes from  梅姐: Partnership Definitions Chapter 6 Partnership 2016年11月10日 18:18     分区 Chapter 6 Partnership 的第 1 页    
background image How they report their income? All of them are flow-through entities 1. -They pay no tax income liability, they pass through their tax to entities.  Partnership--> still need to pay tax: such as Federal payroll tax/ unemployment taxes 1. They just don't pay income tax. Most important:   Partner basis in the Partnerships + picture to explain 1 It Limits the losses that pass through to the partner.  1. When distribution draws to partner, distribution draws from  Partnerships to partner  are generally tax free. 2. The adjusted  3. Why Import.? Base always  starts with the capital contributions. Base increases by the partner share of the partner liabilities. Two major increases - Base increases by Pass through income. (when income pass through to partner.) Base decreases by the losses (losses and deductions) Draws calculated at the year-end. - Base decreases by the draws. (Dr. Draws; Cr. Cash) CPA Question--> Could the base go below 0? No, it always stop to Zero. It cannot be negative. 3 examples: several questions on the exam --> Partner's Basis in Partnership. EXAMPLE C:9-1 c  (1) Tom purchases a 20% interest in the XY Partnership for $8,000 on January 1 of Year 1 and begins
to materially participate in the partnership’s business. The XY Partnership uses the calendar
year as its tax year. At the time of the purchase, the XY Partnership has $2,000 in liabilities, of
which Tom’s share is 20%. Tom’s basis in his partnership interest on January 1 is $8,400
[$8,000 + (0.20 × $2,000)].
(2) Assume the same facts as in Example C:9-1 except, during Year 1, the XY Partnership incurs
$10,000 in losses, and its liabilities increase by $4,000. Tom’s basis on December 31 of Year 1 is
calculated as follows:
(3) Assume the same facts as in Example C:9-2, and further assume that, during Year 2, the XY
Partnership incurs $60,000 in losses and its liabilities increase by $10,000. Tom’s share of the
losses is $12,000 ($60,000 × 0.20). The maximum amount Tom can deduct in Year 2 is calculated
as follows:
Contribution Sec. 721:
GR: No gain/loss shall be recognized
by Partnership If property is exchanged for interests --> if contributing the property to the Partnership, no gain/loss be recognized. Two exceptions: (1) Contribution of property to a partnership along with the partnership’s assumption of the partner’s liabilities if, as a r esult, the partner’s share of partnership liabilities 
exceeds his or her basis in the partnership.( Gain/loss can be  if the Partnership can be assumed liability exceed the adjust ed basis; eg. Contributed property has mortgage)
(2) Contribution of property followed by a distribution in an arrangement that may be
considered a sale rather than a contribution Each part. interest Is increase by her share by part. Liabilities. 1. Where the part personal liability are assume by Partnership, the code treated it as the cash by the part.  2. Liability:  Example Mary on the Exam . +picture 2     分区 Chapter 6 Partnership 的第 2 页    
background image +picture 2 Difference btw recorded liability
Land Partnership --> basis of the Partnership is the basis of the land
Another problem on the exam:
Capital loss property 
( Sec. 724 Internal Revenue Code)
+picture 3
Organi. Expenses 
Organizational and Syndication Expenditures (costs)
    分区 Chapter 6 Partnership 的第 3 页    
background image Organizational and Syndication Expenditures (costs)
Same as the C Corp. expenses.
Partnership Tax year:
GR: calendar year 
  eg. Sep 2016 ( 重新听这里) Give them ability to deferred tax liability - Exception: PS can have fiscal year. [Sep, Oct, Nov]  Reporting income and losses: Form 1065
Schedule K-1
Focus on two terms:  Separately stated items and non-separately stated items. Separately stated  Get special tax treatment on the partnership tax return - Notes:  Individual can only deducted ….
Eg: 
capital gains and losses
non-separately stated items not get special tax treatment. -       Charitable contributions *Do not mix these items with others. EXAMPLE C:9-19 c 
Harry and Rita have been operating the HR Partnership for several years. Each partner has a
50% interest in the partnership. In the current year, the partnership incurred the following items:
Exam Test: What is Sep? non-sep?
Allocations Related to Contributed Property. 
Example: 
Kay and Sam form an equal partnership when Sam contributes cash of $10,000 and Kay contributes
land having a $6,000 basis and a $10,000 FMV. If the partnership sells the land two years
later for $12,000, the $4,000 precontribution gain ($10,000 FMV − $6,000 basis) is allocated only
to Kay. The $2,000 gain that accrued while the partnership held the land ($12,000 sales price −
$10,000 FMV at contribution) is allocated to Kay and Sam equally. Kay reports a total gain of
$5,000 ($4,000 + $1,000), and Sam reports a $1,000 gain on the sale of the land.
Partner come in 
On the exam:
Eg. 20% partner, March 1, buy 10% interests,  you are 30% partner.
How allocate?
2 month Jan/Feb- 20% partner
Wait year-end, take income/loss allocate to you. - Mar. 30% partner (partnership interest goes up) How 10,000 allocate to you?-use proportion to calculate:
59/365 * 10000*20%=323.2877 
30/365*10000*30%=246.5753 
*Recourse and Nonrecourse Liability. A recourse Liability: is the liability which the borrower remains a liable until the liability is paid.
The creditor has a legal right to collect the liability.
Eg. Land, borrow the $ from the Bank. If the partnership fails on the loan, it can take the land, the bank can sell the land.
A nonrecourse Liability is one in which the lender may sell property used as security if the loan is not paid, but no partner is liable for any deficiency.
The lender has no recourse against the borrower for additional amounts.
Eg. borrow the $ from the Bank
**Allocation to the partner based on this. A recourse debt increase the partner basis only if the partner has the risk of the economic loss. 1. Recourse debt should be allocated to those partners who may suffering economic loss if the partnership deforce the debt 2. A nonrecourse debt is allocated according to the partners' profits' % in the partnership. 3. 3 rules:     分区 Chapter 6 Partnership 的第 4 页    

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School: University of Cincinnati
Department: Accounting
Course: Tax II
Professor: Pr.richshafer
Term: Fall 2016
Tags: Taxes; and CorporationTax;
Name: Acct6072-TaxII Partnership Exam Review Notes
Description: These notes cover the main questions on the Partnership Exam. It includes all the class examples and the calculation process and answer which professor mentioned in the class. The part II is the class notes, including the example pictures.
Uploaded: 11/13/2016
13 Pages 113 Views 90 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
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