EA2 Study Unit 09 Partnerships - Contributions to a Partnership

A partnership must recognize a gain or loss on the contribution of property in exchange for a partnership interest.

When is gain or loss recognized on the contribution of property to a partnership?

The contributing partner’s recognized gain is the lesser of the precontribution gain or the gain that would result if the property were sold at ______.

What is the general rule regarding the recognition of gain or loss on the contribution of property to a partnership?

Match the following terms related to partnership contributions with their definitions:

The ______ is the price that a willing buyer would pay to a willing seller for the property in an open and competitive market.

When a partner contributes property to a partnership, the partner's basis in the partnership is determined by the value of the property at the time of the contribution.

If a partner contributes services to a partnership, how is the partner's basis in the partnership interest determined?

When a partner contributes property subject to a liability, the partner is treated as receiving a ______ from the partnership.

What happens to a partner's basis in the partnership interest when they receive a distribution from the partnership?

Which of the following is NOT a factor in determining a partner's basis in a partnership interest?

Match the following contributions to a partnership with their corresponding basis determination:

A partner who contributes property to a partnership carries over their ______ to their partnership interest.

If a partner contributes property to a partnership and the partnership assumes a liability on that property, the partner's basis in the partnership interest is increased by the amount of the liability.

What does the term 'entity' refer to when discussing partnerships?

A simple agreement to share expenses automatically constitutes a partnership for tax purposes.

What is an example of an entity that cannot be classified as a partnership for tax purposes?

A domestic [BLANK] with at least two members can be treated as a partnership for federal income tax purposes if it does not file Form 8832.

Match the following scenarios with the relevant partnership classification:

Co-ownership of rental property is always considered a partnership.

What is a key difference between a partnership and a corporation for taxation purposes?

What is the primary rule used to determine the required year-end for an LLC if neither the majority-interest rule nor the principal-members rule can be used?

How are months of deferral calculated when determining the least aggregate deferral of income?

If an LLC's proposed tax year results in an aggregate deferral of income that differs from its existing tax year by less than 0.5 months, what happens?

What is the exception to the least aggregate deferral rule when considering a tax-exempt member's tax year?

Suppose the least aggregate deferral rule results in multiple qualifying tax years for an LLC. What can the LLC do?

For federal tax purposes, a syndicate, group, pool, or joint venture that is carrying on a trade or business is always classified as a partnership if it is classified as a trust, an estate, a qualified joint venture, or a corporation.

Per-se corporations, such as insurance companies, can be classified as partnerships.

Tax-exempt organizations can be classified as partnerships.

A domestic limited liability company with at least two members that does not file Form 8832 is classified as what for federal income tax purposes?

A partnership agreement must be agreed to by all partners.

What is the primary purpose of a partnership agreement?

A partnership agreement that does not have substantial economic effect is considered invalid.

A partnership agreement must be written and signed by all partners.

A family partnership must be recognized as a partnership by the IRS.

Which of the following familial relationships are not considered members of the taxpayer's family for IRS purposes?

Which of the following best describes a services partnership?

What is the rule for determining the amount of compensation a family member can receive as a service partner in a partnership?

Spouses filing a joint return can elect out of partnership treatment by choosing to be a qualified joint venture.

A qualified joint venture is always treated as a partnership by the IRS.

An individual is treated as owning the interest owned by his spouse, brothers and sisters, children, grandchildren, and parents for tax purposes.

An interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered to be owned proportionately by or for its shareholders, partners, or beneficiaries.

A partnership's tax year must be the same as the principal he partner(s) owning more than 50% of partnership tax year.

A partnership must use a required tax year unless an exception applies.

A partnership can elect to use a different tax year if it can demonstrate a business purpose.

A partnership can adopt a natural business year for tax purposes if at least 25% of its annual gross receipts were received during the last 2 months of each of the preceding 3 years.

A partnership can elect to use a tax year that results in more than 3 months of deferral.

A partnership can elect out of partnership treatment under Sec. 444 if it is a member of a tiered structure or has previously made a Sec. 444 election for a shorter deferral period.

A partnership's tax year can be different from all of its partners' tax years.

The IRS requires a partnership to file a tax return even if it does not receive income or incur expenses during the tax year.

Generally, no gain or loss is recognized on the contribution of property in exchange for a partnership interest.

Gain or loss is recognized on the contribution of property if the property is distributed to a different partner within 7 years of the contribution date.

A partner contributing property to a partnership and receiving a distribution immediately thereafter is treated as having made a sale.

Gain is not recognized if a partner receives a distribution of property within 7 years of contributing property to the partnership.

The basis of contributed property is the same in the hands of the partnership as it was in the hands of the partner.

The value of a capital interest in a partnership that is transferred to a partner in exchange for services is taxable as ordinary income.

The income recognized from the value of a capital interest in a partnership that is transferred to a partner in exchange for services is added to the basis of the partnership interest.

The original basis of a partner's interest acquired in exchange for contributions of property is the sum of the money contributed, the adjusted basis of the property contributed, and any recognized gain by the partner.

Which of the following is NOT classified as a partnership for federal tax purposes?

A partnership is required to use the same tax year as all its partners unless an exception applies or a Sec. 444 election is made.

Siblings are considered part of a family partnership for tax purposes.

The partnership's basis in contributed property is adjusted for liabilities.

The partnership's basis in contributed property includes the partner's holding period (HP), even if the partner recognized gain.

How is the basis of a partnership interest purchased from a partner determined?

A partnership recognizes gain or loss when it receives contributions of money or property in exchange for a partnership interest.

The partnership's basis in contributed property includes liabilities ONLY to the extent that the liability gives rise to a current deduction.

Accrued but unpaid expenses and accounts payable are included in the basis of a partner's interest in a cash-basis partnership.

The holding period (HP) of the partner's interest includes the HP of contributed capital and Sec. 1231 assets. If the interest was received in exchange for ordinary income property or services, the HP starts the day following the exchange.

A partnership may elect to adjust the basis in its assets by the difference between the transferee's basis in his or her partnership interest and his or her proportionate share of the partnership's AB in its assets.

The partnership's basis in contributed property is equal to the contributing partner's adjusted basis in the property, immediately before contribution, increased by any gain recognized by the partner. It is not adjusted for liabilities.