Taxation Essentials of LLCs and Partnerships

Chapter 1 1-1

Overview: Basic Tax Structure of Partnerships and LLCs 1-1

What is a partnership for federal income tax purposes? 1-2

Partnerships versus other entities 1-3

Electing to be taxed as a partnership: The “check-the-box” rules 1-11

Overview of the basic framework of partnership taxation 1-14

Partnership operations 1-16

Chapter 2 2-1

Tax Consequences of Partnership or LLC Formation 2-1

Determination of basis 2-2

Effect of entity operations 2-3

Effect of liabilities 2-4

Partnership interests obtained for services 2-11

Transfer of a capital interest 2-13

Transfer of a profits interest 2-17

Campbell 2-20

Lessons for tax advisers 2-22

Chapter 3 3-1

Partnership Distributions 3-1

Introduction 3-2

Liquidating distributions: Proportionate 3-11

Sale of distributed property 3-15

Section 736: Death or retirement of a partner from professional services partnerships or LLCs 3-16

Chapter 4 4-1

Compensatory Payments to Partners 4-1

Introduction 4-2

Self-employment income of partners 4-15

Proposed regulations concerning limited partners’ self-employment income 4-17

Chapter 5 5-1

At-Risk and Passive Activity Limits 5-1

Overview 5-2

Basis and at-risk limitations 5-7

Gross income from passive activities 5-14

Passive activity deductions 5-17

Who is subject to the passive loss limitations? 5-18

What are passive activities? 5-19

Rules of application 5-29

Grouping activities 5-34

Chapter 6 6-1

Overview of Profit and Loss Allocations: General Rules and Restrictions 6-1

Introduction 6-2

Section 704(b): Allocations must have “substantial economic effect” 6-3

Allocations with respect to contributed property: Section 704(c)(1)(A) 6-15

Chapter 7 7-1

Reporting Taxable Income for Partnerships and LLCs 7-1

Overview: Partnership tax return 7-2

General tax payment and reporting scheme 7-9

Form 1065: Income 7-14

Form 1065: Expenses 7-18

Schedules K and K-1 7-26

Interpreting Schedule K-1 7-38

Appendix A A-1

Sample Partnership Tax Return A-1

Facts and financial data A-3

Glossary Glossary 1

Index Index 1

Solutions Solutions 1

Chapter 1 Solutions 1

Chapter 2 Solutions 3

Chapter 3 Solutions 4

Chapter 4 Solutions 5

Chapter 5 Solutions 7

Chapter 6 Solutions 8

Chapter 7 Solutions 10