Discuss the formation of a partnership. Is any gain or loss recognized? Explain?

Discussion Questions

1. Discuss the formation of a partnership. Is any gain or loss recognized? Explain?

2. What entity forms are considered partnerships for federal income tax purposes?

3. How does taxation for the corporate form and the partnership form differ?

4. What is the concept of basis? In your discussion, differentiate between outside basis and inside basis.

5. Elaborate on the term basis-in – basis-out. What does that phrase mean in the context of a partnership formation?

6. How can two partners, each with a 50% interest in a partnership, have different amounts of outside basis at the formation of a partnership? Shouldn’t the two partners contribute the same amount to have the same interest?

7. When a partnership receives an asset from a partner, does the partnership ever recognize a gain? What is the basis of the asset in the hands of the partnership after contribution?

8. Discuss the concept of steps into the shoes. Does how this concept pertains to the partnership, the partners, or both?

9. Why would smaller partnerships (and other businesses for that matter) use only the tax basis of accounting, which does not follow GAAP?

10. How is depreciation calculated by the partnership when a partner contributes a business asset?

11. Discuss the concepts of ordinary income and separately stated items concerning partnerships. When must a partnership item of income or loss be separately stated and why?

12. Can a partner have a salary from a partnership? Why? What is a guaranteed payment?

13. Are guaranteed payments treated as an ordinary income items or as separately stated items?

14. Is the Section 179 expense deduction allowed for partnerships? If so, is Section 179 an ordinary income item or a separately stated item? Why?

15. If a partner owns a 20% interest, does that necessarily mean that he or she will receive 20% of the net income from the partnership? Explain?

16. Is partnership income considered self-employment income? If so, how is it calculated?

17. Why must some income and gain items be separately stated in a partnership?

18. Explain why nontaxable income and nondeductible expenses increase or reduce outside basis?

19. When is it mandatory that a partner calculate his or her partner interest basis (outside basis)? What items affect the outside basis of a partner?

20. How does a partner’s share of partnership liabilities affect his or hers outside basis?