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What is a partnership?
an unincorporated association with two or more persons who associate for a profit motive
For income tax purposes, partnerships are treated as …
pass through entities (the partnership pays no taxes, and partnership income (loss) and separately stated items are allocated to each partner according to the partnership’s profit sharing agreement)
What is a general partnership?
has 2 or more general partners who is liable for partnership debts
What is a limited liability partnership?
general partners are not liable for any malpractice committed by other partners
What is a limited partnership?
comprised of at least one general partner and often many limited partners
limited partners may not participate in the management of the LP
What is a limited liability limited partnership?
general partners are not liable for the negligence or misconduct of the other general partners
What is a limited liability company?
LLC members are not personally liable for the debts of the LLC
LLC members may participate in management without risking personal liability
What are “check-the-box” regulations?
allows an entity to choose what type of tax entity it will be
Explain the taxation of contributions in the formation of partnership
no gain or loss is recognized is property is transferred to a partnership in exchange for a partnership interest
When can contributions in the formation of partnerships be recognized?
transfers to an investment company partnership: gain will be recognized on transfers, where 80% of the partnership assets are held for investment and those assets are readily marketable stocks or securities
services: contribution of services in exchange for partnership interest creates ordinary income
disguised sale: contribution of property to a partnership followed by a partnership’s distribution of property to a partner within 2 years
excess of partnership’s net debt relief over partnership’s basis: excess net debt relief enjoyed by a partner over their basis in their partnership interest is treated as capital gain
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