Partnership Tax

P ship

S corp

Contribution appreciated property

Precontribution gain allocate to the contributing partner 704c

Allocate among all members

Contributed built in loss property

Precontribution loss allocate to contributing partner

Loss among all members

Corp: basis= Lower FMV  §362e(2); excluding liability

Basis for owners

Including debt

Only include direct loan to corp

Allocation of income/deductions, contributed properties

Basis include debt

• Income/loss *percentage interest

• Maintain stock & debt basis § 1367
• Debt basis increased only by direct loans § 1366d
• Decrease stock basis first; restore debt basis first

• Rest carry over

Liability basis & loss limitation

• Allocate debt among partners 704d

• Recourse (A/p; salary payable)

• LP: to GP or whoever personally guarantees  

• Nonrecourse(mortgage secured only by property)

• LP and GP equally

• Maintain stock & debt basis § 1367
• Debt basis increased only by direct loans § 1366d
• Decrease stock basis first; restore debt basis first

Payment types & Employment taxes

• GP--SE tax
• Distributing share--SE tax if working income

• Salary--payroll tax (half of SE tax)
• Distributing share

Distribution of appreciated property

731 carry over basis; basis step down to 0 but no gain/loss

• Corporation recognize gain but no loss
• Gains allocate to ALL members
• Distributee takes FMV basis, then Capital Gain

• No capital loss  

Owner sell interest in entity

§751(a) hot asset reclassify as ordinary income

Rest is capital

All gain/loss capital

Distribution of property in liquidation

Capital asset basis adjusted up and down to reach 0

• Corp recognize gain: ordinary & capital gain
• ALL Members basis increase
• Distribute @ FMV
• Members recognize capital gain or loss