Business finance_554

Partnerships

Plummet Company

Assume that John and Jill choose to operate their business as a partnership for tax purposes. How will the change in entity for tax purposes affect your answers in Module 2?

Address the specific questions below for this module:

Does the above transaction qualify for a tax-free exchange similar to Sec. 351 for corporations? If so, what code section contains the rule for tax-free exchanges for partnerships?

Compute the partners' basis in the units received in the exchange.

Prepare a tax balance sheet for Plummet Company (assuming it is a partnership).

Comment on the tax issues facing John and Jill in connection with withdrawing money from the partnership? Discuss the same options as in Module 2 and show the associated tax consequences.

SLP Assignment Expectations

Make sure you answer all the questions listed above and support your answers with computations. The discussion and analysis should be 2-3 pages long with references in APA format.

Module 3 - Background

Partnerships

Overview of Partnership Taxation

Partnerships are not subject to federal income tax on their income. The partners are responsible for reporting income and losses on their own tax returns. Even though the partnership does not pay federal taxes, it is required to file an annual tax return.

Partners may contribute money and property to the partnership. The basis of assets contributed are reflected in the capital account. Each partner's capital account is adjusted every period for the partner's share of income and expenses, additional contributions or distributions and change in partnership debt.

A partner will not generally owe taxes on distributions unless they exceed basis.

General and Limited Partnerships

There are many different types of partnerships. General and limited partnerships are the most common ones. Limited partnerships have one significant advantage over the general partnership: limited partners are only liable to the extent of the money contributed to the partnerships. The general partner in the limited partnership, however, remains personally liable for all partnership debt.

Partnerships do not exist in perpetuity as corporations do. A predetermined date of dissolution or change of 50 percent or more in ownership triggers the termination of the partnership. Limited Liability Companies (treated as corporations for legal purposes but as a partnership for taxable purposes) are making limited partnerships less popular.

Required Reading

Government Publication:

Internal Revenue Service. (2013). Publication 541 (2013), Partnerships. Washington, DC: U.S. Government Printing Office. Retrieved from http://www.irs.gov/publications/index.html.

Article:

Daskal, M. (2008, January). Limited Liability Companies (LLCs). Agency Sales, 38(1), 42-43,45-46. Retrieved August 8, 2011, from ABI/INFORM Trade & Industry. (Document ID: 1424214701).

Friedland, l. (2003). Understanding Partnership and LLC Taxation. Retrieved from http://www.housingissues.org/fiu/taxation-of-partnerships.pdf

Optional Reading

For a few review slides, click on these links: Corporations, S Corporations, and Partnerships.

If you cannot meet this deadline, please do not bid. Thank you