Chapter 11


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Chapter 11

  1. 1. Chapter 11 Partnerships: Distributions, Transfer of Interests, and Terminations
  2. 2. Distributions from a Partnership (slide 1 of 4) <ul><li>A payment from a partnership to a partner is not necessarily treated as a distribution </li></ul><ul><ul><li>e.g., Partnership may pay interest or rent to a partner, make a guaranteed payment, or purchase property from a partner </li></ul></ul><ul><li>If a payment is treated as a distribution, it will fall into one of two categories: </li></ul><ul><ul><li>Liquidating distributions </li></ul></ul><ul><ul><li>Nonliquidating distributions </li></ul></ul><ul><li>Depends on whether the partner remains a partner in the partnership after the distribution </li></ul>
  3. 3. Distributions from a Partnership (slide 2 of 4) <ul><li>A liquidating distribution occurs when either: </li></ul><ul><ul><li>Partnership itself liquidates and distributes all its property to the partners, or </li></ul></ul><ul><ul><li>Ongoing partnership redeems interest of one of its partners </li></ul></ul><ul><ul><ul><li>e.g., Partner retires </li></ul></ul></ul>
  4. 4. Distributions from a Partnership (slide 3 of 4) <ul><li>A nonliquidating distribution is any distribution from a continuing partnership to a continuing partner </li></ul><ul><ul><li>Two types of nonliquidating distributions </li></ul></ul><ul><ul><ul><li>Draw </li></ul></ul></ul><ul><ul><ul><ul><li>Distribution of partner’s share of current or accumulated profits </li></ul></ul></ul></ul><ul><ul><ul><li>Partial liquidation </li></ul></ul></ul><ul><ul><ul><ul><li>Reduces partner’s interest in partnership capital but does not liquidate partner’s interest </li></ul></ul></ul></ul>
  5. 5. Distributions from a Partnership (slide 4 of 4) <ul><li>Distributions from a partnership may be either: </li></ul><ul><ul><li>Proportionate—Partner receives his or her share of certain ordinary income-producing assets </li></ul></ul><ul><ul><li>Disproportionate—Partner’s share of certain ordinary income-producing assets increases or decreases </li></ul></ul>
  6. 6. Proportionate Nonliquidating Distributions (slide 1 of 3) <ul><li>In general, neither partner nor partnership recognizes gain or loss on proportionate nonliquidating distributions </li></ul><ul><ul><li>Partner usually takes a carryover basis in assets distributed </li></ul></ul><ul><ul><li>Basis in partnership interest is reduced by amount of cash and basis of property distributed </li></ul></ul>
  7. 7. Proportionate Nonliquidating Distributions (slide 2 of 3) <ul><ul><li>Partner recognizes gain to extent cash received exceeds partner’s adjusted basis (outside basis) in partnership interest </li></ul></ul><ul><ul><ul><li>Reduction in partner’s share of partnership debt is treated as a distribution of cash </li></ul></ul></ul><ul><ul><ul><ul><li>First reduces partner’s basis in partnership </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Any reduction in excess of partner’s basis in partnership results in taxable gain to the partner </li></ul></ul></ul></ul><ul><ul><li>Partner cannot recognize loss on a proportionate nonliquidating distribution </li></ul></ul>
  8. 8. Proportionate Nonliquidating Distributions (slide 3 of 3) <ul><li>Property distributions </li></ul><ul><ul><li>In general, no gain recognized on a property distribution </li></ul></ul><ul><ul><ul><li>If inside basis of property distributed exceeds partner’s outside basis in partnership interest, distributed asset takes substituted basis </li></ul></ul></ul><ul><ul><ul><li>Assets are deemed distributed and basis applied in a certain order </li></ul></ul></ul>
  9. 9. Ordering Rules <ul><li>1. Cash </li></ul><ul><li>2. Unrealized receivables and inventory </li></ul><ul><li>3. All other assets </li></ul><ul><li>Basis is allocated to assets within a category based on adjusted basis to partnership </li></ul>
  10. 10. Proportionate Nonliquidating Distribution Examples (slide 1 of 6) <ul><li>Bill’s basis in partnership interest: $30,000 </li></ul><ul><li>Proportionate nonliquidating distributions </li></ul><ul><li>(independent fact situations): </li></ul><ul><li>Assets Distributed A B C . </li></ul><ul><li>Cash $15,000 $15,000 $ 5,000 </li></ul><ul><li>Land—basis N/A $ 6,000 N/A (Fair mkt value) N/A $10,000 N/A </li></ul><ul><li>Accts rec—basis N/A N/A -0- </li></ul><ul><li>(Fair mkt value) N/A N/A $16,000 </li></ul>
  11. 11. Proportionate Nonliquidating Distribution Examples (slide 2 of 6) <ul><li> A B C . </li></ul><ul><li>Basis in interest $30,000 $30,000 $30,000 </li></ul><ul><li>Cash distributed ( 15,000) (15,000) (5,000) </li></ul><ul><li>Basis after cash 15,000 15,000 25,000 </li></ul><ul><li>Acct. rec. distrib. N/A N/A (-0-) </li></ul><ul><li>Basis after A.R. 15,000 15,000 25,000 </li></ul><ul><li>Land Distrib. N/A ( 6,000) N/A </li></ul><ul><li>Basis after all dist. $15,000 $ 9,000 $25,000 </li></ul>
  12. 12. Proportionate Nonliquidating Distribution Examples (slide 3 of 6) <ul><li> A B C . </li></ul><ul><li>Basis in p’ship int. $15,000 $9,000 $25,000 </li></ul><ul><li>Basis in cash 15,000 15,000 5,000 </li></ul><ul><li>Basis in land N/A 6,000 N/A </li></ul><ul><li>Basis in A/R N/A N/A -0- </li></ul><ul><li>Total basis $30,000 $30,000 $30,000 </li></ul><ul><li>Sale of non-cash assets </li></ul><ul><li>at FMV: Selling price N/A $10,000 $16,000 </li></ul><ul><li>Basis N/A (6,000) (-0-) </li></ul><ul><li>Gain N/A $4,000 $16,000 </li></ul>
  13. 13. Proportionate Nonliquidating Distribution Examples (slide 4 of 6) <ul><li>Bill’s basis in partnership interest: $30,000 </li></ul><ul><li>Proportionate nonliquidating distributions </li></ul><ul><li>(independent fact situations): </li></ul><ul><li>Assets Distributed D E F . </li></ul><ul><li>Cash $40,000 N/A $20,000 </li></ul><ul><li>Relief of liabilities N/A 40,000 N/A </li></ul><ul><li>Land-basis N/A N/A $30,000 </li></ul><ul><li>(Fair mkt value) N/A N/A $50,000 </li></ul>
  14. 14. Proportionate Nonliquidating Distribution Examples (slide 5 of 6) <ul><li> D E F . </li></ul><ul><li>Basis in interest $30,000 $30,000 $30,000 </li></ul><ul><li>Cash distributed (40,000) N/A (20,000) </li></ul><ul><li>Relief of liabilities N/A (40,000) N/A </li></ul><ul><li>Gain recognized 10,000 10,000 N/A . </li></ul><ul><li>Basis after cash (and </li></ul><ul><li>deemed cash) dist. -0- -0- 10,000 </li></ul><ul><li>Land distrib. N/A N/A (10,000) </li></ul><ul><li>Basis after all distrib. -0- -0- -0- </li></ul>
  15. 15. Proportionate Nonliquidating Distribution Examples (slide 6 of 6) <ul><li> D E F . </li></ul><ul><li>Basis in p'ship int. -0- -0- -0- </li></ul><ul><li>Basis in cash 40,000 N/A 20,000 </li></ul><ul><li>Liabilities relieved N/A 40,000 N/A </li></ul><ul><li>Basis in land N/A N/A 10,000 </li></ul><ul><li>Gain recognized (10,000) (10,000) N/A . </li></ul><ul><li>Original basis 30,000 30,000 30,000 </li></ul><ul><li>Sale of non-cash assets </li></ul><ul><li>at FMV: Selling price N/A N/A $50,000 </li></ul><ul><li>Basis N/A N/A (10,000) </li></ul><ul><li>Gain N/A N/A $40,000 </li></ul>
  16. 16. Effect of Liquidating Distribution <ul><li>In general: </li></ul><ul><ul><li>No gain or loss is recognized by partnership </li></ul></ul><ul><ul><li>Partner reduces basis in partnership interest by basis in property received at each level using Ordering Rules </li></ul></ul><ul><ul><li>Partner’s entire basis in interest will be absorbed by distributed assets </li></ul></ul>
  17. 17. Exceptions to Liquidating Distribution Rules (slide 1 of 2) <ul><li>Gain is recognized if: </li></ul><ul><ul><li>Cash distributed exceeds partner’s basis </li></ul></ul><ul><ul><li>Precontribution gain exceptions </li></ul></ul><ul><ul><li>Disproportionate distribution </li></ul></ul>
  18. 18. Exceptions to Liquidating Distribution Rules (slide 2 of 2) <ul><li>Loss is recognized only if: </li></ul><ul><ul><li>Assets received include only cash, unrealized receivables and inventory, and </li></ul></ul><ul><ul><li>Outside basis exceeds partnership’s inside basis in distributed property </li></ul></ul>
  19. 19. Proportionate Liquidating Distribution Examples (slide 1 of 4) <ul><li>Bill’s basis in partnership interest: $30,000 </li></ul><ul><li>Proportionate liquidating distributions (partnership also liquidates) (independent fact situations): </li></ul><ul><li> G H I . </li></ul><ul><li>Cash $50,000 $10,000 $10,000 </li></ul><ul><li>Unrealized rec. N/A -0- -0- </li></ul><ul><li>(Fair mkt value) N/A $16,000 $16,000 </li></ul><ul><li>Filing cabinet (1231) N/A N/A 300 </li></ul><ul><li>(Fair mkt value) N/A N/A 300 </li></ul>
  20. 20. Proportionate Liquidating Distribution Examples (slide 2 of 4) <ul><li> G H I . </li></ul><ul><li>Basis in interest $30,000 $30,000 $30,000 </li></ul><ul><li>Cash distribution (50,000) (10,000) (10,000) </li></ul><ul><li>Gain recognized 20,000 N/A N/A </li></ul><ul><li>Basis after cash -0- 20,000 20,000 </li></ul><ul><li>A/R distrib. N/A -0- -0- </li></ul><ul><li>Loss recognized N/A (20,000) N/A </li></ul><ul><li>Basis after A/R -0- -0- 20,000 </li></ul><ul><li>Filing cabinet N/A N/A (20,000) </li></ul><ul><li>Ending basis $ -0- $ -0- $ -0- </li></ul>
  21. 21. Proportionate Liquidating Distribution Examples (slide 3 of 4) <ul><li> G H I . </li></ul><ul><li>Basis in p’ship int. $ -0- $ -0- $ -0- </li></ul><ul><li>Basis in cash 50,000 10,000 10,000 </li></ul><ul><li>Basis in A/R N/A -0- -0- </li></ul><ul><li>Basis in filing cabinet N/A N/A 20,000 </li></ul><ul><li>Capital (Gain)/loss (20,000) 20,000 N/A . </li></ul><ul><li>Original basis $30,000 $30,000 $30,000 </li></ul>
  22. 22. Proportionate Liquidating Distribution Examples (slide 4 of 4) <ul><li>Sale of non-cash assets at FMV: </li></ul><ul><li>Example H: A/R Fil.Cab. Total . </li></ul><ul><li>Selling price $16,000 N/A $16,000 </li></ul><ul><li>Basis -0- N/A -0- . </li></ul><ul><li>Gain/(loss) $16,000 N/A $16,000 (Ordinary) </li></ul><ul><li>Example I: </li></ul><ul><li>Selling price $16,000 $ 300 $16,300 </li></ul><ul><li>Basis -0- 20,000 20,000 </li></ul><ul><li>Gain/(loss) $16,000 ($19,700) ($3,700) </li></ul><ul><li>(Ordinary) (May be ord) </li></ul>
  23. 23. Property Distributions with Special Tax Treatment (slide 1 of 4) <ul><li>Disguised sales </li></ul><ul><ul><li>Contribution of appreciated property to partnership followed by a cash distribution to the contributing party may be treated as a disguised sale </li></ul></ul><ul><ul><li>Treated as a sale of property resulting in gain recognition </li></ul></ul><ul><ul><ul><li>Partnership’s basis in the asset is cost </li></ul></ul></ul>
  24. 24. Property Distributions with Special Tax Treatment (slide 2 of 4) <ul><li>Marketable securities </li></ul><ul><ul><li>FMV of marketable securities distributed to a partner is treated as a cash distribution </li></ul></ul><ul><ul><ul><li>Some or all of excess of FMV of securities distributed over partner’s outside basis is taxable gain </li></ul></ul></ul><ul><ul><li>Marketable securities include most actively traded debt or equity interests, options, futures, and derivatives </li></ul></ul><ul><ul><li>Exceptions apply </li></ul></ul>
  25. 25. Property Distributions with Special Tax Treatment (slide 3 of 4) <ul><li>Precontribution gain property </li></ul><ul><ul><li>Contributing partner recognizes gain on distribution of precontribution gain property in two situations: </li></ul></ul><ul><ul><ul><li>1. If property is distributed to another partner within 7 years of contribution date, contributing partner recognizes remaining precontribution gain </li></ul></ul></ul><ul><ul><ul><ul><li>Partner’s basis in partnership and basis of distributed property is increased by gain recognized </li></ul></ul></ul></ul>
  26. 26. Property Distributions with Special Tax Treatment (slide 4 of 4) <ul><li>Precontribution gain property </li></ul><ul><ul><li>Contributing partner recognizes gain on distribution of precontribution gain property in two situations (cont’d): </li></ul></ul><ul><ul><ul><li>2. If partnership distributes any property other than cash to a partner within 7 years after that partner contributes appreciated property, the partner recognizes the lesser of: </li></ul></ul></ul><ul><ul><ul><ul><li>Remaining net precontribution gain </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Excess of FMV of distributed property over partner’s basis in partnership interest </li></ul></ul></ul></ul>
  27. 27. Disproportionate Distributions (slide 1 of 3) <ul><li>Occurs when partnership distributes cash or property to a partner which increases or decreases the partner’s share of ordinary income-producing assets (hot assets) </li></ul>
  28. 28. Disproportionate Distributions (slide 2 of 3) <ul><li>If partner receives less than proportionate share of hot assets, then treated as if: </li></ul><ul><ul><li>Partnership distributed some of the assets, and </li></ul></ul><ul><ul><li>Partner sold these hot assets back to partnership </li></ul></ul><ul><ul><li>Partner recognizes ordinary income on sale of the hot assets; Partnership’s basis in hot assets is cost </li></ul></ul>
  29. 29. Disproportionate Distributions (slide 3 of 3) <ul><li>Hot assets include: </li></ul><ul><ul><li>Substantially appreciated inventory </li></ul></ul><ul><ul><ul><li>Inventory includes all assets other than cash, capital and §1231 assets </li></ul></ul></ul><ul><ul><ul><li>Substantially appreciated means FMV > 120% of partnership’s adjusted basis in inventory </li></ul></ul></ul><ul><ul><li>Unrealized receivables </li></ul></ul><ul><ul><ul><li>Rights to receive future amounts that will result in ordinary income recognition </li></ul></ul></ul>
  30. 30. §736: Liquidating Distribution Where P’ship Does Not Liquidate (slide 1 of 3) <ul><li>§736(a) income payment: </li></ul><ul><ul><li>Treated as distributive share of partnership income or guaranteed payment to partner </li></ul></ul><ul><ul><li>Certain items if partnership is service-provider and retiring partner is a general partner: </li></ul></ul><ul><ul><ul><li>Unrealized receivables (except depreciation recapture) </li></ul></ul></ul><ul><ul><ul><li>Goodwill (unless provided for in partnership agreement) </li></ul></ul></ul><ul><li>§736(b) property payment: </li></ul><ul><ul><li>Payments made for liquidated partner’s share of partnership’s assets </li></ul></ul>
  31. 31. §736: Liquidating Distribution Where P’ship Does Not Liquidate (slide 2 of 3) <ul><li>§736(a) income payment: </li></ul><ul><ul><li>Partner has: </li></ul></ul><ul><ul><ul><li>Ordinary income (guaranteed payment), or </li></ul></ul></ul><ul><ul><ul><li>Distributive share of income </li></ul></ul></ul><ul><ul><li>Partnership has: </li></ul></ul><ul><ul><ul><li>Guaranteed payment (deductible) if determined without regard to partnership profits </li></ul></ul></ul><ul><ul><ul><li>Distributive share if based on profits </li></ul></ul></ul>
  32. 32. §736: Liquidating Distribution Where P’ship Does Not Liquidate (slide 3 of 3) <ul><li>§736(b) property payment: </li></ul><ul><ul><li>Disproportionate distribution to extent of partner’s share of hot assets </li></ul></ul><ul><ul><li>Return of basis (and capital gain (loss) for remainder) </li></ul></ul>
  33. 33. Sale of Partnership Interest (slide 1 of 4) <ul><li>Generally, results in gain or loss recognition by selling partner </li></ul><ul><ul><li>Gain (loss) = amount realized less partner’s basis in partnership interest </li></ul></ul><ul><ul><li>Partnership liabilities assumed by purchasing partner are treated as part of consideration paid for the partnership interest </li></ul></ul>
  34. 34. Sale of Partnership Interest (slide 2 of 4) <ul><li>Partnership tax year closes for selling partner on sale date </li></ul><ul><ul><li>Partner’s share of income through sale date is calculated </li></ul></ul><ul><ul><ul><li>Can prorate annual income or use interim closing of the books </li></ul></ul></ul><ul><ul><li>Taxed to selling partner and increases basis in partnership interest </li></ul></ul>
  35. 35. Sale of Partnership Interest (slide 3 of 4) <ul><li>Effect of hot assets </li></ul><ul><ul><li>Hot assets include: </li></ul></ul><ul><ul><ul><li>Unrealized receivables (same as for disproportionate distributions) </li></ul></ul></ul><ul><ul><ul><li>Inventory </li></ul></ul></ul><ul><ul><ul><ul><li>Includes all partnership property except money, capital assets, and §1231 assets </li></ul></ul></ul></ul>
  36. 36. Sale of Partnership Interest (slide 4 of 4) <ul><li>Effect of hot assets (cont’d) </li></ul><ul><ul><li>Must allocate sales price of partnership interest between “hot” (ordinary income) assets and “nonhot” (capital gain) components </li></ul></ul><ul><ul><li>Selling partner’s gain is classified as a capital gain or loss portion and an ordinary income or loss amount related to the hot assets </li></ul></ul>
  37. 37. Other Dispositions of Partnership Interests (slide 1 of 8) <ul><li>Transfer of a partnership interest to a controlled corporation </li></ul><ul><ul><li>Tax free if §351 requirements are met </li></ul></ul><ul><ul><li>If 50% or more of the total interest in capital and profits of the partnership are transferred, the partnership terminates </li></ul></ul>
  38. 38. Other Dispositions of Partnership Interests (slide 2 of 8) <ul><li>Incorporating a partnership </li></ul><ul><ul><li>At least three methods available: </li></ul></ul><ul><ul><ul><li>1. Transfer each partner’s interest to the corp in exchange for stock </li></ul></ul></ul><ul><ul><ul><ul><li>Partnership terminates </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Corp becomes owner of all partnership assets </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Corp has substituted basis in assets; Old partners have substituted basis in stock </li></ul></ul></ul></ul>
  39. 39. Other Dispositions of Partnership Interests (slide 3 of 8) <ul><li>Incorporating a partnership (cont’d) </li></ul><ul><ul><ul><li>2. Transfer partnership assets to corp in exchange for stock and assumption of partnership liabilities </li></ul></ul></ul><ul><ul><ul><ul><li>Partnership distributes stock to partners in liquidating distribution </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Corp has carryover basis in assets; Old partners have substituted basis in stock </li></ul></ul></ul></ul>
  40. 40. Other Dispositions of Partnership Interests (slide 4 of 8) <ul><li>Incorporating a partnership (cont’d) </li></ul><ul><ul><ul><li>3. Partnership distributes all assets and liabilities pro rata to partners in complete liquidation of partnership </li></ul></ul></ul><ul><ul><ul><ul><li>Partners transfer assets and liabilities to corp in exchange for stock under §351 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Corp has substituted basis for assets; Partners have substituted basis for stock </li></ul></ul></ul></ul>
  41. 41. Other Dispositions of Partnership Interests (slide 5 of 8) <ul><li>Incorporating a partnership (cont’d) </li></ul><ul><ul><li>All three methods of incorporating a partnership are tax-free </li></ul></ul><ul><ul><ul><li>Exception: if liabilities of partnership exceed basis of transferred assets </li></ul></ul></ul>
  42. 42. Other Dispositions of Partnership Interests (slide 6 of 8) <ul><li>Nontaxable like-kind exchange rules do not apply to the exchange of interests in different partnerships </li></ul>
  43. 43. Other Dispositions of Partnership Interests (slide 7 of 8) <ul><li>Generally, the gift of a partnership interest is tax-free </li></ul><ul><ul><li>Partnership income, loss, etc. is prorated between donor and donee </li></ul></ul>
  44. 44. Other Dispositions of Partnership Interests (slide 8 of 8) <ul><li>Death of a partner </li></ul><ul><ul><li>Taxable year of partnership closes with respect to that partner on date of death </li></ul></ul><ul><ul><li>Compute deceased partner’s share of partnership income or loss to that date and report on partner’s final Form 1040 </li></ul></ul>
  45. 45. §754 Election <ul><li>Adjusts partnership’s basis in assets to reflect: </li></ul><ul><ul><li>The difference in the amount paid by the purchasing partner and his share of the inside basis of partnership assets </li></ul></ul><ul><ul><ul><li>The adjustment can be positive or negative </li></ul></ul></ul><ul><ul><ul><li>The adjustment affects the basis of partnership property with respect to the transferee partner only </li></ul></ul></ul><ul><ul><li>Gain or loss recognized by partner receiving distribution from partnership </li></ul></ul><ul><li>Once made, election remains in effect for all future years unless election revoked with IRS consent </li></ul>
  46. 46. Termination of Partnership (slide 1 of 3) <ul><li>Partnership terminates when either of the following events occur: </li></ul><ul><ul><li>No part of the business continues to be carried on by any partners </li></ul></ul><ul><ul><li>Within a 12-month period, 50% or more of the partnership’s capital and profits interests are sold or exchanged </li></ul></ul>
  47. 47. Termination of Partnership (slide 2 of 3) <ul><li>Partnership terminates and its tax year closes when: </li></ul><ul><ul><li>The partnership incorporates </li></ul></ul><ul><ul><li>One partner in a two-party partnership buys out the other partner </li></ul></ul><ul><li>A termination also occurs when the partnership ceases operations and liquidates </li></ul>
  48. 48. Termination of Partnership (slide 3 of 3) <ul><li>Partnership tax year usually does not close: </li></ul><ul><ul><li>Upon the death of a partner </li></ul></ul><ul><ul><li>Entry of a new partner </li></ul></ul><ul><ul><li>Liquidation of a partner’s interest in other than a two-party partnership </li></ul></ul><ul><ul><li>Sale or exchange of a less than 50% partnership interest </li></ul></ul>
  49. 49. Family Partnerships (slide 1 of 3) <ul><li>Owned and controlled primarily by members of the same family </li></ul><ul><ul><li>Often formed to save taxes by funneling some of parent’s income to the children </li></ul></ul><ul><li>Often difficult to establish for tax purposes </li></ul>
  50. 50. Family Partnerships (slide 2 of 3) <ul><li>Family member will be recognized as a partner if: </li></ul><ul><ul><li>Capital is a material income-producing factor and partnership interest is acquired in a bona fide transaction where ownership and control are received </li></ul></ul><ul><ul><ul><li>Can be acquired by gift or purchase from another family member </li></ul></ul></ul><ul><ul><li>Capital is not a material income-producing factor, but family member contributes substantial or vital services </li></ul></ul>
  51. 51. Family Partnerships (slide 3 of 3) <ul><li>Kiddy tax may apply to child partner under age 19 (or a student under age 24) and claimed as a dependent by parent-partner </li></ul><ul><li>Family member whose interest is acquired by gift from another family member may only have a portion of partnership income allocated to them </li></ul><ul><ul><li>Donor partner must be allocated income representing reasonable compensation for services rendered to the partnership </li></ul></ul>
  52. 52. Limited Liability Companies <ul><li>A LLC with 2 or more owners is taxed as a partnership </li></ul><ul><ul><li>LLC members are not personally liable for debts of the entity </li></ul></ul><ul><ul><ul><li>Effectively treated as a limited partnership with no general partners </li></ul></ul></ul><ul><ul><li>LLCs are relatively new so there is no established body of case law available </li></ul></ul><ul><ul><ul><li>Makes planning difficult </li></ul></ul></ul>
  53. 53. Limited Liability Partnerships <ul><li>Partners are not personally liable for the malpractice and torts of their partners </li></ul><ul><li>Taxable as a partnership </li></ul><ul><li>Conversion of a general partnership into a LLP is not taxable if all of the general partners become LLP partners and hold the same proportionate interest </li></ul>
  54. 54. <ul><li>If you have any comments or suggestions concerning this PowerPoint Presentation for South-Western Federal Taxation, please contact: </li></ul><ul><li>Dr. Donald R. Trippeer, CPA </li></ul><ul><li>[email_address] </li></ul><ul><li>SUNY Oneonta </li></ul>