Original air date: Dec. 14, 2017
Recording available at http://www.mhmcpa.com
Partnerships often hear the calling from private equity fund partners to monetize a portion of the value they own, even though they are not yet ready to deploy their exit strategy. Partnerships offer tremendous flexibility to accomplish this objective in a tax-efficient manner using debt-financed distributions. However, these transactions leave potential traps for the unwary.
In this webcast, we will provide comprehensive examples of the tax consequences of debt-financed distributions, from the moment they are made through typical subsequent events that affect their tax results.
Original air date: Dec. 14, 2017
Recording available at http://www.mhmcpa.com
Partnerships often hear the calling from private equity fund partners to monetize a portion of the value they own, even though they are not yet ready to deploy their exit strategy. Partnerships offer tremendous flexibility to accomplish this objective in a tax-efficient manner using debt-financed distributions. However, these transactions leave potential traps for the unwary.
In this webcast, we will provide comprehensive examples of the tax consequences of debt-financed distributions, from the moment they are made through typical subsequent events that affect their tax results.
Oscar - The OW2 Quality Program - Cloud Computing World Expo 2016OW2
Presentation of the current status and outlook of Oscar, the OW2 community quality program addressing the new challenges of open-source software quality. Oscar stands for Open-source Software Capability Assessment Radar.
One year solving infrastructure management with FusionDirectory and OpenLDAP,...OW2
Today the world of infrastructure moves. the advent of cloud, Infrastructure on demand, SAS mode are innovative concepts
requiring a change in our methods. But what about managing these platforms, security, systems and users.
The infrastructure is not necessarily internal anymore, establishing a workflow has become indispensable. The Daily operations by less skilled people and the delegation of operations.
At this conference we will see on concrete cases and details how FusionDirectory daily support to solve these problems thanks to its modularity, its API, and webservices.
OW2 in the Open Source Value Chain, WOW2con'16, Paris. OW2
This presentation was given by OW2 CEO Cédric Thomas as introduction of the 2016 annual conference of the OW2 open source community. The conference main theme was "Code to ¨Product: Addressing the delivery challenge of open source software".
Visita al Palacio de Gobierno del Ecuador en la ciudad de Quito el dia 28 de septiembre del 2010 a dos dias de la insurgencia de la Tropa de la Policia del Ecuador.
Pedro Camino
Fundamentals of Taxation 2005 – A Forms ApproachSolutions Manu.docxbudbarber38650
Fundamentals of Taxation 2005 – A Forms Approach
Solution
s Manual
PAGE CHAPTER 14DISCUSSION QUESTIONS AND PROBLEMS
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?
21. The general rule is that partners do not recognize any gain when he or she receives a distribution. In what circumstances might a partner recognize a gain on a current distribution?
22. Define precontribution gain? What causes a partner to recognize it?
23. Describe the rules concerning the basis of property distributed to a partner. How does the concept of “basis-in, basis-out” apply to part.
Magic Blades stock has risen rapidly to $50 per share. Th.docxsmile790243
Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife
that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality
of salads and fruit trays.
The board of directors is considering strategies to divide the corporate ownership into more shares of stock,
and bring about some reduction in the price per share. They are considering a stock split, small stock dividend,
or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested
information about how stockholders' equity would be impacted.
Prior to the contemplated stock transaction, equity consisted of:
Stockholders’ Equity
Common stock, $2 par value, 2,000,000 shares authorized,
500,000 shares issued and outstanding $1,000,000
Paid-in capital in excess of par 2,000,000
Retained earnings 6,000,000
Total stockholders’ equity $9,000,000
(a) Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity
appear?
(b) Assuming the board were to declare a 15% stock dividend, how would the revised stockholders'
equity appear?
B-14.07 Stock dividends and splits
x
SPREADSHEET
TOOL:
Holding a
cell reference
constant
Mike
Highlight
Summary information for Branford Corporation's balance sheet follows:
BRANFORD CORPORATION
Balance Sheet
August 15, 20X4
Assets
Cash $ 125,000
Accounts receivable 250,000
Inventory 750,000
Property, plant, & equipment (net) 860,000
Total assets $1,985,000
Liabilities
Accounts payable $125,000
Accrued liabilities 260,000
Notes payable 290,000
Total liabilities $ 675,000
Stockholders’ equity
Common stock, $5 par $700,000
Paid-in capital in excess of par 300,000
Retained earnings 310,000
Total stockholders’ equity 1,310,000
Total liabilities and equity $1,985,000
Branford's business is growing rapidly, and the company needs to expand its manufacturing facilities. This
expansion will require the company to obtain an additional $1,000,000 in cash. The company is exploring
five alternatives to obtain the necessary capital:
Equity structure and impact I-14.01
Mike
Highlight
366 | CHAPTER 14
DEBT OPTION:
Branford is able to borrow, on a 5-year note, the full amount needed. The interest rate on
this note would be 7%, and the note would require monthly payments.
COMMON STOCK OPTION:
Branford has identified an investor who is willing to pay $1,000,000 for 40,000 newly is-
sued common shares. Common shares have been paying a dividend of $0.50 per share.
Branford anticipates that this dividend rate will be maintained.
NONCUMULATIVE PREFERRED STOCK OPTION:
Branford has identified a hedge fund that will pay $1,000,000 for 8% noncumulative
preferred stock to be issued at par.
CUMULATIVE PREFERRED STOCK OPTION:
Branford has identified an insurance company that will pay $1,000,000 for 6% cumulative
preferred ...
Sand, Mell, and Rand are partners who share incomes and losses in a .pdfarihantsherwani
Sand, Mell, and Rand are partners who share incomes and losses in a 1:4:5 ratio. After lengthy
disagreements among the partners and several unprofitable periods, the partners decided to
liquidate the partnership. Before the liquidation, the partnership balance sheet showed the
following:
Cash $10,000
Total “other assets,” $106,000
Total liabilities, $88,000
Sand, Capital, $1,200
Mell, Capital, $11,700
Rand, Capital, $15,100
The “other assets” were sold for $ 85,000. Proceeds from the sale of other assets were used to
payoff existing liabilities.
Determine the following:
1)The gain (or loss) realized on the sale of the assets and recording of liabilities’ payment.
2)The balances in the partners’ capital accounts after the distribution of this gain or loss to the
capital accounts.
3)Assume that if any capital deficits exist, they are not made up and the deficient partner pays
down his or her deficit to zero. How much cash will each of the partners receive in the final
liquidation?
Solution
Balance Sheet Assets Amount Liabilities Amount Cash $ 10,000.00 Total
liabilities $ 88,000.00 Other Assets $ 106,000.00 Partner\'s Capital A/c Sand $
1,200.00 Mell $ 11,700.00 RAND $ 15,100.00 Total $ 116,000.00 Total $
116,000.00 Journal Entries Particular Amount(DR) Amount(CR) 1) Cash
A/c $ 85,000.00 Loss on realization $ 21,000.00 To Other Assets $
106,000.00 (Being amount realized on sale of assets) Sand=($21000*1/10) $
2,100.00 Mell=($21000*4/10) $ 8,400.00 Rand=($21000*5/10) $ 10,500.00
To Loss on realization $ 21,000.00 (Being loss on realization distribute to
partner\'s in their profit sharing ratio) Total Liabilities $ 88,000.00 To Cash
$ 88,000.00 (Being amount paid to total liabilities) 2) Sand\'s Capital
A/c Particular Amount(Dr) Particular Amount(Cr) To Loss on realization $
2,100.00 By Balance B/d $ 1,200.00 By Cash A/c $ 900.00 Total $ 2,100.00
Total $ 2,100.00 Mell\'s Capital A/c Particular Amount(Dr) Particular
Amount(Cr) To Loss on realization $ 8,400.00 By Balance B/d $ 11,700.00 To
Cash $ 3,300.00 Total $ 11,700.00 Total $ 11,700.00 Rand\'s Capital A/c
Particular Amount(Dr) Particular Amount(Cr) To Loss on realization $ 10,500.00 By
Balance B/d $ 15,100.00 To Cash $ 4,600.00 Total $ 15,100.00 Total $
15,100.00 3) Cash A/c Particular Amount(Dr) Particular Amount(Cr) To
Balance b/d $ 10,000.00 By Total Liabilities $ 88,000.00 To Other assets $ 85,000.00
By Mell\'s Capital A/c $ 3,300.00 To Sand\'s Capital A/c $ 900.00 By Rand\'s
Capital A/c $ 4,600.00 Total $ 95,900.00 Total $ 95,900.00.
Partnership Sale of Asset & Buy-out vs Redemption of Partner InterstWilliam Bryant
This is a Financial Model that illustrates the Tax Effect (current law) on the Sale of Depreciated Property owned by a Partnership. As well as to compare and contrast the Tax Effect of a departing partner if their partner interest was Buy-out vs Redemption of that Partner Interest.
Quiz –PART I — MULTIPLE CHOICE Instructions De.docxcatheryncouper
Quiz –
PART I — MULTIPLE CHOICE
Instructions: Designate the best answer for each of the following questions.
_____ 1. Hinton Corporation desires to earn target net income of $90,000. If the selling price per unit is $30, unit variable cost is $24, and total fixed costs are $360,000, the number of units that the company must sell to earn its target net income is
a. 30,000.
b. 75,000.
c. 45,000.
d. 60,000.
_____ 2. The following data has been collected for use in analyzing the behavior of main-tenance costs of Steiner Corporation:
Month Maintenance Costs Machine Hours
January $121,000 20,000
February 125,000 23,000
March 128,000 24,000
April 159,000 34,000
May 168,000 36,000
June 178,000 38,000
July 181,000 40,000
Using the high-low method to separate the maintenance costs into their variable and fixed cost components, these components are
a. $5 per hour plus $20,000.
b. $5 per hour plus $30,000.
c. $4 per hour plus $41,000.
d. $3 per hour plus $61,000.
_____ 3. Given the following data for Farwell Company, compute (A) total manufacturing costs and (B) costs of goods manufactured:
Direct materials used $120,000 Beginning work in process $20,000
Direct labor 50,000 Ending work in process 10,000
Manufacturing overhead 150,000 Beginning finished goods 25,000
Operating expenses 175,000 Ending finished goods 15,000
(A) (B)
a. $310,000 $330,000
b. $320,000 $310,000
c. $320,000 $330,000
d. $330,000 $340,000
_____ 4. The cost classification scheme most relevant to responsibility accounting is
a. controllable vs. uncontrollable.
b. fixed vs. variable.
c. semivariable vs. mixed.
d. direct vs. indirect.
_____ 5. Which of the following would not be included in the operating activities section of a statement of cash flows?
a. Cash inflows from returns on loans (i.e., interest)
b. Cash inflows from returns on equity securities (i.e., dividends)
c. Cash outflows to governments for taxes
d. Cash outflows to reacquire treasury stock
_____ 6. Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivables turnover Return on assets Times interest earned
d. Quick ratio Payout ratio Return on assets
_____ 7. Which of the following pairs of terms in the area of financial statement analysis are synonymous?
a. Ratio — Trend
b. Horizontal — Trend
c. Vertical — Ratio
d. Horizontal — Ratio
_____ 8. Shinn Corporation has the following stock outstanding:
6% Preferred, $100 Par $1,000,000
Common Stock, $50 Par 2,000,000
No dividends were paid the previous 2 years. If Shinn declares $300,000 of dividends in the current year, how much will common stockholders receive if the preferred stock is cumulative? ...
Intercompany transfers of services and noncurrent assets part 2Arthik Davianti
These slides are the second part of intercompany transfer of services and noncurrent assets which discuss transfer of depreciable assets both in down stream and up stream transfers.
This is Part 2 of a slide deck was presented by the University of Illinois Tax School in conjunction with a textbook entitled Limited Liability Companies: Electing Partnership vs. S Corporation Status. The presentation gives good background on various LLC topics (such as LLC formation, LLC operations, Distributions of an LLC, Sale of a Member Interest, Withdrawal of a Member, and Death of a Member). The textbook itself can be purchased at https://taxschool.illinois.edu/.
Intercompany transfers of services and noncurrent assets part 1Arthik Davianti
The slides cover the topic of inter-company transfers of services and non-current assets. This topic is part of Advanced Financial Accounting course for third year accounting students. The slides are adopted from Baker, Christensen and Cottrell's (2011) Advanced Financial Accounting book and slides. There are two parts for this topic and this upload is the first one, which covers non-depreciable asset. The slides also discuss down stream and up stream transfer of non-current assets.
1) Which of the following is a characteristic of a corporation.docxSONU61709
1) Which of the following is a characteristic of a corporation?
A. Limited liability of stockholders
B. No income tax
C. Mutual agency
D. Both b and c
2) Fair Play, Inc., issues 250,000 shares of no-par common stock for $ 5 per share. The journal entry is which of the following?
A. Cash
1,250,000
Common Stock
250,000
Gain on the Sale of Stock
1,000,000
B. Cash
250,000
Common Stock
250,000
C. Cash
1,250,000
Common Stock
1,250,000
D. Cash
1,250,000
Common Stock
500,000
Paid-In Capital in Excess of Par
750,000
3) Stockholders are eligible for a dividend if they own the stock on the date of
A. issuance.
B. payment.
C. record.
D. declaration.
4) Dellanova Company's net income and net sales are $ 25,000 and $ 1,150,000,
respectively, and average total assets are $ 120,000. What is Dellanova's return on assets?
A. 20.8%
B. 2.8%
C. 9.8%
D. 22.8%
5) Preferred stock is least likely to have which of the following characteristics?
A. The right of the holder to convert to common stock
B. Preference as to dividends
C. Preference as to voting
D. Preference as to assets on liquidation of the corporation
6) Par value
A. may exist for common stock but not for preferred stock.
B. is an arbitrary amount that establishes the legal capital for each share.
C. represents the original selling price for a share of stock.
D. is established for a share of stock after it is issued.
E. represents what a share of stock is worth.
7) The paid-in capital portion of stockholders' equity does not include
A. Paid-in Capital in Excess of Par Value.
B. Common Stock.
C. Retained Earnings.
D. Preferred Stock.
E. both c and d.
8) Which of the following classifications represents the most shares of common stock?
A. Issued shares
B. Outstanding shares
C. Treasury shares
D. Unissued shares
E. Authorized shares
9) When treasury stock is sold for less than its cost, the entry should include a debit to
A. Gain on Sale of Treasury Stock.
B. Loss on Sale of Treasury Stock.
C. Retained Earnings.
D. Paid-in Capital in Excess of Par.
10) Which of the following is not true about a 10% stock dividend?
A. Retained Earnings decreases.
B. The market value of the stock is needed to record the stock dividend.
C. Total stockholders' equity remains the same.
D. Par value decreases.
E. Paid-in Capital increases.
11) Paying off bonds payable is reported on the statement of cash flows under
A. investing activities.
B. noncash investing and financing activities.
C. financing activities.
D. operating activities.
12) The sale of inventory for cash is reported on the statement of cash flows under
A. operating activities.
B. noncash investing and financing activities.
C. financing activities.
D. investing activities.
13) On an indirect method statement of cash flows, an increase in a prepaid insurance would be
A. added to increases in current assets.
B. added to net income.
C. deducted from net income.
D. included in paym ...
Smart TV Buyer Insights Survey 2024 by 91mobiles.pdf91mobiles
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Essentials of Automations: Optimizing FME Workflows with ParametersSafe Software
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Join us for an insightful dive into the world of FME parameters, a critical element in optimizing workflow efficiency. This webinar marks the beginning of our three-part “Essentials of Automation” series. This first webinar is designed to equip you with the knowledge and skills to utilize parameters effectively: enhancing the flexibility, maintainability, and user control of your FME projects.
Here’s what you’ll gain:
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Don’t miss this opportunity to elevate your FME expertise and drive your projects to new heights of efficiency.
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📕 Vedremo insieme alcuni esempi dell'utilizzo di Autopilot in diversi tool della Suite UiPath:
Autopilot per Studio Web
Autopilot per Studio
Autopilot per Apps
Clipboard AI
GenAI applicata alla Document Understanding
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Flavio Martinelli, UiPath MVP 2023, Technical Account Manager @UiPath
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PowSyBl is an open source project hosted by LF Energy, which offers a comprehensive set of features for electrical grid modelling and simulation. Among other advanced features, PowSyBl provides:
- A fully editable and extendable library for grid component modelling;
- Visualization tools to display your network;
- Grid simulation tools, such as power flows, security analyses (with or without remedial actions) and sensitivity analyses;
The framework is mostly written in Java, with a Python binding so that Python developers can access PowSyBl functionalities as well.
What you will learn during the webinar:
- For beginners: discover PowSyBl's functionalities through a quick general presentation and the notebook, without needing any expert coding skills;
- For advanced developers: master the skills to efficiently apply PowSyBl functionalities to your real-world scenarios.
Dev Dives: Train smarter, not harder – active learning and UiPath LLMs for do...UiPathCommunity
💥 Speed, accuracy, and scaling – discover the superpowers of GenAI in action with UiPath Document Understanding and Communications Mining™:
See how to accelerate model training and optimize model performance with active learning
Learn about the latest enhancements to out-of-the-box document processing – with little to no training required
Get an exclusive demo of the new family of UiPath LLMs – GenAI models specialized for processing different types of documents and messages
This is a hands-on session specifically designed for automation developers and AI enthusiasts seeking to enhance their knowledge in leveraging the latest intelligent document processing capabilities offered by UiPath.
Speakers:
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Keynote at DIGIT West Expo, Glasgow on 29 May 2024.
Cheryl Hung, ochery.com
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UI automation Sample
Desktop automation flow
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The latest edition of the OT/ICS and IoT security Threat Landscape Report 2024 also covers:
State of global ICS asset and network exposure
Sectoral targets and attacks as well as the cost of ransom
Global APT activity, AI usage, actor and tactic profiles, and implications
Rise in volumes of AI-powered cyberattacks
Major cyber events in 2024
Malware and malicious payload trends
Cyberattack types and targets
Vulnerability exploit attempts on CVEs
Attacks on counties – USA
Expansion of bot farms – how, where, and why
In-depth analysis of the cyber threat landscape across North America, South America, Europe, APAC, and the Middle East
Why are attacks on smart factories rising?
Cyber risk predictions
Axis of attacks – Europe
Systemic attacks in the Middle East
Download the full report from here:
https://sectrio.com/resources/ot-threat-landscape-reports/sectrio-releases-ot-ics-and-iot-security-threat-landscape-report-2024/
2. The Big Picture (slide 1 of 4)
• In the previous chapter, Josh, Kyle, and Maria created
Beachside Properties, LLC, to own and operate the
Beachsider Cafe´ and to own, manage, and lease the
remaining properties in the Shorefront Center.
• Several years have passed since the LLC was formed.
– The LLC interests and the net underlying assets are
currently valued at approximately $10 million (including
$1 million of goodwill for the Beachsider Cafe´).
– During this period, the LLC has made significant
distributions of cash and property to its members.
3. The Big Picture (slide 2 of 4)
• The area has grown substantially, and it appears to be
a good time to develop the remaining 7 acres of
property.
– The cost of development is estimated at $10 million.
• Josh wants to manage the expansion.
– Kyle and Maria are nearing retirement age.
– They would prefer to dispose of their interests (valued at
$9.5 million, or 95% of the net LLC value).
• Josh has been approached by a group of developers
who are willing to invest the $19.5 million necessary
to make the improvements and to purchase Kyle’s
and Maria’s interests.
4. The Big Picture (slide 3 of 4)
• The transfer of Kyle’s and Maria’s interests and the
admission of the new LLC members can be
accomplished in two ways.
– First, the LLC could admit the new members for $19.5
million of cash
• Use $9.5 million to redeem the interests of Kyle and Maria.
– Second, Kyle and Maria could sell their LLC interests
directly to the new members for $9.5 million.
• The new members would also contribute $10 million of cash to the
LLC for the expansion.
5. The Big Picture (slide 4 of 4)
• Although the two alternatives have identical
economic effects, the tax results could differ
substantially.
– How are the distributions of cash and property to the LLC
members treated over the years?
– What are the tax consequences of admitting the new
members to the LLC and redeeming the interests of Kyle
and Maria?
– What are the results if the new members acquire the
interests directly from Kyle and Maria and contribute the
cash for expansion to the LLC?
• Read the chapter and formulate your response.
6. Distributions from a Partnership
(slide 1 of 4)
• A payment from a partnership to a partner is not
necessarily treated as a distribution
– e.g., Partnership may pay interest or rent to a partner, make
a guaranteed payment, or purchase property from a partner
• If a payment is treated as a distribution, it will fall
into one of two categories:
– Liquidating distributions
– Nonliquidating distributions
• Depends on whether the partner remains a partner in
the partnership after the distribution
7. Distributions from a Partnership
(slide 2 of 4)
• A liquidating distribution occurs when either:
– Partnership itself liquidates and distributes all its
property to the partners, or
– Ongoing partnership redeems interest of one of its
partners
• e.g., Partner retires
8. Distributions from a Partnership
(slide 3 of 4)
• A nonliquidating distribution is any
distribution from a continuing partnership to a
continuing partner
– Two types of nonliquidating distributions
• Draw
– Distribution of partner’s share of current or accumulated
profits
• Partial liquidation
– Reduces partner’s interest in partnership capital but does not
liquidate partner’s interest
9. Distributions from a Partnership
(slide 4 of 4)
• Distributions from a partnership may be either:
– Proportionate—Partner receives his or her share of
certain ordinary income-producing assets
– Disproportionate—Partner’s share of certain
ordinary income-producing assets increases or
decreases
10. The Big Picture – Example 1
Distributions From A Partnership
• Return to the facts of The Big Picture on p. 11-2.
• Assume that Josh’s basis in his interest in Beachside
Properties, LLC, is $300,000.
• The LLC distributes $50,000 cash to Josh at the end
of the year.
– Josh does not recognize any gain on the distribution and
reduces his basis by $50,000 (the amount of the
distribution) to $250,000.
– Josh’s basis in the cash he received is $50,000,and the
LLC’s inside basis for his assets is reduced by the $50,000
cash distributed.
11. Proportionate Nonliquidating
Distributions (slide 1 of 3)
• In general, neither partner nor partnership
recognizes gain or loss on proportionate
nonliquidating distributions
– Partner usually takes a carryover basis in assets
distributed
– Basis in partnership interest is reduced by amount
of cash and basis of property distributed
12. Proportionate Nonliquidating
Distributions (slide 2 of 3)
– Partner recognizes gain to extent cash received
exceeds partner’s adjusted basis (outside basis) in
partnership interest
• Reduction in partner’s share of partnership debt is
treated as a distribution of cash
– First reduces partner’s basis in partnership
– Any reduction in excess of partner’s basis in partnership
results in taxable gain to the partner
– Partner cannot recognize loss on a proportionate
nonliquidating distribution
13. Proportionate Nonliquidating
Distributions (slide 3 of 3)
• Property distributions
– In general, no gain recognized on a property
distribution
• If inside basis of property distributed exceeds partner’s
outside basis in partnership interest, distributed asset
takes substituted basis
• Assets are deemed distributed and basis applied in a
certain order
14. Ordering Rules
• 1. Cash
• 2. Unrealized receivables and inventory
• 3. All other assets
• Basis is allocated to assets within a category
based on adjusted basis to partnership
15. Proportionate Nonliquidating
Distribution Examples (slide 1 of 6)
Bill’s basis in partnership interest: $30,000
Proportionate nonliquidating distributions
(independent fact situations):
Assets Distributed A B C .
Cash $15,000 $15,000 $ 5,000
Land—basis N/A $ 6,000 N/A
(Fair mkt value) N/A $10,000 N/A
Accts rec—basis N/A N/A -0-
(Fair mkt value) N/A N/A $16,000
16. Proportionate Nonliquidating Distribution
Examples (slide 2 of 6)
A B C .
Basis in interest $30,000 $30,000 $30,000
Cash distributed ( 15,000) (15,000) (5,000)
Basis after cash 15,000 15,000 25,000
Acct. rec. distrib. N/A N/A (-0-)
Basis after A.R. 15,000 15,000 25,000
Land Distrib. N/A ( 6,000) N/A
Basis after all dist. $15,000 $ 9,000 $25,000
17. Proportionate Nonliquidating Distribution
Examples (slide 3 of 6)
A B C .
Basis in p’ship int. $15,000 $9,000 $25,000
Basis in cash 15,000 15,000 5,000
Basis in land N/A 6,000 N/A
Basis in A/R N/A N/A -0-
Total basis $30,000 $30,000 $30,000
Sale of non-cash assets
at FMV: Selling price N/A $10,000 $16,000
Basis N/A (6,000) (-0-)
Gain N/A $4,000 $16,000
18. Proportionate Nonliquidating Distribution
Examples (slide 4 of 6)
Bill’s basis in partnership interest: $30,000
Proportionate nonliquidating distributions
(independent fact situations):
Assets Distributed D E F .
Cash $40,000 N/A $20,000
Relief of liabilities N/A 40,000 N/A
Land-basis N/A N/A $30,000
(Fair mkt value) N/A N/A $50,000
19. Proportionate Nonliquidating Distribution
Examples (slide 5 of 6)
D E F .
Basis in interest $30,000 $30,000 $30,000
Cash distributed (40,000) N/A (20,000)
Relief of liabilities N/A (40,000) N/A
Gain recognized 10,000 10,000 N/A .
Basis after cash (and
deemed cash) dist. -0- -0- 10,000
Land distrib. N/A N/A (10,000)
Basis after all distrib. -0- -0- -0-
20. Proportionate Nonliquidating Distribution
Examples (slide 6 of 6)
D E F .
Basis in p'ship int. -0- -0- -0-
Basis in cash 40,000 N/A 20,000
Liabilities relieved N/A 40,000 N/A
Basis in land N/A N/A 10,000
Gain recognized (10,000) (10,000) N/A .
Original basis 30,000 30,000 30,000
Sale of non-cash assets
at FMV: Selling price N/A N/A $50,000
Basis N/A N/A (10,000)
Gain N/A N/A $40,000
21. Effect of Liquidating Distribution
• In general:
– No gain or loss is recognized by partnership
– Partner reduces basis in partnership interest by
basis in property received at each level using
Ordering Rules
– Partner’s entire basis in interest will be absorbed
by distributed assets
22. Exceptions to Liquidating Distribution
Rules (slide 1 of 2)
• Gain is recognized if:
– Cash distributed exceeds partner’s basis
– Precontribution gain exceptions
– Disproportionate distribution
23. Exceptions to Liquidating Distribution
Rules (slide 2 of 2)
• Loss is recognized only if:
– Assets received include only cash, unrealized
receivables and inventory, and
– Outside basis exceeds partnership’s inside basis in
distributed property
24. Proportionate Liquidating Distribution
Examples (slide 1 of 4)
Bill’s basis in partnership interest: $30,000
Proportionate liquidating distributions (partnership also
liquidates) (independent fact situations):
G H I .
Cash $50,000 $10,000 $10,000
Unrealized rec. N/A -0- -0-
(Fair mkt value) N/A $16,000 $16,000
Filing cabinet (1231) N/A N/A 300
(Fair mkt value) N/A N/A 300
25. Proportionate Liquidating Distribution
Examples (slide 2 of 4)
G H I .
Basis in interest $30,000 $30,000 $30,000
Cash distribution (50,000) (10,000) (10,000)
Gain recognized 20,000 N/A N/A
Basis after cash -0- 20,000 20,000
A/R distrib. N/A -0- -0-
Loss recognized N/A (20,000) N/A
Basis after A/R -0- -0- 20,000
Filing cabinet N/A N/A (20,000)
Ending basis $ -0- $ -0- $ -0-
26. Proportionate Liquidating Distribution
Examples (slide 3 of 4)
G H I .
Basis in p’ship int. $ -0- $ -0- $ -0-
Basis in cash 50,000 10,000 10,000
Basis in A/R N/A -0- -0-
Basis in filing cabinet N/A N/A 20,000
Capital (Gain)/loss (20,000) 20,000 N/A .
Original basis $30,000 $30,000 $30,000
27. Proportionate Liquidating Distribution
Examples (slide 4 of 4)
Sale of non-cash assets at FMV:
Example H: A/R Fil.Cab. Total .
Selling price $16,000 N/A $16,000
Basis -0- N/A -0- .
Gain/(loss) $16,000 N/A $16,000
(Ordinary)
Example I:
Selling price $16,000 $ 300 $16,300
Basis -0- 20,000 20,000
Gain/(loss) $16,000 ($19,700) ($3,700)
(Ordinary) (May be ord)
28. Property Distributions with Special
Tax Treatment (slide 1 of 4)
• Disguised sales
– Contribution of appreciated property to partnership
followed by a cash distribution to the contributing
party may be treated as a disguised sale
– Treated as a sale of property resulting in gain
recognition
• Partnership’s basis in the asset is cost
29. Property Distributions with Special
Tax Treatment (slide 2 of 4)
• Marketable securities
– FMV of marketable securities distributed to a
partner is treated as a cash distribution
• Some or all of excess of FMV of securities distributed
over partner’s outside basis is taxable gain
– Marketable securities include most actively traded
debt or equity interests, options, futures, and
derivatives
– Exceptions apply
30. Property Distributions with Special
Tax Treatment (slide 3 of 4)
• Precontribution gain property
– Contributing partner recognizes gain on
distribution of precontribution gain property in two
situations:
• 1. If property is distributed to another partner
within 7 years of contribution date, contributing partner
recognizes remaining precontribution gain
– Partner’s basis in partnership and basis of distributed property
is increased by gain recognized
31. Property Distributions with Special
Tax Treatment (slide 4 of 4)
• Precontribution gain property
– Contributing partner recognizes gain on
distribution of precontribution gain property in two
situations (cont’d):
• 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:
– Remaining net precontribution gain
– Excess of FMV of distributed property over partner’s basis in
partnership interest
32. Disproportionate Distributions
(slide 1 of 3)
• 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)
33. Disproportionate Distributions
(slide 2 of 3)
• If partner receives less than proportionate
share of hot assets, then treated as if:
– Partnership distributed some of the assets, and
– Partner sold these hot assets back to partnership
– Partner recognizes ordinary income on sale of the
hot assets; Partnership’s basis in hot assets is cost
34. Disproportionate Distributions
(slide 3 of 3)
• Hot assets include:
– Substantially appreciated inventory
• Inventory includes all assets other than cash, capital and
§1231 assets
• Substantially appreciated means FMV > 120% of
partnership’s adjusted basis in inventory
– Unrealized receivables
• Rights to receive future amounts that will result in
ordinary income recognition
35. §736: Liquidating Distribution Where
P’ship Does Not Liquidate (slide 1 of 3)
• §736(a) income payment:
– Treated as distributive share of partnership income or
guaranteed payment to partner
– Certain items if partnership is service-provider and retiring
partner is a general partner:
• Unrealized receivables (except depreciation recapture)
• Goodwill (unless provided for in partnership agreement)
• §736(b) property payment:
– Payments made for liquidated partner’s share of
partnership’s assets
36. §736: Liquidating Distribution Where
P’ship Does Not Liquidate (slide 2 of 3)
• §736(a) income payment:
– Partner has:
• Ordinary income (guaranteed payment), or
• Distributive share of income
– Partnership has:
• Guaranteed payment (deductible) if determined without
regard to partnership profits
• Distributive share if based on profits
37. §736: Liquidating Distribution Where
P’ship Does Not Liquidate (slide 3 of 3)
• §736(b) property payment:
– Disproportionate distribution to extent of partner’s
share of hot assets
– Return of basis (and capital gain (loss) for
remainder)
38. The Big Picture – Example 27
§ 736(b) Property Payments (slide 1 of 4)
• Return to the facts of The Big Picture on p. 11-2.
• Recall that the members of Beachside Properties,
LLC, are considering two alternatives for its future
expansion.
• Assume that they decide to admit new partners for
$19.5 million and use $9.5 million of the cash to
redeem the interests of Kyle and Maria.
• Because the LLC itself is not liquidating, the
distribution to Kyle and Maria is classified under §
736.
39. The Big Picture – Example 27
§ 736(b) Property Payments (slide 2 of 4)
The current balance sheet for Beachside Properties,
LLC, is as follows:
40. The Big Picture – Example 27
§ 736(b) Property Payments (slide 3 of 4)
• Capital is a ‘‘material income-producing
factor’’ for Beachside Properties, LLC.
– The entire $9.5 million distribution from the LLC
to Kyle and Maria is a § 736(b) payment for their
interests in the partnership’s property.
– Kyle and Maria will recognize gain to the extent
that this cash distribution (including forgiveness of
their shares of the LLC’s debt) exceeds their bases
in the LLC interests.
41. The Big Picture – Example 27
§ 736(b) Property Payments (slide 4 of 4)
• Because Kyle and Maria receive cash in lieu of their
shares of the LLC’s unrealized receivables and
inventory, this is a disproportionate distribution.
– They will recognize ordinary income to the extent that their
gain relates to these receivables and inventory.
• The remaining gain will be a capital gain.
• As there are no § 736(a) payments, the LLC cannot
claim any deductions.
– Absent a § 754 election (discussed later), the basis of the
LLC’s property will not be affected
42. Sale of Partnership Interest
(slide 1 of 4)
• Generally, results in gain or loss recognition
by selling partner
– Gain (loss) = amount realized less partner’s basis
in partnership interest
– Partnership liabilities assumed by purchasing
partner are treated as part of consideration paid for
the partnership interest
43. Sale of Partnership Interest
(slide 2 of 4)
• Partnership tax year closes for selling partner
on sale date
– Partner’s share of income through sale date is
calculated
• Can prorate annual income or use interim closing of the
books
– Taxed to selling partner and increases basis in
partnership interest
44. Sale of Partnership Interest
(slide 3 of 4)
• Effect of hot assets
– Hot assets include:
• Unrealized receivables (same as for disproportionate
distributions)
• Inventory
– Includes all partnership property except money, capital assets,
and §1231 assets
45. Sale of Partnership Interest
(slide 4 of 4)
• Effect of hot assets (cont’d)
– Must allocate sales price of partnership interest
between “hot” (ordinary income) assets and
“nonhot” (capital gain) components
– 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
46. The Big Picture – Example 36
Effect Of Hot Assets (slide 1 of 2)
• Return to the facts of The Big Picture on p. 11-2
• Recall that the second restructuring option for
Beachside Properties, LLC, is for Kyle and
Maria to sell their interests directly to the new
members of the LLC.
– The new members will contribute $10 million of
cash to Beachside Properties and pay $4.75 million
each to Kyle and Maria in exchange for their
interests in the LLC.
47. The Big Picture – Example 36
Effect Of Hot Assets (slide 2 of 2)
• Refer back to the balance sheet in Example 27.
– Kyle and Maria will receive cash of $9.5 million (total)
plus relief of their shares of the LLC’s debt.
– Their bases in the LLC interests equal their capital account
balances plus their shares of the LLC’s liabilities.
• The difference must be recognized as a gain.
– The gain is ordinary income to the extent that it relates to
Kyle’s and Maria’s shares of the LLC’s accounts
receivable, inventory, and depreciation recapture.
– The remaining gain is a capital gain.
• Absent a § 754 election (discussed later), the basis of
the LLC’s property will not be affected.
48. Other Dispositions of Partnership
Interests (slide 1 of 8)
• Transfer of a partnership interest to a
controlled corporation
– Tax free if §351 requirements are met
– If 50% or more of the total interest in capital and
profits of the partnership are transferred, the
partnership terminates
49. Other Dispositions of Partnership
Interests (slide 2 of 8)
• Incorporating a partnership
– At least three methods available:
• 1. Transfer each partner’s interest to the corp in
exchange for stock
– Partnership terminates
– Corp becomes owner of all partnership assets
– Corp has substituted basis in assets; Old partners have
substituted basis in stock
50. Other Dispositions of Partnership
Interests (slide 3 of 8)
• Incorporating a partnership (cont’d)
• 2. Transfer partnership assets to corp in exchange for
stock and assumption of partnership liabilities
– Partnership distributes stock to partners in liquidating
distribution
– Corp has carryover basis in assets; Old partners have
substituted basis in stock
51. Other Dispositions of Partnership
Interests (slide 4 of 8)
• Incorporating a partnership (cont’d)
• 3. Partnership distributes all assets and liabilities pro
rata to partners in complete liquidation of
partnership
– Partners transfer assets and liabilities to corp in exchange for
stock under §351
– Corp has substituted basis for assets; Partners have substituted
basis for stock
52. Other Dispositions of Partnership
Interests (slide 5 of 8)
• Incorporating a partnership (cont’d)
– All three methods of incorporating a partnership
are tax-free
• Exception: if liabilities of partnership exceed basis of
transferred assets
53. Other Dispositions of Partnership
Interests (slide 6 of 8)
• Nontaxable like-kind exchange rules do not
apply to the exchange of interests in different
partnerships
54. Other Dispositions of Partnership
Interests (slide 7 of 8)
• Generally, the gift of a partnership interest is
tax-free
– Partnership income, loss, etc. is prorated between
donor and donee
55. Other Dispositions of Partnership
Interests (slide 8 of 8)
• Death of a partner
– Taxable year of partnership closes with respect to
that partner on date of death
– Compute deceased partner’s share of partnership
income or loss to that date and report on partner’s
final Form 1040
56. §754 Election
• Adjusts partnership’s basis in assets to reflect:
– The difference in the amount paid by the purchasing
partner and his share of the inside basis of partnership
assets
• The adjustment can be positive or negative
• The adjustment affects the basis of partnership property with
respect to the transferee partner only
– Gain or loss recognized by partner receiving distribution
from partnership
• Once made, election remains in effect for all future
years unless election revoked with IRS consent
57. The Big Picture – Example 43
§ 754 Election (slide 1 of 2)
• Return to the facts of The Big Picture on p. 11-2.
• For either restructuring option, Beachside Properties could
make a § 754 election and reflect an adjustment to the basis of
the LLC’s property.
• Step-up related to sale of interests
– On a sale of the interests to the new LLC members, the step-up would
equal the difference between the $9.5 million paid and Kyle’s and
Maria’s share of the inside basis of the LLC’s property.
– This step-up of approximately $7.6 million [$9.5 million - (95% X $2
million net assets)] would be allocated to the various partnership
properties under the rules of § 755 (not discussed in this chapter).
– Deductions related to the stepup, such as depreciation, would be
allocated to the new developer group.
58. The Big Picture – Example 43
§ 754 Election (slide 2 of 2)
• Step-up related to distribution in liquidation of the partners’
interests.
– If the LLC redeems the interests of Kyle and Maria, the LLC can step
up the bases of its remaining assets by the amount of gain recognized
by Kyle and Maria.
– This step-up is approximately $7.8 million [$9.5million distribution -
$1.7 million total basis in partnership interests (Kyle’s basis of
$400,000 + Maria’s basis of $1.3 million)], and benefits all the
remaining partners in the partnership.
• Note that the step-up differs depending on whether there is a
sale or redemption, because Kyle’s and Maria’s share of the
basis of the assets differs from their basis in the LLC interests
59. Termination of Partnership
(slide 1 of 3)
• Partnership terminates when either of the
following events occur:
– No part of the business continues to be carried on
by any partners
– Within a 12-month period, 50% or more of the
partnership’s capital and profits interests are sold
or exchanged
60. Termination of Partnership
(slide 2 of 3)
• Partnership terminates and its tax year closes
when:
– The partnership incorporates
– One partner in a two-party partnership buys out the
other partner
• A termination also occurs when the
partnership ceases operations and liquidates
61. Termination of Partnership
(slide 3 of 3)
• Partnership tax year usually does not close:
– Upon the death of a partner
– Entry of a new partner
– Liquidation of a partner’s interest in other than a
two-party partnership
– Sale or exchange of a less than 50% partnership
interest
62. The Big Picture – Example 45
Termination Of A Partnership (slide 1 of 2)
• Return to the facts of The Big Picture on p. 11-2.
• Before the sale or redemption, Kyle’s and Maria’s
combined interests equal
– 95% of the LLC’s capital, and
– 80% of the LLC’s profits interests.
• If they both sell their interests within a 12-month
period, they will cause a technical termination of the
existing LLC, and a new LLC will be deemed to be
formed.
63. The Big Picture – Example 45
Termination Of A Partnership (slide 2 of 2)
• A technical termination would require
redetermination of the LLC’s basis in its assets and
reestablishing the (new) LLC as an entity.
– Note: The partners could structure the sale so that the
termination did not occur.
– For example, have Kyle and Maria sell less than a 50%
interest in the LLC in one year and the remaining interest
more than 12 months later.
• If the LLC redeems the interests, there is no sale or
exchange transaction, and no technical termination of
the LLC.
64. Family Partnerships
(slide 1 of 3)
• Owned and controlled primarily by members
of the same family
– Often formed to save taxes by funneling some of
parent’s income to the children
• Often difficult to establish for tax purposes
65. Family Partnerships
(slide 2 of 3)
• Family member will be recognized as a partner if:
– Capital is a material income-producing factor and
partnership interest is acquired in a bona fide transaction
where ownership and control are received
• Can be acquired by gift or purchase from another family member
– Capital is not a material income-producing factor, but
family member contributes substantial or vital services
66. Family Partnerships
(slide 3 of 3)
• Kiddy tax may apply to child partner under age 19 (or
a student under age 24) and claimed as a dependent
by parent-partner
• Family member whose interest is acquired by gift
from another family member may only have a portion
of partnership income allocated to them
– Donor partner must be allocated income representing
reasonable compensation for services rendered to the
partnership
67. Limited Liability Companies
• A LLC with 2 or more owners is taxed as a
partnership
– LLC members are not personally liable for debts of
the entity
• Effectively treated as a limited partnership with no
general partners
– LLCs are relatively new so there is no established
body of case law available
• Makes planning difficult
68. Limited Liability Partnerships
• Partners are not personally liable for the
malpractice and torts of their partners
• Taxable as a partnership
• 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
69. Refocus On The Big Picture (slide 1 of 3)
• Two things are happening when the new developers
become members of Beachside Properties, LLC.
– The developers are buying out the interests of two existing
LLC members, and
– They are providing cash with which to expand the LLC’s
operations.
• The expansion itself raises no specific tax problems.
– An LLC can admit new members with no immediate tax
consequences.
• In addition to the issues addressed earlier in the
chapter, the LLC’s operating agreement should be
modified to ensure that there is no shift in ownership
rights between Josh and the new LLC members.
70. Refocus On The Big Picture (slide 2 of 3)
What If?
• Changing the facts, assume the developers
have only $2 million in cash, with good
prospects for receiving an additional $2
million over the next two years, and $1 million
more in the third year.
– The LLC has found a bridge loan and temporary
financing to cover costs during this interim period.
71. Refocus On The Big Picture (slide 3 of 3)
What If?
• This loan, though, is not large enough to also completely buy
out Kyle’s and Maria’s interests.
– Thus, they have agreed to accept installment payments for the sale or
redemption of their interests.
• Now the buyout of Kyle and Maria can be treated either as an
installment sale or as a redemption under § 736 requiring a
series of payments.
• While the specific results of these arrangements are beyond
the scope of this chapter, different tax consequences might
arise as to the timing and character of Kyle’s and Maria’s gain
recognition.