Partnership Taxation Virtual Boot Camp: An Intensive Four-Day Review of Federal Rules

Times: 8:30 AM - 5:00 PM

DAY ONE

INTRODUCTION TO PARTNERSHIPS
• Partnership entity
• Key aspects of partnership law and tax implications
• Review types of partnerships and Limited Liability Companies/Partnerships
• Electing out of Subchapter K
• Check-the-box regulations

OPERATIONAL ISSUES
• Tax year and accounting methods
• Items required to be stated separately
• Partnership and partner elections
• Other operational issues

FORMATION OF THE PARTNERSHIP
• Introduction
• Contributions of property and cash, no gain or loss
• Contribution of property if fair market value and basis differ under Section 704(c) rules
• Contribution of services in exchange for a partnership interest

BASIS IN THE PARTNERSHIP INTEREST
• Introduction
• Inside and outside basis, basis vs. capital accounts
• Determination of the partner’s basis in the partnership interest
• Definition of liability for partnership purposes and allocation among partners
• Review examples/case study
• IRS court case discussion
 

DAY TWO

DISGUISED SALES RULES
• Introduction—potential inequity of the tax rules
• Disguised sales rules and exceptions described
• Liabilities and disguised sales rules, tax return disclosure
• Property distributions that follow contributions of appreciated property

IDENTIFICATION & TREATMENT OF SECTION 751 HOT ASSETS
• Application of the rules, definition of hot assets
• Tax treatment in section 751 transaction and reporting requirements

PARTNERSHIP TAXABLE INCOME: A LOOK AT THE K-1
• Partnership as a pass-through entity
• At-risk rules under IRC 465
• Partnership and LLC issues and K-1s
• Review Form 1065, Schedule K and Schedule K-1 and instructions

PARTNER’S DISTRIBUTIVE SHARE OF PARTNERSHIP ITEMS
• Allocations under partnership agreement must have substantial economic effect, section 704(b)
• Review of problem areas
• Anti-Abuse Regulations 1.701-2(b)
• Elections by partnerships
• Case study
• IRS Tax Court Case discussion
 

DAY THREE

DISTRIBUTIONS FROM PARTNERSHIPS
• Overview of distributions
• Taxation of current distributions, cash, securities, and/or property
• Taxation of liquidating distributions

SALE OF PARTNERSHIP INTERESTS, TERMINATIONS & LIQUIDATIONS
• Purchase, sale or redemption of partnership interests
• Retiring partner’s or successor’s share
• Termination of partnership
• Distributions in liquidation of a partnership interest

SECTION 754 OPTIONAL BASIS ADJUSTMENTS (STEP UP) UPON SALE OR TRANSFER
• Theory for Optional Basis Adjustment
• Section 754 Election
• Mandatory basis adjustments under Section 743 and Section 734

PASSIVE LOSS RULES
• Background
• Definition of Activity and Material Participation

TAX PLANNING DISCUSSIONS
 

DAY FOUR

REVIEW THROUGH PROBLEM SOLVING
• Prepare simple Form 1065, K-1
• Complete Partner Basis Worksheet

INVESTMENT PARTNERSHIPS
• Discussion and problem solving

IRS CASE STUDY

REAL PROPERTY TRADES OR BUSINESSES
• Formation and basis of a real estate partnership
• Operating income and expenses
• Deductibility of losses, passive losses
• Distributions from partnerships, taxability
• Like-kind exchanges, installment sales, lease transactions

CASE STUDY/IRS TAX CASE REVIEW

CLIENT ENGAGEMENT LETTER DISCUSSION/SCOPE

WRAP-UP

William C. Briggs, CPA, is a Tax Partner of Carrow, Doyle & Associates, a regional CPA firm located in Pennsylvania, and former Senior Tax Manager for KPMG Peat Marwick. He is an expert in partnership and real estate taxation, the tax aspects of S corporations, estate planning and tax accounting. Mr. Briggs has been a guest speaker for various trade organizations and accounting groups.

Times: 8:30 AM - 5:00 PM

DAY ONE

INTRODUCTION TO PARTNERSHIPS
• Partnership entity
• Key aspects of partnership law and tax implications
• Review types of partnerships and Limited Liability Companies/Partnerships
• Electing out of Subchapter K
• Check-the-box regulations

OPERATIONAL ISSUES
• Tax year and accounting methods
• Items required to be stated separately
• Partnership and partner elections
• Other operational issues

FORMATION OF THE PARTNERSHIP
• Introduction
• Contributions of property and cash, no gain or loss
• Contribution of property if fair market value and basis differ under Section 704(c) rules
• Contribution of services in exchange for a partnership interest

BASIS IN THE PARTNERSHIP INTEREST
• Introduction
• Inside and outside basis, basis vs. capital accounts
• Determination of the partner’s basis in the partnership interest
• Definition of liability for partnership purposes and allocation among partners
• Review examples/case study
• IRS court case discussion
 

DAY TWO

DISGUISED SALES RULES
• Introduction—potential inequity of the tax rules
• Disguised sales rules and exceptions described
• Liabilities and disguised sales rules, tax return disclosure
• Property distributions that follow contributions of appreciated property

IDENTIFICATION & TREATMENT OF SECTION 751 HOT ASSETS
• Application of the rules, definition of hot assets
• Tax treatment in section 751 transaction and reporting requirements

PARTNERSHIP TAXABLE INCOME: A LOOK AT THE K-1
• Partnership as a pass-through entity
• At-risk rules under IRC 465
• Partnership and LLC issues and K-1s
• Review Form 1065, Schedule K and Schedule K-1 and instructions

PARTNER’S DISTRIBUTIVE SHARE OF PARTNERSHIP ITEMS
• Allocations under partnership agreement must have substantial economic effect, section 704(b)
• Review of problem areas
• Anti-Abuse Regulations 1.701-2(b)
• Elections by partnerships
• Case study
• IRS Tax Court Case discussion
 

DAY THREE

DISTRIBUTIONS FROM PARTNERSHIPS
• Overview of distributions
• Taxation of current distributions, cash, securities, and/or property
• Taxation of liquidating distributions

SALE OF PARTNERSHIP INTERESTS, TERMINATIONS & LIQUIDATIONS
• Purchase, sale or redemption of partnership interests
• Retiring partner’s or successor’s share
• Termination of partnership
• Distributions in liquidation of a partnership interest

SECTION 754 OPTIONAL BASIS ADJUSTMENTS (STEP UP) UPON SALE OR TRANSFER
• Theory for Optional Basis Adjustment
• Section 754 Election
• Mandatory basis adjustments under Section 743 and Section 734

PASSIVE LOSS RULES
• Background
• Definition of Activity and Material Participation

TAX PLANNING DISCUSSIONS
 

DAY FOUR

REVIEW THROUGH PROBLEM SOLVING
• Prepare simple Form 1065, K-1
• Complete Partner Basis Worksheet

INVESTMENT PARTNERSHIPS
• Discussion and problem solving

IRS CASE STUDY

REAL PROPERTY TRADES OR BUSINESSES
• Formation and basis of a real estate partnership
• Operating income and expenses
• Deductibility of losses, passive losses
• Distributions from partnerships, taxability
• Like-kind exchanges, installment sales, lease transactions

CASE STUDY/IRS TAX CASE REVIEW

CLIENT ENGAGEMENT LETTER DISCUSSION/SCOPE

WRAP-UP

William C. Briggs, CPA, is a Tax Partner of Carrow, Doyle & Associates, a regional CPA firm located in Pennsylvania, and former Senior Tax Manager for KPMG Peat Marwick. He is an expert in partnership and real estate taxation, the tax aspects of S corporations, estate planning and tax accounting. Mr. Briggs has been a guest speaker for various trade organizations and accounting groups.

DETAILED LEARNING OBJECTIVES

• Identify the default federal tax classification of an eligible business entity

• Recognize the tax disadvantages associated with operating as a C corporation

• Identify the potential liability disadvantages of a general partnership

• Determine how partnership liabilities affect a partner’s outside basis

• Recognize the requirements for respecting special partnership allocations

• Identify the potential double taxation arising from a corporate asset sale

• Recognize the tax-deferral opportunities available in a properly structured partnership transaction

• Describe the effect of the OBBBA on the §199A deduction

• Identify tax items determined at the partnership level

• Determine when a disproportionate partnership allocation will be respected under §704

• Identify the tax consequences determined using a partner’s outside basis

• Calculate a partner’s initial outside basis following a contribution

• Determine a partnership’s inside basis in contributed property

• Identify the deadline for electing out of Subchapter K

• Identify the form used to elect corporate tax classification

• Identify the form used to elect S corporation status

• Recognize the benefits of electing out of Subchapter K

• Identify the time limit for requesting late entity-classification election relief

• Recognize when an entity may change its classification before the expiration of the 60-month limitation

• Determine how a disregarded LLC’s operations are reported

• Determine a partnership’s required taxable year under the majority-interest rule

• Identify the ownership percentage used to define a principal partner

• Determine a partnership’s required taxable year under the principal-partner rule

• Apply the least-aggregate-deferral rule to determine a partnership’s taxable year

• Recognize when a partnership may use a taxable year other than its required taxable year

• Identify the rules governing a partnership’s selection of an accounting method

• Identify the gross receipts threshold for cash-method eligibility

• Recognize when a partnership classified as a tax shelter must use the accrual method

• Identify the requirements for using a hybrid accounting method

• Distinguish the reporting purposes of Schedules K-2 and K-3

• Identify tax elections made at the partnership level

• Determine how a partnership reports a deductible guaranteed payment

• Calculate a general partner’s net earnings from self-employment

• Recognize when rental income is included in a partner’s net earnings from self-employment

• Identify the components of self-employment tax imposed on partnership earnings

• Determine the self-employment tax treatment of an active LLC member’s distributive share

• Identify factors used to determine whether a partner is a limited partner for self-employment tax purposes

• Calculate the portion of an LLC member’s distributive share subject to self-employment tax

• Describe how the §179 deduction applies at the partnership and partner levels

• Calculate a partnership’s maximum allowable §179 deduction

• Identify property eligible for the §179 deduction

• Explain why §179 expense is separately stated on Schedule K-1

• Determine how partner health insurance premiums are reported

• Identify ownership arrangements that may trigger a Schedule M-3 filing requirement

• Determine the tax treatment of property contributed to a partnership under §721

• Recognize when a contribution to an investment company results in diversification

• Calculate gain recognized on a contribution to an investment company partnership

• Identify profits interests excluded from the available safe harbor

• Determine the required tax treatment of a qualifying profits interest

• Recognize tax concerns arising when a fixed management fee is exchanged for a profits interest

• Identify the form used to calculate a partner’s at-risk limitation

• Determine the consequences when a partner’s amount at risk falls below zero

• Identify when an activity generates a passive activity loss

• Determine when the §461(l) excess business loss limitation applies

• Identify the treatment of a business loss carried forward under §461(l)

• Calculate the initial outside basis of a purchased partnership interest

• Determine the initial basis of a partnership interest acquired from a decedent

• Identify the tax consequences of receiving a vested capital interest for services

• Identify tax-exempt partnership items that increase outside basis

• Determine how nondeductible partnership expenditures affect outside basis

• Identify the required method for reporting partners’ capital accounts on Schedule K-1

• Calculate tax-basis capital under the modified outside basis method

• Explain how a transfer of a partnership interest creates an inside and outside basis disparity

• Distinguish tax-basis capital from outside basis

• Identify the reporting requirement for certain bottom-dollar payment obligations

• Determine the liability classification of a partner’s nonrecourse loan to a partnership

• Define partnership minimum gain for nonrecourse liability-allocation purposes

• Identify liabilities subject to the three-tier allocation framework

• Determine the extent to which a disregarded LLC’s guarantee makes partnership debt recourse

• Determine when a current cash distribution produces taxable gain

• Identify factors supporting disguised-sale treatment

• Recognize facts indicative of a disguised sale

• Calculate gain recognized on a partial disguised sale

• Identify the presumed reasonable return for a guaranteed payment for the use of capital

• Determine when a preferred return is presumed not to constitute disguised-sale consideration

• Calculate the operating cash flow exception limitation

• Identify items that reduce net cash flow under the operating cash flow exception

• Calculate disguised-sale consideration arising from the assumption of a nonqualified liability

• Identify liabilities treated as qualified liabilities under the disguised-sale rules

• Identify the disclosure required when related transfers occur within two years

• Identify property treated as unrealized receivables under §751

• Determine the character of gain from selling a partnership interest containing hot assets

• Recognize a disproportionate distribution under §751(b)

• Apply the hypothetical-sale approach to a disproportionate distribution

• Identify the Schedule K-1 code used to disclose §751 hot assets

• Identify information required in a §751(b) disclosure statement

• Identify qualifying REIT and publicly traded partnership amounts included under §199A

• Identify where a partnership reports §199A information on Schedule K-1

• Determine when §751 ordinary gain is included in QBI

• Identify items excluded from QBI

• Determine the effect of a guaranteed payment on QBI

• Determine the §199A treatment of an SSTB owner above the phase-in range

• Identify the requirements for the post-2025 minimum §199A deduction

• Calculate the applicable §199A phase-in percentage

• Calculate the §199A deduction using the wage and qualified property limitations

• Identify the common-ownership requirement for aggregating businesses under §199A

• Recognize the consistency requirement for §199A business aggregations

• Identify partnership reporting requirements for multiple §199A businesses

• Identify debt arrangements that increase a partner’s amount at risk

• Identify the requirements for qualified nonrecourse financing

• Determine the basis effect of an increase in a partner’s share of partnership liabilities

• Identify who is responsible for maintaining a partner’s outside basis

• Determine how an imputed underpayment is assessed under the BBA audit regime

• Calculate the number of partners for purposes of the BBA election-out limitation

• Describe the authority of the partnership representative under the BBA audit rules

• Identify when rental real estate qualifies as a trade or business for §199A purposes

• Identify the requirements for aggregating businesses under §199A

• Determine the treatment of negative QBI carried to a subsequent taxable year

• Determine the treatment of W-2 wages and UBIA associated with negative QBI

• Determine the basis effect of a decrease in a partner’s share of partnership liabilities

• Describe the effect of a push-out election under the BBA audit regime

• Identify the procedure for correcting partnership-related items under the BBA rules

• Identify the default federal tax classification of a multi-member LLC

• Distinguish LLCs from traditional partnerships

• Identify transactions and allocations that adjust a partner’s outside basis

• Identify the party responsible for maintaining a partner’s outside basis

• Describe the effect of the Bipartisan Budget Act of 2015 on partnership audits

• Determine how adjustments are assessed under the BBA audit regime

• Identify partnerships eligible to elect out of the BBA audit regime

• Identify the substantial economic effect requirement under §704(b)

• Determine how partnership items are allocated when an allocation lacks substantial economic effect

• Identify the deadline for satisfying a deficit restoration obligation

• Identify transactions that increase a partner’s book capital account

• Identify transactions that decrease a partner’s book capital account

• Recognize acceptable methods for restoring a deficit capital account

• Calculate the amount required to satisfy a deficit restoration obligation

• Calculate a partner’s priority liquidating distribution

• Identify the partners generally protected by a qualified income offset

• Identify the Code provision governing minimum-gain allocations

• Define partnership minimum gain

• Identify the requirements for allocating nonrecourse deductions

• Identify the requirements for the §704(c) de minimis rule

• Identify the holding period associated with the §704(c) contributed-property distribution rules

• Identify contributed property subject to §704(c)

• Calculate built-in gain allocated to a contributing partner under §704(c)

• Identify permissible approaches for making §704(c) allocations

• Distinguish the acceptable §704(c) allocation methods

• Explain how curative allocations address book-tax differences

• Identify circumstances permitting the IRS to recast a partnership transaction

• Identify the requirements for consistency with Subchapter K

• Describe the IRS’s authority to recast an abusive partnership transaction

• Determine the basis of property received in a current distribution

• Determine the basis of property received in a liquidating distribution

• Determine whether a partnership recognizes gain or loss when distributing property

• Identify the characteristics of guaranteed payments

• Determine the tax treatment of guaranteed payments to the partnership and partner

• Calculate a guaranteed payment based on a minimum-payment arrangement

• Calculate partnership income after deducting a guaranteed payment

• Determine the tax treatment of current cash distributions

• Identify exceptions to nonrecognition for partnership property distributions

• Determine the basis of property received in a current partnership distribution

• Calculate a partner’s basis in property received in a current distribution

• Calculate a partner’s remaining outside basis after a property distribution

• Identify when a draw against a partner’s distributive share is deemed to occur

• Determine the treatment of marketable securities distributed by a partnership

• Calculate and characterize gain from a liquidating payment under §736(b)

• Determine whether a partnership recognizes gain or loss when liquidating a partner’s interest

• Identify the theory underlying the sale of a partnership interest

• Identify exceptions to capital gain treatment on the sale of a partnership interest

• Identify the pre-2018 ownership-transfer threshold for a technical termination

• Describe the effect of the TCJA on partnership technical terminations

• Identify permissible methods for allocating partnership items when a partner’s interest varies

• Apply partnership conventions to variations in partners’ interests

• Identify items excluded from the definition of extraordinary items

• Calculate and characterize gain from the sale of a partnership interest

• Explain the purpose of a §754 election

• Describe the mechanics of a §754 basis adjustment

• Identify the requirements and deadline for making a §754 election

• Identify the deadline for requesting revocation of a §754 election

• Define a passive activity under §469

• Determine the extent to which passive activity losses may be deducted

• Identify when suspended passive activity losses become deductible

• Identify factors used to group activities into an appropriate economic unit

• Identify the number of material participation tests under §469

• Recognize business activities commonly conducted through partnerships

• Identify the federal tax advantages of operating as a partnership

• Explain the estate and gift tax purpose of a family limited partnership

• Calculate gain recognized on a contribution to an investment partnership

• Calculate recognized gain when appreciated property is contributed to an investment partnership

• Identify buyer preferences in merger and acquisition transactions

• Identify the reorganization provision commonly used in LLC acquisition structures

• Describe the treatment of cash and equity consideration in an F reorganization involving LLCs

• Identify the adjusted taxable income limitation under §163(j)

• Identify the gross receipts exception to the §163(j) business interest limitation

• Determine where the §163(j) limitation is calculated for a partnership

• Determine the treatment of excess business interest expense

• Identify planning strategies for taxpayers near the §199A income threshold

• Recognize the reasonable compensation limitation affecting S corporation §199A planning

• Determine when an accrual-basis partnership recognizes advance rent

• Determine when a cash-basis partnership recognizes a bonus rent payment

• Identify the purchase price allocation method required by §1060

• Identify the amortization period for acquired goodwill

• Identify the recovery period for nonresidential real property

• Identify the recovery period for residential rental property

• Identify the Code provision governing capitalization of real estate production costs

• Identify property and activities subject to §263A capitalization

• Identify indirect production costs excluded from §263A capitalization

• Determine when the production period begins for interest-capitalization purposes

• Identify personal property production activities subject to interest capitalization

• Identify property eligible for the §266 carrying-charge election

• Determine the tax treatment of demolition costs under §280B

• Determine the tax treatment of common area development costs

• Identify permissible methods for allocating common area costs

• Apply the basis, at-risk, passive activity and excess business loss limitations to partnership losses

• Identify the expiration year of the extended §461(l) excess business loss limitation

• Distinguish the tax treatment of §736(a) payments from §736(b) payments

• Identify the de minimis safe harbor threshold for a taxpayer with an applicable financial statement

• Identify the requirements for qualifying as a real estate professional under the passive activity rules

• Identify property eligible for like-kind exchange treatment under §1031

• Calculate income recognized in the year of an installment sale involving depreciation recapture