| Title: |
Introduction to Partnerships and LLCs |
| Prerequisite: |
None |
| Advance Preparation: |
None |
| Knowledge Level: |
Basic |
| Subject Matter Area: |
Taxes |
| Date of Publication: |
May 2010 |
| Copyright © |
2010 by Bisk Education, Inc. All rights reserved. |
| Recommended CPE Credits: |
6 QAS/Registry (50-minute hour) |
| Expiration Date: |
One year from date of receipt to complete program and submit quizzer to obtain credit |
| Passing Grade for Quizzer: |
70 percent or higher |
This course has been designed to provide a basic but thorough discussion of the federal taxation of partnerships and LLCs, including a number of topics that are relevant not only to an actual partnership entity, but also to the tax consequences for each of its owners/partners.
Use of Materials
Audio or DVD
The user should begin by watching the DVD segment or listening to the audio CD for the chapter before reading the text. The user may wish to make notes of the most important concepts and any terms that are new. Next, the user should review the learning objectives at the beginning of the chapter and read the chapter. The user should work through each of the examples. It may be helpful to highlight important material and/or to make additional notes. Next, the user should complete the study questions at the end of the chapter and review the answers. If the user answers a study question incorrectly, s/he should review the section of the text that is indicated at the end of the explanation to the study question to assure comprehension of the material. The user should review the learning objectives once more to consider achievement of the objectives. After the user has finished watching the DVD or listening to the audio CDs and reading the text and working through the study questions, s/he may wish to review her/his notes and any sections of the text or DVD or audio CDs that were difficult. When the user is ready, s/he should complete the quizzer. Reviewing notes periodically will increase retention of the material.
Online
The user should begin by watching the streamed video segment, if any, or listening to the streamed audio segment, if any, for the chapter before reading the text. The user may wish to make notes of the most important concepts and any terms that are new. Next, the user should review the learning objectives at the beginning of the chapter and read the chapter. The user should work through each of the examples. After the user has studied each chapter, s/he should click on the link at the left to complete the interactive study questions. If the user answers a study question incorrectly, s/he should review the section of the text that is indicated at the end of the explanation to the study question to assure comprehension of the material. The user should review the learning objectives once more to consider achievement of the objectives. After the user has finished watching the streamed video, if any, or listening to the streamed audio, if any, and reading the text and working through the study questions, s/he may wish to review her/his notes and any sections of the text or video/audio, if any, that were difficult. When the user is ready, s/he should click on the link to the left to complete the quizzer. The user's CPE certificate will be provided immediately upon successful completion of the quizzer.
Software
The user should begin by reviewing the learning objectives at the beginning of the chapter and read the chapter. The user should work through each of the examples. As the user studies each chapter, s/he should complete the interactive study questions that appear in the lower panel of the screen. If the user answers a study question incorrectly, s/he should review the section of the text that is indicated at the end of the explanation to the study question to assure comprehension of the material. The user should review the learning objectives once more to consider achievement of the objectives. After the user has finished reading the text and working through the study questions, s/he may wish to review her/his notes and any sections of the text that were difficult. When the user is ready, s/he should click on the link at the far left to complete the quizzer. The user should email her/his quizzer statistics using the quizzer submission link in the software and the user's CPE certificate will be mailed to her/him.
This program is divided into seven (7) chapters.
Chapter 1 provides some background on the types of entities discussed throughout the program. It also covers course terms and other general information.
Chapter 2 entails a discussion of the definitional issues of a partnership, both from a legal as well as a tax perspective. Further, with respect to a partnership, the "aggregate" and "entity" theories of partnership taxation are discussed. Such theories consider that since there is only a single level of tax between the partnership and the partner, should such partner and partnership be considered in the aggregate as one unit (the aggregate theory) or as separate entities (the entity theory)?
Chapter 3 focuses on more tax technical issues associated with forming partnerships and LLCs. Because of the federal tax classification rules, this necessarily moves the focus to the tax issues regarding partnerships; thus, this chapter provides a discussion of all the issues associated with the formation of partnerships. These issues include the tax consequences to the partner as well as the partnership upon the contribution of assets to a partnership in exchange for an interest in the partnership. Of particular significance in this context is the determination of partners concerning their methodology for sharing the profits and losses of the partnership. This is equally applicable to the general percentages for allocations as well as the items that the partners have decided to "specially allocate." Also, some taxpayers have attempted to use the partnership as a vehicle for selling appreciated property. The IRS has challenged such partnerships as arrangements that substantively disguise what is essentially a sale of appreciated property. This chapter discusses the regulations that provide parameters regarding such transactions.
Chapter 4 focuses on the issues that are relevant to partnerships to ensure they adequately comply with the appropriate tax reporting requirements; thus, there is an overall discussion of the tax returns that must be filed. Further, there are several tax issues that are relevant to partnerships that are explored in this chapter, such as the tax year of the partnership, the elections regarding accounting methods that are made by the partnership, and the structuring of guaranteed payments to partners in connection with services rendered to the partnership. The "substantial economic effect" standard is also covered in this chapter.
Chapter 5 moves the discussion to the "partner" and the issues that affect her/his tax position vis-à-vis the partnership. The primary issue that emerges in this regard is the basis in her/his partnership interest. In particular, there is a discussion of the impact of the part-nership liabilities upon the partner's basis in the partnership interest. Attention is given to the effect of recourse and nonrecourse liabilities on the basis calculation, the so-called "outside basis" calculation.
Chapter 6 continues on to discuss the partners and the tax issues associated with partnership income and partnership distributions. In particular, a partner's deduction of losses from the partnership may be limited by the partner's basis in the partnership, by the at-risk rules, and by the passive loss limitation rules. The applicability of these rules is reviewed in this chapter. The partner's tax liability is also impacted by many transactions that could occur between the partner and the partnership or between the partner and third parties. This chapter explores the issues relating to the tax consequences from a distribution of property to a partner in liquidation of her/his interest, the retirement or death of a partner, the distribution of precontribution property, etc. In addition, the tax consequences of a sale of partnership interest are dealt with, particularly when the basis adjustment provisions of IRC §§743 and 754 are in effect.
Chapter 7 discusses the situations in which a partnership will be deemed to terminate, either from a cessation of the partnership business or through a transfer of a controlling interest in the partnership. In addition, the impact of a partnership termination will be discussed, particularly as it affects the tax liability of the partners, those who leave the partnership and those who continue on in the new partnership.
Helpful Guidance
Throughout this program, the user will find explanations and discussions regarding some of the issues that often face practitioners. In order to enhance the user's compre-hension of the material and highlight important practical considerations, this program includes the following designations:
Biskpoint is intended to warn the practitioner of a particular tax situation that may require action or other consideration by the taxpayer or the practitioner on behalf of the taxpayer.
Biskalert presents analysis or commentary that attempts to explain or clarify statutory or regulatory authority or decisions by the judiciary.
James T. Hemelt, JD, CPA, is an adjunct professor in the Georgetown University School of Business and consults frequently on international tax matters, particularly in the area of transfer pricing documentation issues. Mr. Hemelt has spent his entire career working in the international tax area, focusing on transactional issues as well as tax compliance and financial statement reporting issues. Most recently, he was Senior Director of Taxes for PSINet Inc., where he had responsibility for the income tax disclosure and FAS 109 implementation. (Author/Speaker)
John L. Norman, Jr., JD, is an attorney in private practice in Washington, D.C., where he specializes in closely held business organizations, as well as estate and financial planning. He is the former National Director of Taxation for the accounting firm Pannell Kerr Forster, and the former chair of PKF's International Tax Committee. He is also a member of the International Tax Planning Association. Previously, he was the Director of Tax Policy for Potomac Electric Power Company. He also taught at College of William and Mary and George Washington University. Mr. Norman is a noted speaker and author of a number of publications in the area of federal taxation and a regular contributor to CPE Network. (Speaker)