Taxation Essentials of LLCs and Partnerships

This book helps addresses the tax consequences of the most common transactions engaged in by limited liability corporations (LLCs)and partnerships. You will develop a level of comfort with the basic conceptual framework underlying partnership and LLC taxation, as well as gain an explanation of the tax consequences associated with issues most frequently confronted by tax practitioners. Topics covered include: basic tax structure of partnerships and LLCs; electing to be taxed as a partnership: "check-the-box" rules; tax consequences of partnership or LLC formation; partnership distributions; compensatory payments to partners; at-risk and passive activity limits; profit and loss allocations: general rules and restrictions; and reporting taxable income for partnerships and LLCs.

Larry Tunnell, Ph.D., CPA, is a professor in the accounting department at New Mexico State Univeristy.

Robert Ricketts, Ph.D., CPA, is the Frank M. Burke Chair in Taxation, Department Head of Accounting at the Rawls College of Business, Texas Tech University. He has written numerous books on the taxation of partnerships and limited liability companies.

Chapter 1 1-1

Overview: Basic Tax Structure of Partnerships and LLCs 1-1

What is a partnership for federal income tax purposes? 1-2

Partnerships versus other entities 1-3

Electing to be taxed as a partnership: The “check-the-box” rules 1-11

Overview of the basic framework of partnership taxation 1-14

Partnership operations 1-16

Chapter 2 2-1

Tax Consequences of Partnership or LLC Formation 2-1

Determination of basis 2-2

Effect of entity operations 2-3

Effect of liabilities 2-4

Partnership interests obtained for services 2-11

Transfer of a capital interest 2-13

Transfer of a profits interest 2-17

Campbell 2-20

Lessons for tax advisers 2-22

Chapter 3 3-1

Partnership Distributions 3-1

Introduction 3-2

Liquidating distributions: Proportionate 3-11

Sale of distributed property 3-15

Section 736: Death or retirement of a partner from professional services partnerships or LLCs 3-16

Chapter 4 4-1

Compensatory Payments to Partners 4-1

Introduction 4-2

Self-employment income of partners 4-15

Proposed regulations concerning limited partners’ self-employment income 4-17

Chapter 5 5-1

At-Risk and Passive Activity Limits 5-1

Overview 5-2

Basis and at-risk limitations 5-7

Gross income from passive activities 5-14

Passive activity deductions 5-17

Who is subject to the passive loss limitations? 5-18

What are passive activities? 5-19

Rules of application 5-29

Grouping activities 5-34

Chapter 6 6-1

Overview of Profit and Loss Allocations: General Rules and Restrictions 6-1

Introduction 6-2

Section 704(b): Allocations must have “substantial economic effect” 6-3

Allocations with respect to contributed property: Section 704(c)(1)(A) 6-15

Chapter 7 7-1

Reporting Taxable Income for Partnerships and LLCs 7-1

Overview: Partnership tax return 7-2

General tax payment and reporting scheme 7-9

Form 1065: Income 7-14

Form 1065: Expenses 7-18

Schedules K and K-1 7-26

Interpreting Schedule K-1 7-38

Appendix A A-1

Sample Partnership Tax Return A-1

Facts and financial data A-3

Glossary Glossary 1

Index Index 1

Solutions Solutions 1

Chapter 1 Solutions 1

Chapter 2 Solutions 3

Chapter 3 Solutions 4

Chapter 4 Solutions 5

Chapter 5 Solutions 7

Chapter 6 Solutions 8

Chapter 7 Solutions 10

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