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Chapter 21 Partnerships
Discussion Questions
1. LO.1 What is a partnership agreement? What types of provisions does it include?
2. LO.1 What is the difference between a general partnership and a limited liability company? When might each type of entity be used? Why?
3. LO.2 Describe how a partnership reports its income for tax purposes. Who makes most elections related to partnership income and deductions? What theory underlies this treatment?
4. LO.3 Compare the provision for the nonrecognition of gain or loss on contributions to a partnership (i.e., § 721) with the similar provision related to corporate formation (i.e., § 351). What are the major differences and similarities?
5. LO.3, 4 How does a partnership calculate depreciation on property that is contributed by a partner? If the partnership incurs additional costs that must be capitalized (i.e., transfer taxes related to changing the title), how are those costs treated?
6. LO.4 What types of expenditures might a new partnership incur? How are those costs treated for Federal tax purposes? Create a chart describing the expenditure, the treatment, and the Code section requiring this treatment.
7. LO.5 When can a partnership use the cash method of accounting?
8. LO.7, 8 What is a guaranteed payment? How is it reported on Form 1065 and its various schedules? How is it reported to and by the partner?
9. LO.8 What is the purpose of the three rules that implement the economic effect test?
10. LO.9, 10 Discuss the adjustments that must be made to a partner’s basis in the partnership interest. When are such adjustments made?
11. LO.11 What is a partner’s capital account? Describe how a partner’s ending capital account balance is determined.
12. LO.13 When is partnership income subject to self-employment tax or the net investment income tax by an individual partner?
13. LO.10, 12,17 Discuss situations in which the partnership entity form might be more advantageous (or disadvantageous) than operating as a Subchapter C or S corporation.
14. LO.14 What is the difference between the definition of a proportionate nonliquidating distribution and a proportionate liquidating distribution? What is the significance of the word proportionate?
15. LO.14 How does a proportionate nonliquidating distribution of cash from a partnership to a partner compare with one from a Subchapter C corporation to a shareholder?