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,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,Partnerships,Partnership Basis Concepts,Adjusted basis of a partnership interest held by a partner,Adjusted basis of assets held by the partnership,Significance of Partners Basis,Significant whenever the interest is transferred or liquidated,Used in determining consequences of nonliquidating partnership distributions under 731 and 732.,Entity vs.Aggregate Approach,Entity Approach-Basis in interest is separate and apart from share of the basis of each underlying partnership asset,Aggregate Approach Basis of interest is increased or decreased by partners share of partnership income,loss,distributions,etc.(705(a),705,The aggregate of the partners adjusted bases in their partnership interest generally equals the aggregate of the adjusted bases of partnership assets.,705(b)Provides for the determination of a partners basis in this interests by reference to partners proportionate share of the basis of partnership assets,Example Exception to705s Generality,743(a)Upon the sale of a partnership interest,purchasers initial basis is cost,but purchasers share of the partnerships basis is not adjusted to reflect the cost of the interest,743(b)Provides an elective method of retaining basis equality in such situations,Initial Basis,722 Result of a contribution to the partnership,742 Acquired by means other than the contribution of money or property to the partnership,Initial Basis(continued),Generally determined by cost method,Exceptions:,Acquired from decedent value on the date of death or the alternative valuation date,Acquired by gift donors adjusted basis,increased by federal gift tax paid,Acquired in connection with performance of services the amount of taxable income realized by the performer in connection with the receipt of the interest,Adjustments to Basis-705(a),Increased by distributive share of:,Partnership taxable income,Tax-exempt income of partnership,Excess of deductions for depletion over the basis of the property subject to depletion,Also increased by:,Amount of any cash contributed,or adjusted basis of property contributed,Adjustments to Basis-705(a)cont,Decreased(not below zero)by:,Amount of cash distributed,Basis to partner of any property distributed to the partner by the partnership,Depletion deduction,Distributive share of partnership losses and nondeductible expenditures of the partnership,When Basis Computation is Necessary,Only if necessary to determine tax liability when:,End of partnership year during which it suffered a loss,to determine deductibility of partners share,Upon liquidation or disposition of partners interest,to determine gain or loss,Upon the non-liquidating distribution of cash or property to a partner,to find the basis of the distributed property,Purpose of Basis Computations,Keep track of a partners“tax investment,Prevents double-taxation or exclusion from taxation,Less Common Basis Adjustments,Tax-Exempt Income 705(a)(1)(B),Gifts tax free to the extent of the carryover basis,but tax-deferred to extent of market value over basis.,Tax-deferred income does not affect basis.,Discharged debts Income to the extent debt is discharged.Exception-If an insolvent debtor(at the partner level),then recognize income only to extent that discharge creates solvency,Less Common Basis Adjustments(cont),Nondeductible Expenditures-705(a)(2)(B),Amounts not deductible in computing its taxable income and not properly chargeable to capital account,Prohibition Against Negative Basis,705(a)(2)and 705(a)(3)-prohibits reduction of a partners basis below zero,732(a)(2)limits the basis of distributed property(other than money)to the partners basis for his partnership interest,Prohibition AgainstNegative Basis(continued),731(a)(1)Requires a distributee-partner to recognize gain to the extent money distributed to him exceeds the basis of his partnership interest.,Ordering of Basis Adjustments,Increased and decreased by all adjustments under 705(a),except for losses of the taxable year and losses previously disallowed,Reduced by any money distributions and distributions that includes both money and other property,Any other adjustments relating to separate distributions of property made in the order distributions are made,Including Partnership Liabilities in Basis-752,Increases in a partners share of partnership liabilities are treated as cash contributions by him(includes assumption of partnership liability by a partner)Increases partners basis as a contribution to the partnership,Decreases in his share of partnership liabilities are treated as cash distributions to him(includes assumption of partners liability by the partnership)Decreases partners basis to extent of basis,then treated as taxable distribution,Allocation of Liabilities,Recourse Debt Allocated among the partners in the proportions that they bear the“economic risk of loss for such liabilities,Non-recourse Debt Allocated in propo
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