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H&r Block Com

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H&r Block Com

H&r block com Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. H&r block com Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. H&r block com Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. H&r block com Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. H&r block com However, a joint undertaking merely to share expenses is not a partnership. H&r block com For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. H&r block com The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. H&r block com Organizations formed after 1996. H&r block com   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. H&r block com An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. H&r block com An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. H&r block com An insurance company. H&r block com Certain banks. H&r block com An organization wholly owned by a state, local, or foreign government. H&r block com An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). H&r block com Certain foreign organizations identified in section 301. H&r block com 7701-2(b)(8) of the regulations. H&r block com A tax-exempt organization. H&r block com A real estate investment trust. H&r block com An organization classified as a trust under section 301. H&r block com 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. H&r block com Any other organization that elects to be classified as a corporation by filing Form 8832. H&r block com For more information, see the instructions for Form 8832. H&r block com Limited liability company. H&r block com   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. H&r block com Unlike a partnership, none of the members of an LLC are personally liable for its debts. H&r block com An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. H&r block com 7701-3. H&r block com See Form 8832 and section 301. H&r block com 7701-3 of the regulations for more details. H&r block com A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. H&r block com Organizations formed before 1997. H&r block com   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. H&r block com Community property. H&r block com    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. H&r block com They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. H&r block com A change in reporting position will be treated for federal tax purposes as a conversion of the entity. H&r block com   A qualified entity is a business entity that meets all the following requirements. H&r block com The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. H&r block com No person other than one or both spouses would be considered an owner for federal tax purposes. H&r block com The business entity is not treated as a corporation. H&r block com   For more information about community property, see Publication 555, Community Property. H&r block com Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. H&r block com Family Partnership Members of a family can be partners. H&r block com However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. H&r block com If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. H&r block com If capital is not a material income-producing factor, they joined together in good faith to conduct a business. H&r block com They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. H&r block com Capital is material. H&r block com   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. H&r block com Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. H&r block com Capital is not material. H&r block com   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. H&r block com Capital interest. H&r block com   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. H&r block com The owner withdraws from the partnership. H&r block com The partnership liquidates. H&r block com   The mere right to share in earnings and profits is not a capital interest in the partnership. H&r block com Gift of capital interest. H&r block com   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. H&r block com It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. H&r block com The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. H&r block com Purchase. H&r block com   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. H&r block com The fair market value of the purchased interest is considered donated capital. H&r block com For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). H&r block com Example. H&r block com A father sold 50% of his business to his son. H&r block com The resulting partnership had a profit of $60,000. H&r block com Capital is a material income-producing factor. H&r block com The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. H&r block com The $24,000 must be allocated to the father as compensation. H&r block com Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. H&r block com The son's share of partnership profit cannot be more than $18,000. H&r block com Business owned and operated by spouses. H&r block com   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. H&r block com If so, they should report income or loss from the business on Form 1065. H&r block com They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. H&r block com However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. H&r block com Qualified Joint Venture Election. H&r block com   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. H&r block com A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. H&r block com   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. H&r block com All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. H&r block com Each spouse takes into account his or her respective share of these items as a sole proprietor. H&r block com Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). H&r block com For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. H&r block com e. H&r block com , based on their respective interests in the venture). H&r block com   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. H&r block com Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. H&r block com   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. H&r block com However, this may not be true if either spouse exceeds the social security tax limitation. H&r block com   For more information on qualified joint ventures, go to IRS. H&r block com gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. H&r block com ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. H&r block com The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. H&r block com The agreement or modifications can be oral or written. H&r block com Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. H&r block com This filing date does not include any extension of time. H&r block com If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. H&r block com Terminating a Partnership A partnership terminates when one of the following events takes place. H&r block com All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. H&r block com At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. H&r block com Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. H&r block com See section 1. H&r block com 708-1(b) of the regulations for more information on the termination of a partnership. H&r block com For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. H&r block com 708-1(c) and 1. H&r block com 708-1(d) of the regulations. H&r block com Date of termination. H&r block com   The partnership's tax year ends on the date of termination. H&r block com For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. H&r block com For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. H&r block com Short period return. H&r block com   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. H&r block com The return is due the 15th day of the fourth month following the date of termination. H&r block com See Partnership Return (Form 1065), later, for information about filing Form 1065. H&r block com Conversion of partnership into limited liability company (LLC). H&r block com   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. H&r block com The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. H&r block com   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. H&r block com Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. H&r block com If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. H&r block com For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. H&r block com   The same rules apply if an LLC classified as a partnership is converted into a partnership. H&r block com IRS e-file (Electronic Filing) Please click here for the text description of the image. H&r block com e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). H&r block com Other partnerships generally have the option to file electronically. H&r block com For details about IRS e-file, see the Form 1065 instructions. H&r block com Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. H&r block com All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. H&r block com However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. H&r block com Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. H&r block com Investing partnership. H&r block com   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. H&r block com They own the property as co-owners. H&r block com They reserve the right separately to take or dispose of their shares of any property acquired or retained. H&r block com They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. H&r block com Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. H&r block com Operating agreement partnership. H&r block com   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. H&r block com They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. H&r block com They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. H&r block com They do not jointly sell services or the property produced or extracted. H&r block com Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. H&r block com However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. H&r block com Electing the exclusion. H&r block com   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. H&r block com This filing date includes any extension of time. H&r block com See Regulations section 1. H&r block com 761-2(b) for the procedures to follow. H&r block com Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. H&r block com The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. H&r block com The return must be signed by a general partner. H&r block com If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. H&r block com A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. H&r block com See the Instructions for Form 1065 for more information about who must file Form 1065. H&r block com Partnership Distributions Partnership distributions include the following. H&r block com A withdrawal by a partner in anticipation of the current year's earnings. H&r block com A distribution of the current year's or prior years' earnings not needed for working capital. H&r block com A complete or partial liquidation of a partner's interest. H&r block com A distribution to all partners in a complete liquidation of the partnership. H&r block com A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. H&r block com If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. H&r block com Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. H&r block com Effect on partner's basis. H&r block com   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. H&r block com See Adjusted Basis under Basis of Partner's Interest, later. H&r block com Effect on partnership. H&r block com   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. H&r block com The partnership may be able to elect to adjust the basis of its undistributed property. H&r block com Certain distributions treated as a sale or exchange. H&r block com   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. H&r block com Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. H&r block com Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. H&r block com   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. H&r block com   This treatment does not apply to the following distributions. H&r block com A distribution of property to the partner who contributed the property to the partnership. H&r block com Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. H&r block com Substantially appreciated inventory items. H&r block com   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. H&r block com However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. H&r block com Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. H&r block com Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. H&r block com If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. H&r block com For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. H&r block com Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. H&r block com Example. H&r block com The adjusted basis of Jo's partnership interest is $14,000. H&r block com She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. H&r block com Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. H&r block com Any gain on the land will be recognized when she sells or otherwise disposes of it. H&r block com The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. H&r block com Marketable securities treated as money. H&r block com   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. H&r block com This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. H&r block com   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). H&r block com   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. H&r block com Loss on distribution. H&r block com   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. H&r block com The adjusted basis of the partner's interest in the partnership exceeds the distribution. H&r block com The partner's entire interest in the partnership is liquidated. H&r block com The distribution is in money, unrealized receivables, or inventory items. H&r block com   There are exceptions to these general rules. H&r block com See the following discussions. H&r block com Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. H&r block com Distribution of partner's debt. H&r block com   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). H&r block com   The partner is treated as having satisfied the debt for its fair market value. H&r block com If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. H&r block com   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. H&r block com Net precontribution gain. H&r block com   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. H&r block com   The gain recognized is the lesser of the following amounts. H&r block com The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. H&r block com The “net precontribution gain” of the partner. H&r block com This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. H&r block com For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. H&r block com   The character of the gain is determined by reference to the character of the net precontribution gain. H&r block com This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. H&r block com For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. H&r block com Effect on basis. H&r block com   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. H&r block com Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. H&r block com See Basis of Partner's Interest , later. H&r block com   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. H&r block com Exceptions. H&r block com   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. H&r block com For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. H&r block com   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. H&r block com Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. H&r block com However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. H&r block com Example 1. H&r block com The adjusted basis of Emily's partnership interest is $30,000. H&r block com She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. H&r block com Her basis for the property is $20,000. H&r block com Example 2. H&r block com The adjusted basis of Steve's partnership interest is $10,000. H&r block com He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. H&r block com His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). H&r block com Complete liquidation of partner's interest. H&r block com   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. H&r block com Partner's holding period. H&r block com   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. H&r block com If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. H&r block com Basis divided among properties. H&r block com   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. H&r block com For property distributed after August 5, 1997, allocate the basis using the following rules. H&r block com Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. H&r block com If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. H&r block com Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. H&r block com If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. H&r block com If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. H&r block com Allocating a basis increase. H&r block com   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. H&r block com If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. H&r block com Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. H&r block com Example. H&r block com Eun's basis in her partnership interest is $55,000. H&r block com In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. H&r block com Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. H&r block com Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. H&r block com To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). H&r block com This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). H&r block com She first allocates $35,000 to property A (its unrealized appreciation). H&r block com The remaining $5,000 is allocated between the properties based on their fair market values. H&r block com $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. H&r block com Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). H&r block com Allocating a basis decrease. H&r block com   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. H&r block com Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. H&r block com If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. H&r block com Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). H&r block com Example. H&r block com Armando's basis in his partnership interest is $20,000. H&r block com In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. H&r block com Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. H&r block com Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. H&r block com To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). H&r block com This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). H&r block com He allocates the entire $10,000 to property D (its unrealized depreciation). H&r block com Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). H&r block com Distributions before August 6, 1997. H&r block com   For property distributed before August 6, 1997, allocate the basis using the following rules. H&r block com Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. H&r block com If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. H&r block com Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. H&r block com Partner's interest more than partnership basis. H&r block com   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. H&r block com Special adjustment to basis. H&r block com   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. H&r block com To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. H&r block com Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. H&r block com   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. H&r block com However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. H&r block com   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. H&r block com If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. H&r block com   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. H&r block com The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. H&r block com Example. H&r block com Chin Ho purchased a 25% interest in X partnership for $17,000 cash. H&r block com At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. H&r block com Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. H&r block com Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. H&r block com The value of the inventory received was 25% of the value of all partnership inventory. H&r block com (It is immaterial whether the inventory he received was on hand when he acquired his interest. H&r block com ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. H&r block com His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). H&r block com The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. H&r block com The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). H&r block com His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). H&r block com The remaining $11,500 is allocated to his new basis for the other property he received. H&r block com Mandatory adjustment. H&r block com   A partner does not always have a choice of making this special adjustment to basis. H&r block com The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. H&r block com The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. H&r block com If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. H&r block com The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. H&r block com Required statement. H&r block com   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. H&r block com The statement must provide information necessary for the partner to compute the special basis adjustment. H&r block com Marketable securities. H&r block com   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. H&r block com See Marketable securities treated as money under Partner's Gain or Loss, earlier. H&r block com The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. H&r block com Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. H&r block com These transactions include the following. H&r block com Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. H&r block com Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. H&r block com Payments by accrual basis partnership to cash basis partner. H&r block com   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. H&r block com However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. H&r block com Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. H&r block com A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. H&r block com This treatment is for purposes of determining gross income and deductible business expenses only. H&r block com For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. H&r block com Guaranteed payments are not subject to income tax withholding. H&r block com The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. H&r block com They are also listed on Schedules K and K-1 of the partnership return. H&r block com The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. H&r block com Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. H&r block com Generally, organizational and syndication expenses are not deductible by the partnership. H&r block com However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). H&r block com Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. H&r block com Minimum payment. H&r block com   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. H&r block com Example. H&r block com Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. H&r block com The partnership has net income of $20,000. H&r block com Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). H&r block com The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). H&r block com Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. H&r block com If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. H&r block com Self-employed health insurance premiums. H&r block com   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. H&r block com The partnership can deduct the payments as a business expense, and the partner must include them in gross income. H&r block com However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. H&r block com   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. H&r block com The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. H&r block com For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. H&r block com Including payments in partner's income. H&r block com   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. H&r block com Example 1. H&r block com Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. H&r block com Her distributive share of the partnership income is 10%. H&r block com The partnership has $50,000 of ordinary income after deducting the guaranteed payment. H&r block com She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. H&r block com Example 2. H&r block com Lamont is a calendar year taxpayer who is a partner in a partnership. H&r block com The partnership uses a fiscal year that ended January 31, 2013. H&r block com Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. H&r block com He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. H&r block com Payments resulting in loss. H&r block com   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. H&r block com The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. H&r block com Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. H&r block com Losses. H&r block com   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. H&r block com   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. H&r block com   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. H&r block com   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. H&r block com If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. H&r block com Gains. H&r block com   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. H&r block com More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). H&r block com The property in the hands of the transferee immediately after the transfer is not a capital asset. H&r block com Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. H&r block com More than 50% ownership. H&r block com   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. H&r block com An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. H&r block com An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. H&r block com For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. H&r block com If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. H&r block com However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. H&r block com Example. H&r block com Individuals A and B and Trust T are equal partners in Partnership ABT. H&r block com A's husband, AH, is the sole beneficiary of Trust T. H&r block com Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. H&r block com As a result, A is a more-than-50% partner. H&r block com This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. H&r block com More information. H&r block com   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. H&r block com Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. H&r block com This applies whether a partnership is being formed or is already operating. H&r block com The partnership's holding period for the property includes the partner's holding period. H&r block com The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. H&r block com The exchange is not subject to the rules explained later under Disposition of Partner's Interest. H&r block com Disguised sales. H&r block com   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. H&r block com The distribution would not have been made but for the contribution. H&r block com The partner's right to the distribution does not depend on the success of partnership operations. H&r block com   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. H&r block com However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. H&r block com If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. H&r block com Form 8275 required. H&r block com   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. H&r block com For exceptions to this requirement, see section 1. H&r block com 707-3(c)(2) of the regulations. H&r block com   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. H&r block com   Form 8275 must include the following information. H&r block com A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. H&r block com A description of the transferred property or money, including its value. H&r block com A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. H&r block com See section 1. H&r block com 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. H&r block com Contribution to partnership treated as investment company. H&r block com   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. H&r block com   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. H&r block com These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. H&r block com For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. H&r block com Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. H&r block com   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. H&r block com Contribution to foreign partnership. H&r block com   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. H&r block com Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. H&r block com The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. H&r block com   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. H&r block com See the form instructions for more information. H&r block com Basis of contributed property. H&r block com   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. H&r block com Allocations to account for built-in gain or loss. H&r block com   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. H&r block com The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. H&r block com This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. H&r block com   The partnership can use different allocation methods for different items of contributed property. H&r block com A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. H&r block com See section 1. H&r block com 704-3 of the regulations for allocation methods generally considered reasonable. H&r block com   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. H&r block com If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. H&r block com However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. H&r block com Example. H&r block com Areta and Sofia formed an equal partnership. H&r block com Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. H&r block com The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. H&r block com In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. H&r block com Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. H&r block com To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. H&r block com However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. H&r block com The entire $400 must be allocated to Areta. H&r block com Distribution of contributed property to another partner. H&r block com   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. H&r block com   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. H&r block com This amount is the difference between the property's basis and its fair market value at the time of contribution. H&r block com The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. H&r block com Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. H&r block com Disposition of certain contributed property. H&r block com   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. H&r block com Unrealized receivables. H&r block com If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. H&r block com Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. H&r block com When reading the definition, substitute “partner” for “partnership. H&r block com ” Inventory items. H&r block com If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. H&r block com Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. H&r block com Capital loss property. H&r block com If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. H&r block com The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. H&r block com Substituted basis property. H&r block com If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. H&r block com Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. H&r block com Capital interest. H&r block com   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. H&r block com This determination generally is made at the time of receipt of the partnership interest. H&r block com The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. H&r block com The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. H&r block com   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. H&r block com Profits interest. H&r block com   A profits interest is a partnership interest other than a capital interest. H&r block com If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. H&r block com However, this does not apply in the following situations. H&r block com The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. H&r block com Within 2 years of receipt, the partner disposes of the profits interest. H&r block com The profits interest is a limited partnership interest in a publicly traded partnership. H&r block com   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. H&r block com Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. H&r block com If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. H&r block com Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. H&r block com Interest acquired by gift, etc. H&r block com   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. H&r block com Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). H&r block com The basis of an interest in a partnership is increased or decreased by certain items. H&r block com Increases. H&r block com   A partner's basis is increased by the following items. H&r block com The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. H&r block com The partner's distributive share of taxable and nontaxable partnership income. H&r block com The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. H&r block com Decreases. H&r block com   The partner's basis is decreased (but never below zero) by the following items. H&r block com The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. H&r block com The partner's distributive share of the partnership losses (including capital losses). H&r block com The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. H&r block com This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. H&r block com The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. H&r block com Partner's liabilities assumed by partnership. H&r block com   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. H&r block com This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. H&r block com The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. H&r block com See Effect of Partnership Liabilities , later. H&r block com Example 1. H&r block com Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. H&r block com The partnership assumed payment of the mortgage. H&r block com The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. H&r block com If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. H&r block com The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. H&r block com However, this gain would not increase the basis of his partnership interest. H&r block com Book value of partner's interest. H&r block com   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. H&r block com Example. H&r block com Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. H&r block com His partner contributes $1,000 cash. H&r block com While each partner has increased his capital account by $1,000, which will be re
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Consumer Protection Offices

City, county, regional, and state consumer offices offer a variety of important services. They might mediate complaints, conduct investigations, prosecute offenders of consumer laws, license and regulate professional service providers, provide educational materials and advocate for consumer rights. To save time, call before sending a written complaint. Ask if the office handles the type of complaint you have and if complaint forms are provided.

State Consumer Protection Offices

South Carolina Department of Consumer Affairs

Website: South Carolina Department of Consumer Affairs

Address: South Carolina Department of Consumer Affairs
PO Box 5757
Columbia, SC 29250

Phone Number: 803-734-4200

Toll-free: 1-800-922-1594 (SC)

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Banking Authorities

The officials listed in this section regulate and supervise state-chartered banks. Many of them handle or refer problems and complaints about other types of financial institutions as well. Some also answer general questions about banking and consumer credit. If you are dealing with a federally chartered bank, check Federal Agencies.

Office of the Commissioner of Banking

Website: Office of the Commissioner of Banking

Address: Office of the Commissioner of Banking
State Board of Financial Institutions
1205 Pendleton St., Suite 305
Columbia, SC 29201

Phone Number: 803-734-2001

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Insurance Regulators

Each state has its own laws and regulations for each type of insurance. The officials listed in this section enforce these laws. Many of these offices can also provide you with information to help you make informed insurance buying decisions.

Department of Insurance

Website: Department of Insurance

Address: Department of Insurance
Consumer Services
PO Box 100105
Columbia, SC 29202-3105

Phone Number: 803-737-6180

Toll-free: 1-800-768-3467 (SC)

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Securities Administrators

Each state has its own laws and regulations for securities brokers and securities - including stocks, mutual funds, commodities, real estate, etc. The officials and agencies listed in this section enforce these laws and regulations. Many of these offices can also provide information to help you make informed investment decisions.

Office of the Attorney General

Website: Office of the Attorney General

Address: Office of the Attorney General
Securities Division
PO Box 11549
Columbia, SC 29211-1549

Phone Number: 803-734-9916

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Utility Commissions

State Utility Commissions regulate services and rates for gas, electricity and telephones within your state. In some states, the utility commissions regulate other services such as water, transportation, and the moving of household goods. Many utility commissions handle consumer complaints. Sometimes, if a number of complaints are received about the same utility matter, they will conduct investigations.

Office of Regulatory Staff

Website: Office of Regulatory Staff

Address: Office of Regulatory Staff
Consumer Services Division
1401 Main St., Suite 900
Columbia, SC 29201

Phone Number: 803-737-5230

Toll-free: 1-800-922-1531 (SC)

TTY: 1-800-334-2217 (SC)

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The H&r Block Com

H&r block com Publication 972 - Introductory Material Table of Contents Future Developments Reminder IntroductionOrdering forms and publications. H&r block com Tax questions. H&r block com Future Developments For the latest information about developments related to Publication 972, such as legislation enacted after it was published, go to www. H&r block com irs. H&r block com gov/pub972. H&r block com Reminder Photographs of missing children. H&r block com  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. H&r block com Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. H&r block com You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. H&r block com Introduction The purpose of this publication is: To figure the child tax credit you claim on Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48; and To figure the amount of earned income you enter on line 4a of Schedule 8812 (Form 1040A or 1040), Child Tax Credit. H&r block com This publication is intended primarily for individuals sent here by the instructions to Forms 1040, 1040A, or 1040NR, or Schedule 8812. H&r block com Even if you were not sent here by the instructions to one of the forms or the schedule, you can still choose to use this publication to figure your credit. H&r block com However, most individuals can use a simpler worksheet in their tax form instructions. H&r block com If you were sent here from your Form 1040, Form 1040A, or Form 1040NR instructions. H&r block com   Complete the Child Tax Credit Worksheet , later in this publication. H&r block com If you were sent here from your Schedule 8812 instructions. H&r block com   Complete the 1040 and 1040NR Filers — Earned Income Worksheet , later in this publication. H&r block com If you have not read your Form 1040, Form 1040A, or Form 1040NR instructions. H&r block com   Read the explanation of who must use this publication next. H&r block com If you find that you are not required to use this publication to figure your child tax credit, you can use the simpler worksheet in the Form 1040, Form 1040A, or Form 1040NR instructions to figure your credit. H&r block com Who must use this publication. H&r block com   If you answer “Yes” to either of the following questions, you must use this publication to figure your child tax credit. H&r block com Are you excluding income from Puerto Rico or filing any of the following forms? Form 2555 or 2555-EZ (relating to foreign earned income). H&r block com Form 4563 (exclusion of income for residents of American Samoa). H&r block com Are you claiming any of the following credits? Mortgage interest credit, Form 8396. H&r block com Adoption credit, Form 8839. H&r block com Residential energy efficient property credit, Form 5695, Part I. H&r block com District of Columbia first-time homebuyer credit, Form 8859. H&r block com Comments and suggestions. H&r block com   We welcome your comments about this publication and your suggestions for future editions. H&r block com   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. H&r block com NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. H&r block com Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. H&r block com   You can send your comments from www. H&r block com irs. H&r block com gov/formspubs/. H&r block com Click on “More Information” and then on “Comment on Tax Forms and Publications. H&r block com ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. H&r block com Ordering forms and publications. H&r block com   Visit www. H&r block com irs. H&r block com gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. H&r block com Internal Revenue Service 1201 N. H&r block com Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. H&r block com   If you have a tax question, check the information available on IRS. H&r block com gov or call 1-800-829-1040. H&r block com We cannot answer tax questions sent to either of the above addresses. H&r block com Prev  Up  Next   Home   More Online Publications