Question

Which of these are true and why

8. In a general partnership all the partners are classified as "general partners," each of

whom has unlimited liability for the debts of the partnership.

9. The partnership's beginning tax basis in property it receives from a partner in

exchange for an interest in partnership capital is the contributing partner's adjusted basis

in the property.

10. As a general rule, when a person obtains an interest in partnership capital through

rendition of services, ordinary income is recognized to the extent of the fair market value

of the interest received.

Answer 1

8. True

General partners share equal rights and responsibilities in connection with management of business. general partnership is one in which all of the partners have the ability to actively control the business this means that every owner has authority to make decisions about how the business is run as well as the authority to make legal binding decisions. Unless they have agreement, each partner will have equal authority

For example: If a creditor cant get what he is owed by one or more of the partners, he can collect it from another partner even that partner has already paid his share of debt

Any individual partner can bind entire group to a legal obligation. each individual partner assumes full responsibilty for all the business bebts and obligations. Although such personal liability is daunting, it comes with a tax advantage. partnership profits are not taxed to the business.

Concusion: In general partnership each partner has unlimited liability for all the partnership debts, In a limited partnership limited partners have limited liability and they can only lose the amount which they were invested initially

9. True

A partner's tax basis in the partnership generally equals the adjusted basis of property contributed or cash paid plus any income recognized by the partner on the formation of the partnership, plus the partner's share of the liabilities of the partnership under 26 U.S.C. § 752.

When contributed property is sold by the partnership, the recognized gain or loss is allocated among the partners in accordance with the terms in the partnership agreement.

Sec. 723 provides that a partnership's basis in contributed property is generally the contributing partner's adjusted tax basis in the property, plus any gain the partner recognizes under the investment company rules

Example: your adjusted basis in a partnership is $14,000. You receive a distribution of $8000 cash and land with a FMV of $3000 and an adjusted basis of $2000.

Since the amount of cash received is less than your interest in the partnership, there is no taxable transaction.

However, your outside basis in the partnership declines to $4000 (= $14,000 – $8000 – $2000).

Subsequently, you receive a distribution of land with an adjusted inside basis of $10,000.

Since your outside basis in the partnership is only $4000, your adjusted basis in the land is also $4000, and you must report a gain of $6000 (= $10,000 – $4000).

10. True

Sec. 723 provides that a partnership’s basis in contributed property is generally the contributing partner’s adjusted tax basis in the property, plus any gain the partner recognizes under the investment company rules.

In addition, if the contributing partner recognizes gain from the relief of liabilities, the partnership may be entitled to a basis step-up.

The partnership also receives a higher basis if gain is recognized under the disguised-sale rules or under the Sec. 704(c) rules for contributed property later distributed to another partner.

If contributed property has a built-in loss, the built-in loss is taken into account only in determining the amount of items allocated to the contributing partner.

Except as provided in regulations, in determining the amount of items allocated to the other partners, the basis of the contributed property in the hands of the partnership is its fair market value (FMV) at the time of contribution

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