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Taxation and Regulation/Blueprint/5.C

Partnerships

Area 5: Federal Taxation of Entities (23-33%)

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Topics

  • Formation and contributions
  • Partner basis and distributive shares
  • Distributions and liquidations

Lessons

  • Partnerships

Study Frameworks

Business Entity Taxation

Entity Types
C Corporation
Taxed at entity level (21% flat)
Double taxation on dividends
Unlimited shareholders
S Corporation
Pass-through (K-1)
≤100 shareholders
One class of stock
Shareholder basis: stock + debt to shareholder
Partnership
Pass-through (K-1)
Flexible allocations
Basis: capital + share of all liabilities
No entity-level tax
Sole Proprietorship
Schedule C
Self-employment tax
No separate entity

Partnership Outside Basis

Beginning Basis + Income + Contributions + Share of Liabilities − Distributions − Losses

Partners include their share of all partnership liabilities (recourse and nonrecourse)

Entity Comparison — Key Tax Characteristics

FeatureC CorpS CorpPartnershipSole Prop
Tax form11201120-S1065Schedule C
Entity-level taxYes (21%)NoNoNo
Pass-throughNoYes (K-1)Yes (K-1)Yes (Sch C)
SE tax on ownersNoNo (wages instead)Yes (general partners)Yes
Loss limitationsNOL rulesStock + debt basisOutside basis + at-risk + PALAt-risk + PAL
Max shareholders/partnersUnlimited100Unlimited1
Basis includes entity debtN/ANo (direct loans only)Yes (all liabilities)N/A
HOTHighly appreciated inventory (>120% of basis), Ordinary income recapture (§1245/§1250 depreciation), Trade receivables (unrealized receivables)

Section 751 hot assets in a partnership that trigger ordinary income treatment on sale of a partnership interest.

Practice These Topics(79 questions)