Lesson 1.2.2 Nonrecognition Provision: Applications

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來自 University of Illinois at Urbana-Champaign 的課程

Taxation of Business Entities II: Pass-Through Entities

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University of Illinois at Urbana-Champaign

Taxation of Business Entities II: Pass-Through Entities

10 個評分

課程 4（共 5 門，Specialization U.S. Federal Taxation）

This course provides an introduction to the U.S. federal income taxation of pass-through business entities, including Subchapter S corporations, partnerships, and limited liability companies. The course focuses on the relevant provisions of Subchapters S and K of the Internal Revenue Code, as well as related Treasury Regulations and judicial opinions, governing the formation, operation, and termination of pass-through entities. Practical in-class study problems facilitate self-discovery of technical tax knowledge along with the development of a variety of professional skills and attitudes.

從本節課中

Module 1 Partnership Formation

In this module, you will be introduced to partnerships. We will delve into the formation of partnerships along with the characteristics that differentiate this form of business from other U.S. entities. This module focuses on the eligibility of legal ‘persons’ to form a partnership and the nonrecognition provisions and holding periods that apply to the contribution of such capital. Exceptions to the nonrecognition rules will be highlighted along with additional elections and treatments available to partnership formation.

Lesson 1.2.1 Nonrecognition Provision: Concepts3:45

Lesson 1.2.2 Nonrecognition Provision: Applications2:23

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Michael P Donohoe, PhD, CPA
Associate Professor of Accountancy and PwC Faculty Fellow
Department of Accountancy, Gies College of Business

Let's now apply the non-recognition rules to Sunchaser Shakery.

Nicholas contributed 500 shares of Marley Corporation stock to

the Sunchaser Shakery Partnership in exchange for

a 25% interest and Sunchaser's capital and profits.

The stock which he purchased two years ago for

$10,000 was worth $300,000 when contributed.

After his stock contribution,

Sunchaser's net assets were worth $550,000,

and we want to know what amounts if any do Sunchaser and

Nicholas recognize on the exchange.

Well, this is a fairly straight forward problem

given that we just talked about Section 721,

which provides that there is no gain or loss recognition.

We have a situation where a partner exchanges property for an interest in a partnership.

So recall that basically in this particular problem he's transferring

corporate stock that he already owns as

investment property which by definition is property.

So he's contributing property in exchange for an interest in a partnership.

721 covers both the partnership and the partner unlike

351 and 1032 which require two separate code sections to address each party.

So, here we have no gain or loss recognition because there is

no control requirement for partnerships as there is with corporations.

Nicholas and Emily form Sunchaser Shakery partnership during the current year.

Nicholas contributed $100,000 of cash and Emily contributed land worth $40,000

with a basis of $60,000 and equipment worth $60,000 with a basis of zero.

Each received a 50% interest in the capital and profits of Sunchaser.

And we want to know what amount of gain if any do Nicholas,

Emily and Sunchaser recognize on the exchange.

Well, just like the previous problems,

section 721 is going to apply here as well because we have

partners transferring property in exchange for an interest in a partnership.

721 covers the gain or

loss recognition provisions for both the partners and the partnership.

And here because all requirements are met,

there is no gain or loss recognition for any of the parties.

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