Question 1. [LO 4] What are guaranteed payments and how do partnerships

1. [LO 4] What are guaranteed payments and how do partnerships and partners treat them for income and self-employment tax purposes?

2. [LO 4] How do general and limited partners treat their share of ordinary business income for self-employment tax purposes?

3. [LO 4] What challenges do LLCs face when deciding whether to treat their members’ shares of ordinary business income as self-employment income?

4. [LO 4] How much flexibility do partnerships have in allocating partnership items to partners?

5. [LO4] What are the basic tax-filing requirements imposed on partnerships?

6. [LO 5] In what situations do partners need to know the tax basis in their partnership interests?

7. [LO 5] Why does a partner’s tax basis in her partnership need to be adjusted annually?

8. [LO 5] What items will increase a partner’s basis in her partnership interest?

9. [LO 5] What items will decrease a partner’s basis in her partnership interest?

10. [LO 6] What hurdles (or limitations) must partners overcome before they can ultimately deduct partnership losses on their tax returns?

11. [LO 6] What happens to partnership losses allocated to partners in excess of the tax basis in their partnership interests?

Losses that are allocated to partners that exceed the partner’s tax basis cannot be used during the current taxable year. The excess loss will be suspended and carried forward indefinitely until the partner has sufficient basis to utilize the losses. A partner would be able to increase her/his tax basis by (1) making a capital contribution, (2) guaranteeing more partnership debt, or (3) helping the partnership become more profitable. Once the partner’s tax basis is positive, the losses previously suspended can be used.

12. [LO 6] In what sense is the at-risk loss limitation rule more restrictive than the tax basis loss limitation rule?

13. [LO 6] How do partners measure the amount they have at risk in the partnership?

14. [LO 6] In what order are the loss limitation rules applied to limit partner’s losses from partnerships?

15. [LO 6] How do partners determine whether they are passive participants in partnerships

16. [LO 6] Under what circumstances can partners with passive losses from partnerships deduct their passive losses?

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