Question Discussion Questions [LO 1] What is a flow-through entity, and what effect does t

Discussion Questions

1. [LO 1] What is a flow-through entity, and what effect does this designation have on how business entities and their owners are taxed?
2. [LO 1] What types of business entities are taxed as flow-through entities?
3. [LO 1] Compare and contrast the aggregate and entity concepts for taxing partnerships and their partners.

1. [LO 2] What is a partnership interest, and what specific economic rights or entitlements are included with it?
2. [LO 2] What is the rationale for requiring partners to defer most gains and all losses when they contribute property to a partnership?

1. [LO 2] Under what circumstances is it possible for partners to recognize gain when contributing property to partnerships?

1. [LO 2] What is inside basis and outside basis, and why are they relevant for taxing partnerships and partners?

1. [LO 2] What is recourse and nonrecourse debt, and how is each generally allocated to partners?
2. [LO 2] How does the amount of debt allocated to a partner affect the amount of gain a partner recognizes when contributing property secured by debt?

1. [LO 2] What is a tax-basis capital account, and what type of tax-related information does it provide?

1. [LO 2] Distinguish between a capital interest and a profits interest, and explain how partners and partnerships treat when exchanging them for services provided.
2. [LO 2] How do partners who purchase a partnership interest determine the tax basis and holding period of their partnership interests?

1. [LO 3] Why do you think partnerships, rather than the individual partners, are responsible for making most of the tax elections related to the operation of the partnership?
2. [LO 3] If a partner with a taxable year-end of December 31 is in a partnership with a March 31 taxable year-end, how many months of deferral will the partner receive? Why?
3. [LO 3] In what situation will there be a common year-end for the principal partners when there is no majority interest taxable year?

1. [LO 3] Explain the least aggregate deferral test for determining a partnership’s year end and discuss when it applies.

1. [LO 3] When are partnerships eligible to use the cash method of accounting?

1. [LO 4] What is a partnership’s ordinary business income (loss) and how is it calculated?
2. [LO 4] What are some common separately stated items, and why must they be separately stated to the partners?

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