PARTNERSHIPS∶ FORMATION OPERATION AND BASIS.docx

Chapter 10Partnerships: Formation, Operation, and BasisLecture NotesSUMMARY OF CHANGES IN THE CHAPTERThe following are notable changes in the chapter (and these Lecture Notes) from the 2013 Edition. For major changes, see the Preface to the Instructor’s Edition of the text.News BoxesUpdated Tax in the News titled Trends in Partnership Usage.Updated Tax in the News titled LLC Members Not Automatically Treated as Passive.The Big Picture – Why use a Partnership, Anyway?Removed the Red Robin Partnership example from this Instructor Guide, and added an example tax return based on the second year of operations of Beachside Properties, LLC. (Corresponds to various examples in Chapter 10.)Clarified that Kyle had a $0 basis in the depreciable property and a $600,000 basis in the (non-depreciable) land he contributed to Beachside Properties, LLC.In various examples, clarified items to better illustrate tie-in to tax forms.Added tie-in to Beachside Properties, LLC for guaranteed payments.Text Changes, In GeneralThroughout chapter, provided clarification of whether discussion relates to a general tax rule or an exception to the rule.For the various types of partnerships, added information regarding the extent to which the owners can participate in management of the entity.In discussion of types of partnerships, noted that most of the partnerships referenced in the examples are operating partnerships that would most likely be formed as LLCs in most states.In text examples, changed the type of entity from a “Partnership” to an “LLC” where an LLC would typically be used in the “real world.”Clarified that the partnership’s deduction related to income recognized by a service partner who received a partnership interest in exchange for services is generally allocated to the non-service partners.Clarified that for purposes of the § 199 deduction, guaranteed payments do not qualify as W-2 wages.10.1 OVERVIEW OF PARTNERSHIP TAXATION1.Partnerships are not treated as separate tax entities