What items may be treated as ordinary income to a retiring partner?

Solutions

Expert Solution

Partner's Distributive share.

'Remaining Partners Distribute share of Partnership income to Retiring Partner as Ordinary Income'

Sec. 736(a) payments are deductible by the partnership and are ordinary income to the liquidating partner, subject to self-employment tax. A cash-basis partner should be aware that if the partnership accrues a payment to the partner in its tax year, the partner must recognize that income in the same tax year.

Payments, to the extent considered as a distributive share of partnership income under section 736(a)(1), are taken into account under section 702 in the income of the withdrawing partner and thus reduce the amount of the distributive shares of the remaining partners. Payments, to the extent considered as guaranteed payments under section 736(a)(2), are deductible by the partnership under section 162(a) and are taxable as ordinary income to the recipient under section 61(a).

LET ME KNOW IF MORE CLARIFICATION REQUIRED BEFOR PROVIDING FEEDBACK THANK YOU

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

How are donations of capital gain property treated? What about donations of ordinary income property? What about inventory?

Section 736 - liquidating distributions to retiring partner: The December 31 balance sheet of the GAB...

Section 736 - liquidating distributions to retiring partner: The December 31 balance sheet of the GAB LLP reads as follows. Adjusted Basis FMV Cash $300,000 $300,000 Receivables -0- 100,000 Capital assets 60,000 80,000 Total $360,000 $480,000 Gina, capital $90,000 $120,000 Adelle, capital 180,000 240,000 Britney, capital 90,000 120,000 Total $360,000 $480,000 Capital is not a material income-producing factor for the LLP. Gina is an active (general) partner and owner of a 25% interest in the LLP's profits and capital. On...

Think of items that you have purchased in a market such as ordinary items in your...

Think of items that you have purchased in a market such as ordinary items in your weekly budget like coffee or tea. 1. What price trends have you noticed over the last few years? Do the prices of coffee or tea fluctuate? Have prices increased or decreased? and How would you use what you have learned concerning Supply and Demand to explain these trends?

What is the difference between ordinary income and statutory income pursuant to the ITAA97 and ITAA36...

What is the difference between ordinary income and statutory income pursuant to the ITAA97 and ITAA36 ? Explain your answer in detail and refer to relevant case law , ATO Guidance in the form of Tax Rulings as well as to the relevant legislative provisions contained in ITAA97 and ITAA36 .

What is the difference between ordinary income ans statutory income pursuant to the ITAA97 and ITAA36?...

What is the difference between ordinary income ans statutory income pursuant to the ITAA97 and ITAA36? Explain your answer in detail and refer to relevant case law, ATO Guidance in the form of Tax Rulings as well as to the relevant legislative provisions contained in ITAA97 and ITAA36.

What are the specific items that are included in the computation of gross income and the...

What are the specific items that are included in the computation of gross income and the specific items that are excluded from gross income. What are some of the items that are specifically included in the calculation of gross income? What items have been specifically excluded in the computation of gross income? Are you surprised by any of these items? Why do you think that Congress specifically included or excluded any of these items? Does an exclusion from income mean...

1b There are various items that reduce taxable income relative to total income – what is...

1b There are various items that reduce taxable income relative to total income – what is the general term for these items (collectively, do not list all of them individually)? What do you think is the economic justification for these not being included in taxable income? Pick one and explain its specific justification. 1c: Under ‘taxable income assessed’ there are various items, usually called ‘amounts’. What is the general term for these items? Pick one, and explain briefly what you...

Why is partnership ordinary income not the same as partnership taxable income?

Listed below are items that are treated differently for accounting purposes than they are for tax...

Listed below are items that are treated differently for accounting purposes than they are for tax purposes. (i) Explain the difference between a temporary difference and a permanent difference. (ii) Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities. 1. An accelerated depreciation system is used for tax purposes, and the straight-line depreciation method is used for financial reporting purposes for some plant assets....

Let's talk about computing ordinary income for a partnership. What are the major components of this...

Let's talk about computing ordinary income for a partnership. What are the major components of this calculation? What type of deductions are allowed for the partnership?

Subjects