Henry is a 60% partner in HJ Partnership. This year, the tax form he receives from...

Henry is a 60% partner in HJ Partnership. This year, the tax form he receives from HJ (Schedule K-1 of Form 1065) shows business income of $89,680. During the year, Henry received a $15,625 distribution from HJ. Assume Henry's basis in the partnership is $31,250.

a. How much must Henry report on his Form 1040 from HJ for the tax year?

b. Assume HJ is a S corporation. How much must Henry report on his Form 1040 from HJ for the tax year?

Expert Solution

a) When HJ is a Partnership Firm :

A partnership is business structure between 2 or more partners who agree to share profits and losses in the agreed ratio.Generally, the partnership firm does not pay taxes on its income. It enjoys a "pass-through" status, where the income is distributed to the partners of the firm in the ratio agreed, and the partner's are liable to pay taxes on their share of income from the partnership whether or not the income is distributed.

In the given case, the business income as mentioned in Schedule K-1 is $89,680, out of which Henry's share of income from the partnership firm is 60% which is $53808 (60% of $89,680). Hence, Mr.Henry shall report the income in the form 1040 and pay taxes on the same at the applicable rates.

b) When HJ is a S Corporation :

In this case , HJ is treated as a Corporation & not as a partnership firm. When HJ is a Corporation, the laws of partnership will not apply and the regular tax laws shall apply. Hence, the Corporation cannot enjoy the pass-through status and has to pay tax on the entire income of $89680.

Since the entire income is taxable in the hands of the S Corporation, the same shall not be taxed again in the hands of the partner. Therefore, in the given case Mr.Henry need not pay tax on the same.

ekkarill92 answered 2 years ago

What is the tax treatment to a partner who receives the distribution assuming the partnership has...

What is the tax treatment to a partner who receives the distribution assuming the partnership has made a Section 754 election. The distribution was cash of $60,000 and inventory of $30,000. The partner's basis before the distribution was $50,000. What is the gain or loss for the partner, the cash basis after the distribution, inventory basis, and Section 734 Adjustment?

Benny is a partner in the BEN partnership. His outside basis is $250. He receives a...

Benny is a partner in the BEN partnership. His outside basis is $250. He receives a distribution of $75 in cash. a)Is the distribution taxable to Benny? If not, why not? b)What is Benny’s outside basis after the distribution? c)If instead the distribution was $275 would the answer to part (a) change (and if so how?)

Discuss the tax implications for the different types of partnership transactions, such as partner-partnership, partner-partner, partner-external...

Discuss the tax implications for the different types of partnership transactions, such as partner-partnership, partner-partner, partner-external partner. How are gains and losses allotted for each pass-through entity?

Cari Hawkins is a 50% partner in the calendar year Hawkins-Henry Partnership. On January 1, 2015,...

Cari Hawkins is a 50% partner in the calendar year Hawkins-Henry Partnership. On January 1, 2015, her basis in her partnership interest is $160,000. The partnership has no taxable income or loss for the current year. In a nonliquidating distribution on December 15, the partnership distributes $120,000 cash to Cari and inventory proportionately to all partners. Cari’s share of the inventory has a basis of $50,000 (fair market value of $60,000). In January 2016, Cari asks your advice regarding treatment...

assume a partner withdraws from a partnership and receives assets of greater value than the book...

assume a partner withdraws from a partnership and receives assets of greater value than the book value of his equity. Should the remaining partners share the resulting reduction in their equities in the ratio of their relative capital balances or according to their income-and-loss-sharing ratio? Explain in detail.

Which form of compensation is a partner entitled to receive from a partnership? A. Weekly salary...

Which form of compensation is a partner entitled to receive from a partnership? A. Weekly salary for work performed. B. Fair market value for services rendered. C. A share of partnership profits. D. A reasonable management fee for managing the business. In Finch v. Raymer, the court ruled that the plaintiff and defendant had formed a partnership to renovate real property because: A. Title to the real property was held in the names of both parties. B. Defendant had...

Rick is a partner in the Ten Hicks Partnership. This year, he received a distribution consisting...

Rick is a partner in the Ten Hicks Partnership. This year, he received a distribution consisting of two properties. Property 1 was worth $40,000 at the date of the distribution and had a tax basis to the partnership of $28,000. Property 2 was worth $60,000 and had a tax basis of $12,000. Rick’s tax basis in his partnership interest was $30,000 prior to the distribution. The partnership did not have any hot assets either before or after the distribution. a....

Partner Z of the XYZ partnership receives a liquidating distribution of the following: Basis

Partner Z of the XYZ partnership receives a liquidating distribution of the following: Basis FMV Cash $40,000 $40,000 Inventory $30,000 $45,000 Unrealized receiv. $50,000 $45,000 1. Z’s basis in her partnership interest was $95,000. What is her gain or loss and the bases of the assets distributed to her? 2. Assume Z’s basis in her partnership interest was $130,000. What is her gain or loss and the bases of the assets distributed to her?

Formation of partnership Assume that two individuals agree to form a partnership. Partner A is contributing...

Formation of partnership Assume that two individuals agree to form a partnership. Partner A is contributing an operating business that reports the following balance sheet: Cash $7,500 Accounts payable $22,500 Receivables 15,000 Accrued liabilities 15,000 Inventories 30,000 Total liabilities $37,500 Total assets $52,500 Net assets $15,000 Partner B is contributing cash of $37,500. The partners agree that the initial capital of the partnership should be shared equally. Prepare the journal entry to record the capital contributions of the partners using...

“Gibbson, a partner in G&B partnership wants to extend a loan to the partnership. He is...

“Gibbson, a partner in G&B partnership wants to extend a loan to the partnership. He is unsure of how this would affect the partnership accounts”. Advice Gibbson.

Question