One Thing A Day (CPA's version)

[4.18.2025]

Net ordinary income/loss = Sum of all K-1 income lines (except for Lines 8,9,10) - Sum of all K-1 deduction lines (except for Line 13A, 13H). Interest expense is a partner level deduction.

[12.18.2024]

Fixed or determinable annual or periodical ("FDAP")

30% unless reduced by treaty

Generally, a US tax return is not required to be filed for the year if the tax is fully withheld at the source

E.g. dividends, interest, certain rents

Effectively Connected Income ("ECI")

Trade or business within the United States: All income from sources within the United States connected with the conduct of that ToB is considered to be Effectively Connected Income (ECI) (i.e. permanent establishment)

Defined mainly by US courts

Net income taxed at highest marginal rate

[11.25.2024]

The Basic Test

Capital Account Requirement

Liquidation Requirement

Deficit Makeup Requirement - Deficit Restoration Obligation "DRO"

[11.22.2024] "Tax Follows Book" refers to that allocations reported for tax should follow the allocations reported for 704(b) "book".

Allocations should follow the economics of the deal.

[11.21.2024] Sometimes the seller's gain is the same as the buyer's 743(b) adjustment amount, but we should never use that approach because if it only works when it's an initial sale.

[11.21.2024]

To cure disparities, Sec 754 election allows partnership to adjust the inside basis of partnership property in a manner provided in:

Sec 734(b) Adjustment - distributions due to redemptions

[11.18.2024] Exemption for QFPFs: Qualified Foreign Pension Funds (QFPFs) are exempt from FIRPTA withholding, but this exemption is based on the recognition that these funds are tax-exempt in their home countries and serve a public purpose (i.e., providing retirement benefits). The exemption reflects the aim to avoid double taxation and encourage cross-border investment by pension funds.

[7.10.2024] Typically calculated the same as 704(d) tax basis, except it only includes a partner's share of recourse debt and qualified nonrecourse financing (not nonrecourse debt).

a. Unlike 704(d) tax basis, current year losses and deductions are allowed to the extent of current year income, irrespective of distributions.

[7.9.24] Foreign investors (non-US individuals or entities who generally do not have a US filing obligation) are sensitive to certain types of income:

US sourced dividends, interest or royalties ('FDAP')

Income and gain on sale derived from a US trade or business ('ECI')

Gain on sale of US real property ('FIRPTA')

Commercial activity income ('CAI')

Withholding certificates:

W-8IMY -> non-US partnership or intermediary

W-8BEN -> non-US person that beneficially owns fund interest (individuals)

W-8BEN-E -> non-US entity that beneficially owns fund interest (entities)

[4.18.24]

Functions as a corporation: No state filings / Blocks UBTI (good for tax-exempt owners)

For the purposes of these instructions, a reportable entity partner with respect to a partnership filing Form 1065 is an entity that:

Owns or is deemed to own, directly or indirectly a 50% or greater interest in the income, loss, or capital of the partnership on any day of the tax year; and

Was required to file Schedule M-3 on its most recently filed U.S. federal income tax return or return of income filed prior to that day.

[2.22.24] For the purpose of considering distribution in excess of basis, the use of the nonrecourse debt may be limited for calculating the basis.

704(d) Tax Basis - Tax basis capital plus the partner's share of debt (both recourse and nonrecourse)