The logic of Subchapter K.
A research map for partnership taxation. Start with the transaction, keep the ledgers separate, and follow each rule to its authority.
Formation
Start with what goes in: cash, property, basis and liabilities.
Allocations
Follow the character and allocation of partnership items.
Basis & limitations
Track outside basis before considering at-risk and passive-activity limits.
Payments to partners
Separate distributive shares, guaranteed payments and nonpartner-capacity transactions.
Distributions
Identify money, deemed money and the basis of property received.
Put the rules in motion.
Partnership cash distribution
Follow cash and liability relief through a simplified outside-basis distribution example.
Explore the calculation PartnershipsOutside basis rollforward
Build a simplified partner-basis schedule and see where the basis loss limitation begins.
Explore the calculation PartnershipsAdjusted basis & gain
Separate an asset’s adjusted tax basis from its net sale proceeds in a simple purchased-asset example.
Explore the calculationStudy the mechanics.
Three ledgers, three different questions
Outside basis, inside basis and book capital are related, but each follows a different ledger.
PartnershipsOutside basis is a moving balance
An annual basis schedule explains why the cash received and income reported can be different.
PartnershipsBefore calling a distribution tax-free
Identify cash, deemed cash, outside basis and the special rules before reaching a conclusion.
PartnershipsA guaranteed payment is not simply an owner draw
The payment formula and the partner’s role matter more than the label on the bank transfer.