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Tax Guide to Partnerships #493126-2

Course Overview

Credit

Amount

CPA

EA / OTRP

Course Author: Danny Santucci, J.D. Field of Study (CPA): Taxes Field of Study (EA/OTRP): Federal Tax Law/Related Matters

Course Description

Course publication/revision date: This course was updated on 9/12/2026 (covers 2026 tax year).

The mini-course will examine tax issues relating to the formation and operation of partnerships. Participants will gain a familiarity with basic areas of partnership taxation so as to recognize a problem and have at hand some practical knowledge for its solution.

Table of Contents

Introduction1

Definition of Partnership	1
Section 761(a)	1
Factors	1
Husband-Wife Partnerships	2
Limited Partnerships	2
Taxed as Corporations	2
Analysis	2
Continuity	2
Centralized Management	3
Limited Liability	3
Transferability	3
Ruling Policies	3
Corporate General Partner	3
Co-tenancies	4
Definition of Trade or Business	5
Joint Ventures	5
Partnership Agreement	5
Modifications	5
Partner's Share of Tax Items	5
Limited Partners	6
Family Partnerships - §704(e)	6
Capital Partnerships	7
Gifts & Interfamily Sales	7
Material Use of Capital	8
Minor Children as Partners	8
Non-Capital Partnerships	8
Advantages	9
Disadvantages	9
Termination Of Partnership	9

Partnership Income10

Partners Taxed as Individuals	10
Self-Employment Tax	10
Exception - Separate Entity for Some Purposes	11
Individual Returns & K-1s	11
Partnership Expenses Paid By a Partner	12
Separately Treated Items	12
Character of Items & Limitations	13
Deduction of Losses	14
Outside Basis Limitation - §704(d)	14
Loss Ultimately Deductible	14
Effect of Losses on Outside Basis - §705	14
Partnership Tax Return	15
Organization & Syndication Fees - §709	15
Capitalized Syndication Fees	15
Business Start-up Costs - §195	15
Definition	16
Filing Requirements	16
Due Date of Return	17
Failure to File	17
Failure to Furnish Copies to Partners	17
Year Taxable - §706(a)	18
Limitation on Choice of Taxable Year	18
Required Tax Year	18
Business Purpose - §706(b)	19
Rev. Proc. 87-32	19
Highest Average Requirement	19
47-Month Exclusion	20
Restrictions	20
Form 1128	20
Section 444 Election	20
Limitations on Changing a Tax Year	21
Making the Election - Form 8716	21
Back-Up Election	21
Required Payment	21
When to File	22
Termination of Election	22
Transactions between Partner and Partnership	22
Treating Partner as Stranger - §707(a)	22
Payments by Accrual Basis Partnership to Cash Basis Partner	22
Guaranteed Payments - §707(c)	23
Capitalization	23
Prepaid & Capital Expenses - §707(c)	23
Organization & Syndication Expenses - §709	23
Guaranteed Minimum	24
Year Taxed - §706(a)	24
Salary vs. Distribution	24
Stranger Payment vs. Guaranteed Payment	24
Payments Resulting in Loss	25
Recipient of Salary as an "Employee"	25
Exception	25
Accident & Health Insurance Premiums	25
Certain Losses Disallowed - §707(b)	25
Two Partnerships	25
Constructive Ownership	26
Sales at Gain	26

Contributions to Partnerships29

Contributions of Property - §721	29
Contribution vs. Sale or Exchange	29
Disguised Sale - §707(a)	29
Disguised Taxable Exchanges - §704 & §737	29
Precontribution Gain or Loss Property	30
Property Distribution to Contributing Partner - §737	30
Anti-Abuse Rules Under §737	30
Contributed Property Distribution to Another Partner - §704(c)	31
Seven Year Period (Formerly Five)	31
Allocation Methods for Precontribution Gain or Loss	31
Transfers to Investment Company Type Partnerships - §721(b)	32
Contributed Assets Inside (Partnership) Basis - §723	33
Allocations as to Contributed Property - §704(c)	33
Liabilities	33
Earlier Optional Application of §704(c)	34
Character of Subsequent Gain	34
Taint On Contribution - §724	34
Character of Subsequent Loss - §724(c)	34
Contribution of Services	34
Basis of Partner's Interest - Outside Basis	35
Original Basis - §722	36
Adjustments to Basis	36
Effect of Liabilities - §752	36
Deemed Distribution & Contribution	37
Special Rule for Liabilities of Cash Basis Partnership	37
Partner's Share of Partnership Liabilities	37
Limited Partnerships	37
Exception	37
Guarantees	38

Sales & Exchanges of Partnership Interests38

Capital Asset Treatment - §741	38
Aggregate Exceptions	38
Unrealized Receivables & Inventory - §751	39
Collectibles	39
Unrecaptured §1250 Capital Gain	39
Exchanges & Transfers	39
Like-Kind Exchanges - §1031	40
Transfers to Controlled Corporations - §351	40
Partner's Interest Basis	40
Foreign Person Sale of U.S. Partnership Interest	40
Liabilities of Partnership	41
Inside Basis after Transfer of Partnership Interest	41
General Rule - §743(a)	41
Substantial Built-in Loss - §743(d)	41
Special Inside Basis Adjustment - §754 & §743(b)	42
Allocation of Basis - §755	42
Death of Partner	42
Basis Exception	43
Permanency of Election	43

Partnership Distributions43

General Nonrecognition Rule - §731	43
Exceptions to General Rule	44
Basis Adjustments	44
Partner's Interest - §733	44
Property Received - §732	44
Nonliquidating Distribution	44
Basis Limitation - §732(a)	44
Liquidating or Complete Distribution	45
Allocation of Basis When Limited - §732(c)	45
Partnership's Basis Greater Than Partner's Basis	45
Partner's Basis Greater Than Partnership's Basis	45
Special Adjustment to Basis	45
Mandatory Application	46
Holding Period - §735	46
Partnership Property - §754 & §734	46
Basis Allocation on Properties Distributed By a Partnership	47

Partnership Liquidations47

Flexible Treatment	47
Types of Liquidating Distributions	47
Liquidating Distributions of Money	47
Section 736(a) Payments	48
Section 736(b) Payments	48
Effect	48
Exclusions From §736(b) Treatment	49
Basis Adjustment after Distributions	49
Election - §754	50
Additional Adjustments Required by §734	50

Limited Liability Companies50

Introduction	50
LLC Benefits	50
Disadvantages	51
Federal Tax Consequences	51
Check-the-Box Regulations	52

Course Details

Author: Danny Santucci, J.D.

Danny earned his Bachelor of Arts in Political Science from the University of California at Irvine in 1969. He received his Juris Doctorate from Boalt Hall School of Law, University of California at Berkeley in 1972, at which time he began practice as a tax attorney in Southern California. His legal career was initiated with the business and litigation firm of Edwards, Edwards and Ashton. Later he joined the Century City entertainment firm of Bushkin, Gaims, Gaines & Jonas working for many well-known celebrities. In 1980, Danny established the law firm of Santucci, Potter and Leanders, in Irvine, California. With increasing lecture and writing commitments, Danny went into sole practice in 1995. His practice emphasizes business taxation, real estate law and estate planning. Danny has been an officer and active member in various organizations including the Glendale Bar Association, Century City Bar Association, Orange County and Los Angeles County Bar Associations, California State Bar Association, Toastmasters and Lions Club. He also avidly supports the American Association for the Advancement of Science. He has been admitted to practice before all California and federal courts including the United States Tax Court and the United States Supreme Court. Serving as a lecturer for the Continuing Education of the Bar of California, Golden Gate University, and numerous state C.P.A. societies, Danny teaches a variety of tax, business and real estate courses. Danny has been in demand all across the country as a speaker for all levels of professional and civic organizations and numerous major seminar circuits. Danny spoke to over 2,000 people per month and traveled more than 150,000 miles annually. In 2015, he withdrew from the lecture circuit to devote himself to tax research and writing. The author of numerous texts, he is listed in "Who’s Who in Creative Real Estate" and is admitted to the American Exchangor’s Hall of Fame.

Publication/Revision Date: 9/12/26

Course Exam Questions (online): 10 (multiple-choice)

Program Delivery Method: Self-Study (NASBA QAS Self-Study)

Available Formats of Course Text: Downloadable PDF, Printed/Mailed

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None
EA/OTRP	Overview	None	None

Sponsor ID Numbers

National Registry of CPE Sponsors I.D.: 107615

IRS Qualified Sponsor I.D.: FWKKO — Course I.D.: FWKKO-T-00785-26-S

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Recognize the tax treatment of partnerships specifying advantages and disadvantages and their effect on income attribution.
Determine the impact of partnership K-1s on individual or partner taxation and specify the tax treatment of guaranteed payments, organizational expenses, and other fees.
Identify the tax treatment of contributions of property to a partnership under §721 and the impact on tax basis.
Recognize the tax treatment of partnership distributions and sale of partnership interests by:
1. Identifying the tax treatment of partner liabilities and of sales and exchanges of partnership interests and property; and
2. Determining the differences between liquidating and nonliquidating payments including the definition of a partner's basis on such an event.

After studying the materials, answer exam questions 1 to 10.