Table of Contents
CHAPTER 1 Introduction1-1
| Definition of Partnership | 1-1 |
| Section 761(a) | 1-1 |
| Partnership Agreement | 1-11 |
| Family Partnerships - §704(e) | 1-12 |
| Publicly Traded Partnerships - §7704 | 1-17 |
| Advantages | 1-18 |
| Disadvantages | 1-18 |
| Exclusion from Partnership Treatment - §761 | 1-24 |
| Complete Exclusion Election | 1-24 |
| Partial Exclusion Election | 1-26 |
| Loss & Year Limitations | 1-26 |
| Changing the Exclusion Choice | 1-26 |
CHAPTER 2 Partnership Income2-1
| Partners Taxed as Individuals | 2-1 |
| Self-Employment Tax | 2-3 |
| Exception - Separate Entity for Some Purposes | 2-4 |
| Individual Returns & K-1s | 2-7 |
| Separately Treated Items | 2-8 |
| Character of Items & Limitations | 2-9 |
| Deduction of Losses | 2-10 |
| Outside Basis Limitation - §704(d) | 2-10 |
| Loss Ultimately Deductible | 2-10 |
| Effect of Losses on Outside Basis - §705 | 2-10 |
| Partnership Tax Return | 2-12 |
| Organization & Syndication Fees - §709 | 2-12 |
| Business Start-up Costs - §195 | 2-13 |
| Filing Requirements | 2-14 |
| Special Allocations - §704(b) | 2-17 |
| Economic Effect | 2-17 |
| "Substantial Effect" | 2-17 |
| Year Taxable - §706(a) | 2-20 |
| Limitation on Choice of Taxable Year | 2-20 |
| Closing of Partnership Year | 2-32 |
| Transactions Between Partner and Partnership | 2-38 |
| Treating Partner as Stranger - §707(a) | 2-38 |
| Guaranteed Payments - §707(c) | 2-39 |
| Certain Losses Disallowed - §707(b) | 2-43 |
| Sales at Gain | 2-45 |
CHAPTER 3 Contributions to Partnerships3-1
| Contributions of Property - §721 | 3-1 |
| Contribution vs. Sale or Exchange | 3-3 |
| Precontribution Gain or Loss Property | 3-3 |
| Transfers to Investment Company Type Partnerships - §721(b) | 3-7 |
| Contributed Assets Inside (Partnership) Basis - §723 | 3-9 |
| Allocations as to Contributed Property - §704(c) | 3-11 |
| Character of Subsequent Gain | 3-12 |
| Character of Subsequent Loss - §724(c) | 3-12 |
| Contribution of Services | 3-14 |
| Basis of Partner's Interest - Outside Basis | 3-17 |
| Original Basis - §722 | 3-18 |
| Adjustments to Basis | 3-18 |
| Effect of Liabilities - §752 | 3-18 |
| Partner's Share of Partnership Liabilities | 3-21 |
| Limits on Deduction of Partnership Losses | 3-24 |
| At-Risk Rule - §465 | 3-24 |
| Passive Losses - §469 | 3-29 |
CHAPTER 4 Sales & Exchanges of Partnership Interests4-1
| Capital Asset Treatment - §741 | 4-1 |
| Corn Products Rule | 4-1 |
| Importance of Capital Treatment | 4-3 |
| Regs on Gain on Sale of Passthrough Entities - §1(H) | 4-3 |
| Exchanges & Transfers | 4-3 |
| Hot Assets - §751 | 4-8 |
| Liabilities of Partnership | 4-12 |
| Inside Basis after Transfer of Partnership Interest | 4-15 |
| Gifts | 4-18 |
| Exceptions | 4-19 |
| Abandonment or Forfeiture | 4-19 |
CHAPTER 5 Partnership Distributions5-1
| General Nonrecognition Rule - §731 | 5-1 |
| Exceptions to General Rule | 5-3 |
| Basis Adjustments | 5-3 |
| Distributions of Receivables or Inventory | 5-9 |
CHAPTER 6 Partnership Liquidations6-1
| Flexible Treatment | 6-1 |
| Types of Liquidating Distributions | 6-2 |
| Distributions of Property in Liquidation | 6-10 |
| Basis Adjustment after Distributions | 6-12 |
| Election - §754 | 6-12 |
| Additional Adjustments Required by §734 | 6-13 |
CHAPTER 7 Limited Liability Companies7-1
| Introduction | 7-1 |
| Check-the-Box Regulations | 7-1 |
| LLC Benefits | 7-3 |
| Advantages of LLCs over C Corporations | 7-3 |
| Double Tax | 7-3 |
| Basis Adjustment | 7-3 |
| Special Allocations | 7-3 |
| Contributions | 7-5 |
| Liquidation | 7-5 |
| Unreasonable Compensation | 7-5 |
| Non-Tax Benefits | 7-5 |
| Advantages of LLCs over S Corporations | 7-5 |
| Advantages of LLCs over Limited Partnerships | 7-7 |
| Outside Basis & Debt Share Advantage | 7-8 |
| Advantages of LLCs over General Partnerships | 7-9 |
| Disadvantages | 7-9 |
| Uses | 7-12 |
| Professional Firms | 7-12 |
| Venture Capitalists | 7-14 |
| Leveraged Buyouts - LBO | 7-14 |
| Joint Venture | 7-15 |
| Corporations Filing Consolidated Returns | 7-15 |
| Foreign Investment | 7-15 |
| Real Estate Ventures | 7-15 |
| Charitable Investment | 7-16 |
| Estate Planning | 7-16 |
| Problem Uses | 7-17 |
| Federal Tax Consequences | 7-18 |
| Check-the-Box Regulations | 7-18 |
| Self-Employment Tax | 7-19 |
| At-Risk Rules - §465 | 7-22 |
| Debt Discharge Income | 7-23 |
| Passive Loss Rules - §469 | 7-23 |
| Method of Accounting | 7-24 |
| Audit Procedures | 7-26 |
| Conversion of Partnership to LLC | 7-27 |
| Conversion of S Corporation to LLC | 7-27 |
| Conversion of C Corporation to LLC | 7-28 |
| Local Taxes on Conversion | 7-28 |
| Sales & Use Tax | 7-28 |
| Real Property Taxes | 7-29 |
| Real Property Transfer Taxes | 7-30 |
| Entity Comparison | 7-30 |
| Answers & Explanations | 7-35 |
Glossary7-75
Index of Keywords & Phrases7-76
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: 9/25/2026
Course Exam Questions (online): 120 (multiple-choice)
Program Delivery Method: Self-Study (NASBA QAS Self-Study)
Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail
Course Level, Prerequisites, and Advance Preparation Requirements
| License | Course Level | Prerequisites | Advance Preparation Requirements |
|---|
| CPA | Overview | None | None |
| CFP® | Intermediate | None | None |
| EA/OTRP | Overview | None | None |
* This program is appropriate for professionals at all organizational levels.
Sponsor ID Numbers
National Registry of CPE Sponsors ID: 107615
CFP Board Sponsor ID: 1008 — Course ID: 257138
IRS Qualified Sponsor ID: FWWKO — Course ID: FWKKO-T-00799-26-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
Chapter 1: Introduction
Major Topics
- Section 761(a)
- Husband-wife partnerships
- Limited partnerships
- Co-tenancies & joint ventures
- Partnership agreements
- Family partnerships
- Publicly traded partnerships
- Advantages & disadvantages
- Complete & partial exclusion elections
- Loss & year limitations
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Determine what constitutes a partnership for federal income tax purposes under §761(a) by:
- Recognizing factors for partnership existence, identifying co-tenancy status, husband-wife partnerships, and the correct reporting of income and loss;
- Identifying the liability of general and limited partners, including how such liability might be contained; and
- Specifying the factors previously used to determine whether a business was a corporation or a partnership and the factors of the current check-the-box regulations.
- Recognize the impact of partnership agreements on partners' shares of tax items, specify the requirements of §704(e) for family partnerships, and cite the pros and cons of partnerships to determine when the entity choice is appropriate.
- Identify the complete or partial exclusion from partnership treatment under §761.
After studying the materials in Chapter 1, answer exam questions 1 to 23.
Chapter 2: Partnership Income
Major Topics
- Partners taxed as individuals
- Separately treated items
- Deduction of losses
- Partnership tax return
- Special allocations
- Limitations on the choice of a taxable year
- Closing of the partnership tax year
- Treating partner as a stranger
- Guaranteed payments
- Certain losses disallowed & sales at a gain
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Recognize the allocation of income and deduction among partners, identify when a partnership or its partners are subject to income or estimated tax, determine what constitutes §1402 self-employment taxes, and specify instances where partnerships are viewed as separate entities.
- Specify the types of separately stated partnership expenses, identifying the character of such items and their deduction limitations, and recognize the §704(d) outside basis limitation and its impact on losses.
- Determine whether a partnership can elect to amortize certain business-related expenses, and specify the elements and requirements of the partnership tax return and the items of deduction to which individuals are entitled.
- Identify a partnership's year taxable under §706(a) and the allocation of items of income and deduction from the partnership to the partners by:
- Specifying instances when a partnership generally must conform its tax year to its partners' tax years and the least aggregate deferral of income for each partner whose tax year is different from other partners;
- Recognizing the availability of the natural business year, including the §444 election as it relates to a partnership's tax year identifying its costs
Chapter 3: Contributions to Partnerships
Major Topics
- Contribution vs. sale or exchange
- Precontribution gain or loss property
- Allocations as to contributed property
- Character of subsequent gain or loss
- Contribution of services
- Original and adjusted basis of partner's interest
- Effect of liabilities on outside basis
- Partner's share of partnership liabilities
- At-risk rule
- Passive losses
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Recognize the tax-free capitalization rules of §721 by:
- Specifying the differences between a contribution and a sale or exchange recognizing the treatment of transfers to investment company type partnerships; and
- Identifying when the property taint rules apply and methods of allocation for precontribution gain or loss.
- Determine a partnership's basis for contributed assets under §723.
- Specify the taxation of contributed services and strategies to avoid immediate taxation.
- Determine the original and adjusted basis of an interest acquired by contributing property and/or money under §722.
- Recognize a partner's loss deduction when the limits on deductions of partnership losses apply by:
- Determining amounts at risk under §465; and
- Specifying the buckets of income under §469, identifying the impact of passive loss rules.
After studying the materials in Chapter 3, answer exam questions 57 to 79.
Chapter 4: Sales & Exchanges of Partnership Interests
Major Topics
- Corn Product Rule
- Importance of capital treatment
- Regulations on the gain on sale of pass-through entities
- Exchanges & transfers
- Unrealized receivables
- Inventory
- Liabilities of partnership
- Inside basis after transfer of a partnership interest
- Gifts
- Abandonment or forfeiture
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Determine capital asset treatment on the sale or disposition of a partnership interest under §741 by:
- Recognizing whether the Corn Products Rule applies and the reasoning behind the determination;
- Specifying the reasons why capital treatment is important and recognizing the impact of capital gain regulations on sales or exchanges of partnership interests; and
- Identifying the tax consequences of exchanges and transfers, and specifying partnership incorporation methods.
- Recognize the tax treatment of a sale or exchange of a partnership interest where the partnership possesses hot assets (unrealized receivables and inventory), and identify the impact of partnership liabilities in computing both the amount realized on a sale of a partner's interest and the adjusted basis of the sold interest.
Chapter 5: Partnership Distributions
Major Topics
- General nonrecognition rule
- Exceptions to the general nonrecognition rule
- Partner's interest
- Nonliquidating & liquidating distributions
- Special adjustment to basis & mandatory application
- Holding period
- Partnership property
- Proportionate distributions
- Disproportionate distributions
- Effect of distributions of receivables or inventory
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Determine the treatment of distributions of cash or property by a partnership to the partners by:
- Recognizing the general nonrecognition rule under §731 and specifying exceptions to this general rule;
- Identifying a partner's basis on either a liquidating or a non-liquidating distribution under §§732 and 733, and specifying instances when a partner may choose a special basis adjustment when receiving a distribution of property other than cash influences how the partner's basis is determined; and
- Recognizing the tax consequences associated with proportionate and disproportionate distributions, particularly the effect of distributions of receivables or inventory.
After studying the materials in Chapter 5, answer exam questions 93 to 97.
Chapter 6: Partnership Liquidations
Major Topics
- Flexible treatment of partnership liquidations
- Types of liquidating distributions
- Section 736(a) payments
- Section 736(b) payments
- Distributions of unrealized receivables or inventory
- Basis of distributed property
- Gain or loss recognition
- Basis adjustment after distributions
- Election - §754
- Additional adjustments required by §754
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Determine ways to liquidate a retiring partner's interest by:
- Recognizing the types of liquidating distributions and specifying the character and treatment of cash distributions under §736; and
- Identifying the tax treatment of property distributions in liquidation permitting partnerships to distribute unrealized receivables or inventory.
- Identify a withdrawing partner's basis when there are distributions in liquidation or in nonliquidation, and specify the requirements of a §754 election identifying additional adjustments required.
After studying the materials in Chapter 6, answer exam questions 98 to 106.
Chapter 7: Limited Liability Companies
Major Topics
- Benefits of LLCs
- Advantages of LLCs over C corporations
- Advantages of LLCs over S corporations
- Advantages of LLCs over limited partnerships
- Advantages of LLCs over general partnerships
- Disadvantages of LLCs
- Uses
Chapter 7
Major Topics
- Federal tax consequences
- Converting to an LLC from another form of entity
- Local taxes on conversion
Learning Objectives
As a result of studying the course material, you should be able to meet the objectives listed below:
- Determine the taxation of limited liability companies, recognizing the variety of tax entity choices and their advantages and disadvantages by:
- Specifying the advantages and disadvantages of an LLC, recognizing the advantages of LLCs over C corporations;
- Identifying the advantages that LLCs have over S corporations and the differences between an LLC and a limited partnership; and
- Cite the drawbacks of LLCs and their bearing on entity choice.
- Identify ways to use an LLC and their business-planning opportunities, and specify business ventures that should avoid LLCs.
- Recognize the federal tax consequences of establishing an LLC by:
- Determining the role of check-the-box regulations in the entity characterization and identifying self-employment tax regulations and their application to LLC members;
- Specifying whether an LLC member is at risk for recourse debt and determine the treatment of debt discharge income on an LLC;
- Identifying the passive loss rules and their association with LLCs and selecting an appropriate method of accounting for an LLC based on its characterization; and
- Determining how an LLC can designate a tax matters partner for audit purposes.
- Identify the dangers and tax consequences in converting to an LLC from another form of entity, and recognize the potential assessment of sales and use tax, real property taxes, and real property transfer taxes on entities on conversion to an LLC.
After studying the materials in Chapter 7, answer exam questions 107 to 120.
