Chapter 21: Partnerships

This chapter covers partnership taxation at both the entity and partner level. Partnership questions often turn on basis, liability allocation, and the tax character of transfers between a partner and the partnership.

In This Chapter

• Ordinary Business Income (Loss) and Separately Stated Items explains the core partnership reporting framework.
• Partnership and Partner Elections (Tax Year, Basis Adjustments) covers elections that affect timing and measurement.
• Partner’s Basis Computations, Recourse & Nonrecourse Debt explains how outside basis is built and changed.
• Transactions Between a Partner and Partnership (Services, Sales, Property) addresses related-party style issues inside the partnership structure.
• Ownership Changes and Allocation of Liabilities explains how shifting ownership affects basis and risk allocation.

How to Use This Chapter

• Read this chapter when partnership taxation feels harder than S corporations because the basis mechanics are less intuitive.
• Focus on outside basis, liability allocation, and separately stated treatment.
• Revisit these sections when partnership formation, operations, and partner-level transactions appear in one fact pattern.

In this section

• Ordinary Business Income (Loss) and Separately Stated Items
  Explore the fundamentals of partnership taxation focusing on ordinary business income (loss) versus separately stated items, including practical examples of guaranteed payments, capital gains, and interest allocations.
• Partnership and Partner Elections (Tax Year, Basis Adjustments)
  A comprehensive guide to partnership- vs. partner-level tax elections, including the selection of a tax year and Section 754 basis adjustments in U.S. partnerships.
• Partner’s Basis Computations, Recourse & Nonrecourse Debt
  Explore comprehensive insights on partner’s outside basis computations in partnerships, focusing on how recourse and nonrecourse debt allocations affect a partner’s tax basis, referencing key Treasury Regulations.
• Transactions Between a Partner and Partnership (Services, Sales, Property)
  Explore critical rules, practical scenarios, and tax consequences surrounding partner-partnership transactions, including disguised sales, compensatory partnership interests, and self-employment tax.
• Ownership Changes and Allocation of Liabilities
  Explore partnership ownership changes, including new partner admissions, partial-year allocations, and Section 704(c) considerations. Learn how to properly allocate liabilities and maintain compliance with federal tax regulations.