MAKING PARTNERSHIPS WORK (T/G 204) covers the ingredients of a partnership agreement as interpreted by the IRS; the establishment of basic operating rules (co-liability on decisions, frugality of expenditures, central books of account, etc.); and the segregation of activities into trade or business, rental real estate, other rentals, and portfolio. Also covered:

• Role of "material participation" hours
• Ownership percentages: beginning/ending
• Selection of partnership accounting year
• Applicability of the self-employment tax
• Distributive share credits & deductions
• Balance sheet "reconciliation" techniques

Making Partnerships Work
Book:  204

Table of Contents

1.  GENERAL ATTRIBUTES                          1-1

    How “Partnership” Tax Defined               1-2
    Election to be Excluded                     1-3
    Avoid Certain Corporate Traits              1-5
    Who Can Be Partners?                        1-6
    Multiple Sources of Income                  1-8
    Conformity to “Subchapter K”                1-10
    Partnership Itself, Not Taxable             1-12
    Partnership Accounting Year                 1-13
    Classifying Individual Partners             1-15
    Tax Matters Partner                         1-17

2.  THE PARTNERSHIP AGREEMENT                   2-1

    The Agreement as a Yardstick                2-2
    Not a “Stand Alone” Document                2-3
    Use It, or Lose it                          2-4 
    Substantial Economic Effect?                2-6
    Maintenance of Capital Accounts             2-7
    Assignment of Liabilities                   2-9
    Tax Collections Account                     2-11
    Set Participation Hours                     2-12
    Set 3-Page Limit                            2-14
    Example: How Things Go Sour                 2-15
    Another Example Gone Sour                   2-17

3.  UNIFORM PARTNERSHIP ACT                     3-1

    Joint & Several Liability                   3-2
    Rules for Determining Existence             3-4     
    Unwitting Misrepresentations                3-6
    The Catchall Legalese                       3-7
    General Partnership Presumed                3-8
    Rights & Duties of Partners                 3-10
    Right to Inspect Books                      3-11
    Accounting & Disclosure to Partnership      3-13

4.  PARTNERS’ CAPITAL ACCOUNTS                  4-1

    First:  A Bank Account                      4-2
    Make Separate Capital Deposits              4-4
    Basic Rule:  Capital Accounts               4-5
    When Property Contributed                   4-7
    The “Nonrecognition” Rule                   4-9
    Contribution of Services                    4-10
    Property with Liabilities                   4-11
    Sections 721 and 722 Compared               4-13
    Comprehensive Example: Part I               4-15
    Comprehensive Example: Part II              4-16
    Beginning of Year Accounting                4-19
    Allocations & Distributions                 4-20
    Not a Private “Piggy Bank”                  4-21

5.  BASIC OPERATING RULES                       5-1

    When “Presumed” Not-for-Profit              5-2
    Frugality First 3 Years                     5-4
    At-Risk Limitation Amount                   5-6
    Inventory Cost Capitalization               5-7
    The Section 179 Election                    5-9
    Passive Activity Limitations                5-12
    Character-of-Origin Treatment               5-14

6.  OVERVIEW OF FORM 1065                       6-1

    Applying for EIN                            6-2
    Head Part of Form 1065                      6-4
    Format Highly Abbreviated                   6-5
    Schedules K & K-1 Distinguished             6-8
    Form 1065 vs. Schedule K                    6-9
    Portfolio Income Defined                    6-11
    Rental Activities Defined                   6-12
    Job-Log Each Partner                        6-14

7.  ORDINARY INCOME OR LOSS                     7-1

    Cost of Goods Sold                          7-2
    Dollar Items on Schedule A                  7-4
    Ending Inventory Valuation                  7-5
    Gross Receipts to Gross Profit              7-7
    Gross Profit to Total Income                7-10
    Preprinted Deduction Items                  7-12
    Guaranteed Payments to Partners             7-14
    Other Deductions: Itemize                   7-15
    Finally, the “Bottom Line”                  7-17

8.  OTHER INCOME & SCHEDULE K                   8-1

    Overview of Schedule K                      8-2
    Preprinted Lines: Income/Loss               8-4
    Rental Activities & Form 8825               8-6
    Portfolio Schedule D                        8-8
    Section 1231 Dispositions                   8-9
    Deductions: Rather Few                      8-11
    Self-Employment Earnings                    8-12
    Adjustments & Preferences for AMT           8-15
    Section 59 (e)(2) Expenditures              8-17
    Other Lines on Schedule K                   8-18
    Overall Income or Loss                      8-19
    Reconciliation Analysis                     8-20

9.  BALANCING BALANCE SHEETS                    9-1

    Overview of Schedule L                      9-2
    Four Special Assets                         9-5
    Liabilities and Capital                     9-6
    The Balancing Act                           9-7
    Income Reconciliation Overview              9-10
    Completing Schedule M-1                     9-11
    Completing Schedule M-2                     9-13
    Existence of “Fudging Authority”            9-15
    The Final M-2 Adjustments                   9-17
    When Balancing Not Required                 9-18

10. MULTIPLE SCHEDULES K-1                      10-1

    Timely Issuance Problem                     10-2
    Overview of K-1 Format                      10-4
    General Information Entries                 10-6
    Partner’s Sharing Percentages               10-8
    Analysis of Partner’s Capital               10-10
    Nerve Center of Controversy                 10-12
    Distributive Sharing vs. Distributions      10-14
    What If Errors or Questions?                10-16
    
11. EACH PARTNER’S RETURN                       11-1

    IRS K-1 Instructions: A “Must”              11-2
    Line 1- Ordinary Income/Loss                11-3
    Schedule E (Form 1040), Part II             11-6
    Line2-Net Income/Loss: Real Estate          11-7
    Lines 3, 5, and 9 Go Where?                 11-8
    Now, Schedule E Instructions                11-9
    Other Schedules and Forms                   11-13
    State K-1 Forms                             11-14

12. DISPOSITION OF INTERESTS                    12-1

    Percentage Ownership of What?               12-2
    The Gist of Section 751                     12-4
    Unrealized Receivables                      12-5
    Inventory Items                             12-7
    Notification & Report of Transfer           12-9
    Transferor’s Gain or Loss                   12-10
    Distributive Share Items                    12-11
    Basis Disputes & Adjustments                12-13
    Exchange to Corporate Stock                 12-14