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R.D. Barnett PLLC

Partnership/LLC Tax

Contact Us 206.347.8000

Partnerships and LLCs are a zero sum game; meaning that when one partner wins, inevitably the other partners lose.  It goes without saying that our top priority is to implement tax savings strategies that benefit everyone, in effect “keeping the scales even.”  However, we can also weight those scales in your favor – it all depends on your goals.

These entity types provide flexibility to allocate income and loss, as well as, legal protection from personal liability.  For Federal tax purposes LLCs are taxed as partnerships; however, it is best to consult a tax advisor to understand the different varying tax treatment between partnerships and LLCs at the state and local level.

Below is a list of issues that most partnerships and LLCs will face during their lifecycle.  We have experience planning around, and preparing returns, with these issues...

  • Choosing to do Business as a Partnership or an LLC:  Understanding the advantages and disadvantages as compared to other entity choices.
  • Forming of a Partnership or an LLC: State of organization, legal requirements, and articles of organization.
  • Reviewing Partnership and LLC Documents:  Start-up and formation issues, management issues, member issues, economic issues, tax issues, dissolution, and legal issues.
  • Capitalizing a Partnership or an LLC:  Contributions of cash, contributions of appreciated or depreciated property, and contribution of services.
  • Choosing Accounting Methods:  Cash vs. accrual, reporting of long-term contracts, inventory treatment, capitalization of costs, domestic production activities deduction, and traditional, traditional with curative, or remedial allocations.
  • Ensuring Tax Allocations are Respected:  Economic effect, safe harbor rules, revaluations, ceiling rule, nonrecourse deductions, interaction with loss limitation provisions, contributed property, and IRC Section 704(c).
  • Monitoring Partner/Member Basis:  Inside and outside basis differences, effect of liabilities, and relationship between basis and capital accounts.
  • Planning for Current Distributions from a Partnership or an LLC:  Amount and timing, nonrecognition of gain, basis of distributed property, hot assets, disguised sales, basis adjustments, and IRC Section 732(d) elections.
  • Planning for Transactions with Partners/Members:  Partner/Member acting as third party, guaranteed payments, partner/member acting as a partner/member, related party rules, loans between partner/members and entity, self-charged interest and rents.
  • Limitations on Deducting Partner/Member Losses:  Basis limitations, at-risk limitations, and passive activity loss limitations.
  • Special Issues for Partnerships and LLCs:  Self-employment tax, unrelated business taxable income, organization, syndication, and start-up costs, IRC Section 132 fringe benefits, net investment income tax, cafeteria plans, and retirement plans.
  • Sale or Exchange of Partner’s/Member’s Interest:  Nontaxable transfers, taxable transfers, and IRC Section 754 basis adjustments.
  • Retirement or Death of a Partner/Member:  Treatment in year of death, impact on deceased member’s estate, treatment of suspended losses, and liquidation of deceased or retired member’s interest.
  • Termination, Liquidations, Merger, or Division:  Technical termination, tax impact of liquidating distributions, tax basis of property received, abusive transactions, determining continuing entity, transfers of appreciate or depreciated property, accounting periods, methods, and elections.
  • Bankruptcy, Insolvency, and Abandonment:  Cancelation of debt income, qualified real property business debt, debt modifications, foreclosure rules, and abandonment of partnership/LLC interest.