Upe

[DTS]

Thank you all for coming in. I appreciate it. I'll look over everything with fresh eyes tomorrow morning.

Thanks again.

[Davc]

I'm going to disagree with those who advocate an increase in basis. If the expenses meet the qualifications for UPE then by definition they are expenses of the partner, not the partnership.

[Nashville]

Context

Davc, I believe the context of the conversation meant that there was no effect. There may have been some fear that UPE were not deductible if the basis had been diminished to zero.

Some hold that UPE constituted a contribution, allowing deductibility which then reduced to zero. Others such as yourself hold that the UPE is completely disjoint from the partnership, neither adding contributions to basis, nor subtracting from basis when deducted. Same net effect regardless of approach.

By the way, your little town has splashed big onto the national headlines hasn't it?

[Gretel]

I just remembered that I had a similar situation last year and looked up my e-mail correspondence from then.

Two partners, no capital contributions, no income from partnership, but personally paid for expenses (on credit cards) for partnership (UPE). I was advised by a person (cannot say the name here) who is a partnership guru, that UPE can be taken on tax return. This was based on what Veritas said, that basis is created and then zeroed again by taking the expense.

I think we got hung up on deducting UPE against something, whereas I believed last year and believe now, that UPE is nothing other than any other negative income. It does not matter if there is income from partnership or GP.

I only hope that my guru is right.

[DTS]

Two partners, no capital contributions, no income from partnership, but personally paid for expenses (on credit cards) for partnership (UPE). I was advised by a person (cannot say the name here) who is a partnership guru, that UPE can be taken on tax return...

Where on the return did you deduct the UPE?

[Davc]

Davc, I believe the context of the conversation meant that there was no effect. There may have been some fear that UPE were not deductible if the basis had been diminished to zero.

Some hold that UPE constituted a contribution, allowing deductibility which then reduced to zero. Others such as yourself hold that the UPE is completely disjoint from the partnership, neither adding contributions to basis, nor subtracting from basis when deducted. Same net effect regardless of approach.

By the way, your little town has splashed big onto the national headlines hasn't it?

The effect is not the same. treated as a capital contribution the partner incurring the expense only receives his pro rata share of them. The remainder benefits the other partners.

"It is well settled that a partner may not directly deduct
partnership expenses on his individual tax return. Cropland
Chem. Corp. v. Commissioner, 75 T.C. 288, 295 (1980), affd.
without published opinion 665 F.2d 1050 (7th Cir. 1981);
Wallendal v. Commissioner, 31 T.C. 1249, 1252 (1959). An
exception applies when there is an agreement among the partners
in a partnership agreement, or in a routine partnership practice
tantamount to an agreement, which calls for a partner to pay
partnership expenses from his own funds. Cropland Chem. Corp. v.
Commissioner, supra at 295; Wallendal v. Commissioner, supra at
1252; Klein v. Commissioner, 25 T.C. 1045, 1051-1052 (1956)."

See http://www.ustaxcourt.gov/InOpHistor...es.sum.WPD.pdf

[Gretel]

Sch. E, pg. 2.

[DTS]

Sch. E, pg. 2.

I asked because I thought you might have taken the deduction somewhere else other than here.