Partnership---Charitable Contributions

[Unregistered]

I seem to remember reading somewhere that charitable contributions of cash and not property or interest in the partnership does not reduce the partnership's net income. It will, however, reduce the partner's basis in the partnership.

That makes sense, the IRS won't allow the partnership to reduce its income by cc's to further reduce the partner's income subject to SE tax.

Does that sound correct?

[sea-tax]

I seem to remember reading somewhere that charitable contributions of cash and not property or interest in the partnership does not reduce the partnership's net income. It will, however, reduce the partner's basis in the partnership.

That makes sense, the IRS won't allow the partnership to reduce its income by cc's to further reduce the partner's income subject to SE tax.

Does that sound correct?

I think you are right, Cash Contributions do not reduce partnership income . They do however go on the partenrs sch k-1 and the partner can take a deduction for it on the Sch A if they can itemize. And yes it does reduce the partner's basis.
I will say that someone out there will most likely tell you that I am wrong so....lets see.

[Gretel]

I am not saying, you are wrong, since I don't know. But it screams inside of me: That's not fair.

[sea-tax]

I am not saying, you are wrong, since I don't know. But it screams inside of me: That's not fair.

Gabriele - guess what " life in not fair"- Sorry just had to . My DAd has been using that one on me since I was knee high.

[Gretel]

Gabriele - guess what " life in not fair"

Even though I am still screaming I have an awareness that, if I can let go of my judgements what is right and wrong, I won't suffer any longer from an "unfair life".

[S T]

Cash Charitable Contribution & Partnership

If I look at a Partnership Basis (Outside) worksheet, Charitable contributions do reduce the partner's basis. If you look at the Schedule K on form 1065 and the Schedule K-1 partner of form 1065, the charitable contribution is passed through to the partner for them to deduct on their form 1040.

So partnership does not take a deduction and reflect in net profit (or loss), but is passed through to the partner to report. Same would be true of Interest Income, right?

Seems like the partnership return is a "true" reflection" of the partnership income and expenses.

Sandy

[Bees Knees]

The whole concept of partnership taxation is that it is a flow through entity. Whatever tax treatment you would receive as an individual, that is the treatment you receive through a partnership interest.

Like Sandy said, the charitable contribution is passed through and the individual partner then decides what to do with it…either deduct it as an itemized deduction, or lose the benefit because the standard deduction is greater.

As to the basis issue, ANY cash leaving a partnership will reduce basis, including non-deductible items. For example, if the partnership pays meals and entertainment expenses, 50% is non-deductible. The non-deductible portion shows up on the K-1, line 18c as a non-deductible expense. That amount also reduces the partner’s proportionate basis in the partnership.

Why?

Because money left the partnership. Even though there may not be any tax deduction for 50% of M&E, it still causes an economic reduction to the partnership capital account. Again, you have to look at a partnership as a flow through entity. The partnership takes money contributed by a partner and spends it, flowing the economic impact of that expenditure back to the partner. It is the same as if the partnership distributed cash to the partner so that the partner can then pay the expense. If you distribute cash out of a partnership, for whatever reason, it reduces the partner’s basis. The partnership distributes the cash out of the partnership, reducing partnership basis, and then the partner takes the money and spends it on something that isn’t deductible (the 50% M&E non-deduction). End result being the expense reduces basis, regardless of whether or not the expense provides a tax deduction for the partner.