Partnership Issues

[TAX]

Three Partners (A,B & C) own property equally

A = 33-1/3%
B = 33-1/3%
C = 33-1/3%

D = 0%, not a partner currently
D is a son of A

(1) Can A give his share to his son " D" without any tax implixation on either (A or D)?

(2) Will there be any tax issue for B & C

(3) Will "D" have same basis as "A"?

(4) Does "A" need to report any gain or loss personally?

(5) What happens to A's Basis.

Thanks!

Nilesh

[dsi]

Three Partners (A,B & C) own property equally

A = 33-1/3%
B = 33-1/3%
C = 33-1/3%

D = 0%, not a partner currently
D is a son of A

(1) Can A give his share to his son " D" without any tax implixation on either (A or D)?

(2) Will there be any tax issue for B & C

(3) Will "D" have same basis as "A"?

(4) Does "A" need to report any gain or loss personally?

(5) What happens to A's Basis.

Thanks!

Nilesh

My Respone:

A. Possible tax problem for Dad. If FMV exceeds $12000, then dad may have a gift tax issue.

B. Shouldn't be any tax issues for other partners.

C. I'm not sure on this one. I bleieve D's tax basis would be the same as A's (dad's).

D. Again, A may be liable for gift taxes.

E.. I believe A's basis becomes D's basis (assuming all of A's interest is gifted to D).

[Chief]

Partnership Basis

Is this property rental property under co=ownership rules? wHAT STATE IS IT LOCATED IN?
yOU MAY HAVE SEVERAL issues here.

[TAX]

Is this property rental property under co=ownership rules? wHAT STATE IS IT LOCATED IN?
yOU MAY HAVE SEVERAL issues here.

This property is located in Illinois. I will find about rental tomorrow.

Thanks.

[TAX]

[QUOTE=dsi;36968]My Respone:

A. Possible tax problem for Dad. If FMV exceeds $12000, then dad may have a gift tax issue.

Doesn't gift tax exclusion apply here?

[erchess]

Clarification re Gift Tax

Gift tax never results in the donor or the recipient paying any tax at the time of the gift.

However, under current law there is a limit to how much a decedent may pass on tax free to someone other than his or her spouse. This limit is currently getting more generous each year but at some point in the future if Congress doesn't change anything the limit will drop back to what it was when President Bush took office. The whole issue is hotly debated. Democrats desire to limit the extent to which some people become richer than others. Republicans believe that money that has been taxed at the time it came into someone's hands should perhaps not be taxed when it is invested and makes more money and particularly should not be taxed when it is passed on after a taxpayer's death. On the one hand, people do inherit vast sums. On the other hand people are sometimes forced by the need to pay inheritance taxes to sell farms and businesses they would have preferred to operate themselves.

The effect of gift tax is to lower the amount the decedent may pass on to someone other than a spouse without the heir having to pay inheritance taxes.

Perhaps someone who knows would like to tell us when the limit reverts back to its former level and when and on what form gift tax returns are filed.

[Roland Slugg]

Gifting a partnership interest

Dear Nilesh

I concur with David Stottlemyre's reply above, but wish to offer the following clarifications.

The dad (A) should file a gift tax return if the FMV of his partnership interest transferred to his son (D) exceeds $12,000. If so, and there is gift tax due, the dad is liable for that tax.

If any gift tax is paid by A, D's basis may be increased by a like amount.

[JoshinNC]

Another reason to file gift tax return

is for valuation purposes in the future. Even if no gift tax is due as a result of the annual exclusion, it would be prudent to document that the gift was valued at a reasonable amount for basis purposes. As long as the IRS accepts, processes and does not question the return you have just established basis for many other reasons including, future sales, gifts and estate valuations.

I think it is always important, especially in issues with related parties, to get the value documented and substantiated.