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GVen
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| Posted: 26 Feb 2012 at 18:28 | IP Logged
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Got a good theoretical one for the Tax-Heads out there:
when assets + liabilities are contributed to form a partnership, the amount of net liabilities assumed by the partner increases their basis, whereas in an S corp they do not increase your basis.
I believe this is because you have "at risk" in a partnership your joint/several share of liabilities. So if you are a 40% partner and the partnership assumes a $60K liability, your (outside) basis just went up $24K (meaning you could lose up to $24K more).
In an S Corp you don't have personal liability, so it seems to make sense that your basis could only increase due to a liability if you either were directly lending to the S Corp OR if there was a Section 351/357 thing (tax avoidance, liabilities > assets).
Is this still the same case for Limited Partners or LLC's, though? wouldn't it seem like, in an LLC or an LP formation (for the limited partners specifically) additional liabilities would NOT increase their basis by a %age share? In fact would it only increase the General Partner's share within a Limited Partnership?
Thanks!
gv
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audreyP
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| Posted: 27 Feb 2012 at 08:41 | IP Logged
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I agree with you. Because s corp shareholders, and llc members and,
limited partners dont have personal liability for business entity's debt,
their basis will not be increased by the business debt.
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GVen
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| Posted: 27 Feb 2012 at 09:29 | IP Logged
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Thanks. I read something on this as well - if you have recourse debt then it will raise everyone's basis; if it is non-recourse to a partner, then their basis will not increase.
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FAR 8/2011: 86
AUD 11/2011: 93
Reg 2/2012: 71, 7/1/2012: 89
BEC 10/2012: TBD
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Topic: Partner basis vs. Corp basis (LP’s esp.)
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