Cash, Property, Sweat Equity: Structuring Partner Returns
Summary
This episode explains partnership taxation, focusing on how multi-member LLCs allocate income and handle capital contributions. It details the pass-through nature of partnerships under IRC Section 701 and analyzes the Bayesie Supreme Court case regarding taxable income. The discussion covers Section 704C rules for contributed property with built-in gains, the distinction between inside and outside basis, and the substantial economic effect test required for valid allocations.
Topics discussed
Introduction: Lighthouse LLC case study and partnership tax overview
Partnerships as pass-through entities and IRC Section 701
Bayesie v. US: Assignment of income doctrine and retirement trusts
Separately stated items and unreimbursed partnership expenses
Contributions of property: Inside vs. outside basis and Section 704(c)
Partner capital accounts and deficit balances
Substantial economic effect under IRC Section 704(b)
Applying rules to Lighthouse LLC and key takeaways
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