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Military Turbotax

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Military Turbotax

Military turbotax Index Symbols "Hours of service" limits, Individuals subject to hours of service limits. Military turbotax Form 2106, Hours of service limits. Military turbotax 50% limit on meals, 50% limit on meals. Military turbotax A Accountable plans, Accountable Plans, Per diem allowance more than federal rate. Military turbotax Accounting to employer, Accountable Plans Adequate accounting, Adequate Accounting Independent contractors, Adequate accounting. Military turbotax Adequate records, What Are Adequate Records? Advertising Car display, Advertising display on car. Military turbotax Expenses, 3 - Advertising expenses. Military turbotax Signs, display racks, or other promotional material to be used on recipient's business premises, Exceptions. Military turbotax Airline clubs, Club dues and membership fees. Military turbotax Allocating costs, Separating costs. Military turbotax , Separating costs. Military turbotax , Allocating between business and nonbusiness. Military turbotax , Allocating total cost. Military turbotax Allowance (see Reimbursements) Armed forces Assigned overseas, Members of the Armed Forces. Military turbotax Assistance (see Tax help) Associated entertainment, Associated Test Athletic clubs, Club dues and membership fees. Military turbotax B Basis of car, Basis. Military turbotax (see also Depreciation of car) Bona fide business purpose, Bona fide business purpose. Military turbotax Box seats at entertainment events, Skyboxes and other private luxury boxes. Military turbotax Business travel, Trip Primarily for Business Outside U. Military turbotax S. Military turbotax , Travel Entirely for Business or Considered Entirely for Business Business use of car, Business and personal use. Military turbotax More-than-50%-use test. Military turbotax , More-than-50%-use test. Military turbotax Qualified business use, Qualified business use. Military turbotax C Canceled checks As evidence of business expenses, Canceled check. Military turbotax Car expenses, Car Expenses, Reporting inclusion amounts. Military turbotax Actual expenses, Actual Car Expenses Allowances for, Per Diem and Car Allowances, Allowance more than the federal rate. Military turbotax Business and personal use, Business and personal use. Military turbotax Combining expenses, Car expenses. Military turbotax Disposition of car, Disposition of a Car Fixed and variable rate (FAVR) allowance, Fixed and variable rate (FAVR). Military turbotax Form 2106, Car expenses. Military turbotax Leasing a car, truck, or van, Leasing a Car, Reporting inclusion amounts. Military turbotax Mileage rate (see Standard mileage rate) Taxes paid on car, Taxes paid on your car. Military turbotax Traffic tickets, Fines and collateral. Military turbotax Car pools, Car pools. Military turbotax Car rentals, Reporting inclusion amounts. Military turbotax Form 2106, Car rentals. Military turbotax Car, defined, Car defined. Military turbotax Car, truck, or van rentals, Leasing a Car, Reporting inclusion amounts. Military turbotax Casualty and theft losses Cars, Casualty and theft losses. Military turbotax Depreciation, Casualty or theft. Military turbotax Charitable organizations Benefit events for, Exception for events that benefit charitable organizations. Military turbotax Sports events to benefit, 5 - Charitable sports event. Military turbotax Club dues, Club dues and membership fees. Military turbotax Commuting expenses, Commuting expenses. Military turbotax Conventions, Conventions, Meetings at conventions. Military turbotax Country clubs, Club dues and membership fees. Military turbotax Cruise ships, Cruise Ships D Daily business mileage and expense log (Table 6-2), Table 5-2. Military turbotax Daily Business Mileage and Expense Log Name: Depreciation of car, Depreciation and section 179 deductions. Military turbotax (see also Section 179 deductions) Adjustment for using standard mileage rate, Depreciation adjustment when you used the standard mileage rate. Military turbotax Basis, Basis. Military turbotax Sales taxes, Sales taxes. Military turbotax Unrecovered basis, How to treat unrecovered basis. Military turbotax Casualty or theft, effect, Casualty or theft. Military turbotax Deduction, Depreciation and section 179 deductions. Military turbotax , Depreciation deduction for the year of disposition. Military turbotax Excess depreciation, Excess depreciation. Military turbotax Modified Accelerated Cost Recovery System (MACRS), Modified Accelerated Cost Recovery System (MACRS). Military turbotax Trade-in, effect, Car trade-in. Military turbotax , Trade-in. Military turbotax Trucks and vans, Trucks and vans. Military turbotax Depreciation of Car Section 179 deduction, Section 179 deduction. Military turbotax Directly-related entertainment, Directly-Related Test Disabled employees Impairment-related work expenses, Impairment-Related Work Expenses of Disabled Employees Documentary evidence, Documentary evidence. Military turbotax E Employer-provided vehicles, Employer-provided vehicle. Military turbotax Reporting requirements, Vehicle Provided by Your Employer Entertainment expenses, Entertainment, Individuals subject to hours of service limits. Military turbotax , Gift or entertainment. Military turbotax 50% limit, Directly before or after business discussion. Military turbotax Determination of applicability (Figure A), 50% Limit Associated test, Associated Test Deductible, What Entertainment Expenses Are Deductible?, Expenses for spouses. Military turbotax Summary (Table 2-1), Exception for events that benefit charitable organizations. Military turbotax Directly-related test, Directly-Related Test Entertainment, defined, Entertainment. Military turbotax Form 2106, Meal and entertainment expenses. Military turbotax Tickets (see Tickets) Entertainment facilities Expenses for use of, Entertainment facilities. Military turbotax Estimates of expenses, How To Prove Expenses Exceptions to the 50% Limit, Exceptions to the 50% Limit Excess reimbursements (see Reimbursements) Extravagant expenses, Lavish or extravagant. Military turbotax , Lavish or extravagant expenses. Military turbotax F Fair market value of car, Fair market value. Military turbotax Farmers Form 1040, Schedule F, Self-employed. Military turbotax Federal crime investigations or prosecutions Federal employees engaged in, Exception for federal crime investigations or prosecutions. Military turbotax Federal rate for per diem, Standard Meal Allowance, The federal rate. Military turbotax Fee-basis officials, Officials Paid on a Fee Basis Fees you pay, Parking fees. Military turbotax Fixed and variable rate (FAVR) allowance, Fixed and variable rate (FAVR). Military turbotax Form 1040, Schedule C, Self-employed. Military turbotax Form 1040, Schedule F, Self-employed. Military turbotax Form 2106, How to choose. Military turbotax , Employees. Military turbotax , Full value included in your income. Military turbotax , Reporting your expenses under a nonaccountable plan. Military turbotax , Completing Forms 2106 and 2106-EZ Form 2106-EZ, Form 2106-EZ. Military turbotax Form 4562, Self-employed. Military turbotax Form 4797, Excess depreciation. Military turbotax Form W-2 Employer-provided vehicles, Value reported on Form W-2. Military turbotax Reimbursement of personal expenses, Reimbursement for personal expenses. Military turbotax Statutory employees, Statutory employees. Military turbotax Free tax services, Free help with your tax return. Military turbotax G Gifts, Gift or entertainment. Military turbotax , Gifts $25 limit, $25 limit. Military turbotax Combining for recordkeeping purposes, Gift expenses. Military turbotax Reporting requirements, Gifts. Military turbotax Golf clubs, Club dues and membership fees. Military turbotax H Hauling tools, Hauling tools or instruments. Military turbotax Help (see Tax help) High-low method Introduction, High-low method. Military turbotax Transition rules, High-low method. Military turbotax High-low rate method, High-low rate. Military turbotax Home office, Office in the home. Military turbotax Hotel clubs, Club dues and membership fees. Military turbotax I Impairment-related work expenses, Impairment-Related Work Expenses of Disabled Employees Incidental expenses Defined, Incidental expenses. Military turbotax Gifts, Incidental costs. Military turbotax No meals, incidentals only, Incidental-expenses-only method. Military turbotax Income-producing property, Income-producing property. Military turbotax Incomplete records, What If I Have Incomplete Records? Indefinite job assignment, Temporary assignment vs. Military turbotax indefinite assignment. Military turbotax Independent contractors, Rules for Independent Contractors and Clients Interest on car loans, Interest on car loans. Military turbotax Itinerants, Tax Home L Lavish or extravagant expenses, Lavish or extravagant. Military turbotax , Lavish or extravagant expenses. Military turbotax Leasing a car, truck, or van, Leasing a Car, Reporting inclusion amounts. Military turbotax Luxury private boxes at entertainment events, Skyboxes and other private luxury boxes. Military turbotax Luxury water travel, Luxury Water Travel M MACRS (Modified Accelerated Cost Recovery System), Modified Accelerated Cost Recovery System (MACRS). Military turbotax 2011 chart (Table 4-1), Table 4-1. Military turbotax 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Military turbotax ) Main place of business or work, Main place of business or work. Military turbotax Married taxpayers Performing artists, Special rules for married persons. Military turbotax Meal expenses, Meals 50% limit, 50% Limit Determination of applicability (Figure A), 50% Limit Exceptions, Exceptions to the 50% Limit Actual cost method, Actual Cost Form 2106, Meal and entertainment expenses. Military turbotax Major cities with higher allowances, Amount of standard meal allowance. Military turbotax Standard meal allowance, Standard Meal Allowance, Who can use the standard meal allowance. Military turbotax , The standard meal allowance. Military turbotax Meals, entertainment-related, A meal as a form of entertainment. Military turbotax Mileage rate (see Standard mileage rate) Military (see Armed forces) Missing children, photographs of, Reminder Modified Accelerated Cost Recovery System (MACRS), Modified Accelerated Cost Recovery System (MACRS). Military turbotax 2011 chart (Table 4-1), Table 4-1. Military turbotax 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Military turbotax ) N Nonaccountable plans, Nonaccountable Plans O Office in the home, Office in the home. Military turbotax Officials paid on fee basis, Officials Paid on a Fee Basis Overseas travel Conventions, Conventions Held Outside the North American Area Meal allowance, Standard meal allowance for areas outside the continental United States. Military turbotax Part of trip outside U. Military turbotax S. Military turbotax , Part of Trip Outside the United States P Parking fees, Parking fees. Military turbotax , Parking fees and tolls. Military turbotax Per diem allowances, Per Diem and Car Allowances, Allowance more than the federal rate. Military turbotax Defined, Reimbursement, allowance, or advance. Military turbotax Federal rate for, The federal rate. Military turbotax Per diem rates High-cost localities, High-low method. Military turbotax High-low method, High-low method. Military turbotax Regular federal method, Regular federal per diem rate method. Military turbotax Standard rate for unlisted localities, High-low method. Military turbotax , Regular federal per diem rate method. Military turbotax Transition rules, High-low method. Military turbotax , Federal per diem rate method. Military turbotax Performing artists, Expenses of Certain Performing Artists Personal property taxes, Personal property taxes. Military turbotax , Taxes paid on your car. Military turbotax Personal trips, Trip Primarily for Personal Reasons Outside U. Military turbotax S. Military turbotax , Travel Primarily for Personal Reasons Placed in service, cars, Placed in service. Military turbotax Probationary work period, Probationary work period. Military turbotax Proving business purpose, Proving business purpose. Military turbotax Public transportation Outside of U. Military turbotax S. Military turbotax travel, Public transportation. Military turbotax Publications (see Tax help) R Recordkeeping requirements, Recordkeeping, Examples of Records Adequate records, What Are Adequate Records? Daily business mileage and expense log (Table 6-2), Table 5-2. Military turbotax Daily Business Mileage and Expense Log Name: Destroyed records, Destroyed records. Military turbotax How to prove expenses (Table 5-1), Table 5-1. Military turbotax How To Prove Certain Business Expenses Incomplete records, What If I Have Incomplete Records? Reimbursed expenses, Reimbursed for expenses. Military turbotax Sampling to prove expenses, Sampling. Military turbotax Separating and combining expenses, Separating and Combining Expenses, If your return is examined. Military turbotax Three-year period of retention, How Long To Keep Records and Receipts Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Regular federal method Introduction, Regular federal per diem rate method. Military turbotax Transition rules, Federal per diem rate method. Military turbotax Reimbursements, Less than full value included in your income. Military turbotax , Contractor does not adequately account. Military turbotax Accountable plans, Accountable Plans Excess, Returning Excess Reimbursements, Nonaccountable Plans Form 2106, Reimbursements. Military turbotax Nonaccountable plans, Nonaccountable Plans Nondeductible expenses, Reimbursement of nondeductible expenses. Military turbotax Personal expenses, Reimbursement for personal expenses. Military turbotax Recordkeeping, Reimbursed for expenses. Military turbotax Reporting (Table 6-1), Table 6-1. Military turbotax Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements Unclaimed, Where To Report Reporting requirements, How To Report Per diem or car allowance, Reporting your expenses with a per diem or car allowance. Military turbotax Reimbursements, Reimbursements, Contractor does not adequately account. Military turbotax Reservists Transportation expenses, Armed Forces reservists. Military turbotax Traveling more than 100 miles from home, Armed Forces Reservists Traveling More Than 100 Miles From Home Returning excess reimbursements, Returning Excess Reimbursements Rural mail carriers, Rural mail carriers. Military turbotax S Section 179 deduction Amended return, How to choose. Military turbotax Deduction, Section 179 Deduction Limits, Limits. Military turbotax Self-employed persons, 2 - Self-employed. Military turbotax Reporting requirements, Self-employed. Military turbotax Skyboxes, Skyboxes and other private luxury boxes. Military turbotax Spouse, expenses for, Travel expenses for another individual. Military turbotax , Expenses for spouses. Military turbotax Standard meal allowance, Standard Meal Allowance, Who can use the standard meal allowance. Military turbotax , The standard meal allowance. Military turbotax Standard mileage rate, What's New, Standard Mileage Rate, The standard mileage rate. Military turbotax Depreciation adjustment for using, Depreciation adjustment when you used the standard mileage rate. Military turbotax Form 2106, Standard mileage rate. Military turbotax Statutory employees, Statutory employees. Military turbotax T Tables and figures 50% limit determination (Figure A), 50% Limit Daily business mileage and expense log (Table 6-2), Table 5-2. Military turbotax Daily Business Mileage and Expense Log Name: Entertainment expenses, determination of deductibility (Table 2-1), Table 2-1. Military turbotax When Are Entertainment Expenses Deductible? Maximum depreciation deduction for cars table, Maximum Depreciation Deduction for Cars Modified Accelerated Cost Recovery System (MACRS) 2011 chart (Table 4-1), Table 4-1. Military turbotax 2013 MACRS Depreciation Chart (Use to Figure Depreciation for 2013. Military turbotax ) Proving expenses (Table 5-1), Table 5-1. Military turbotax How To Prove Certain Business Expenses Reporting reimbursements (Table 6-1), Table 6-1. Military turbotax Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements Transportation expenses, determination of deductibility (Figure B), Gift or entertainment. Military turbotax , Illustration of transportation expenses. Military turbotax Travel expenses, determination of deductibility (Table 1-1), Table 1-1. Military turbotax Travel Expenses You Can Deduct Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Tax help, How To Get Tax Help Tax home, determination of, Tax Home Temporary job assignments, Temporary Assignment or Job Temporary work location, Temporary work location. Military turbotax Tickets, Entertainment tickets. Military turbotax , Gift or entertainment. Military turbotax Season or series tickets, Season or series tickets. Military turbotax Traffic violations, Fines and collateral. Military turbotax Tools Hauling tools, Hauling tools or instruments. Military turbotax Trade association meetings, Trade association meetings. Military turbotax Trade-in of car, Car trade-in. Military turbotax , Trade-in. Military turbotax Traffic tickets, Fines and collateral. Military turbotax Transients, Tax Home Transition rules, Transition Rules Example High-low method, High-low method. Military turbotax High-low method, High-low method. Military turbotax Regular federal method, Federal per diem rate method. Military turbotax Transportation expenses, Transportation, Depreciation deduction for the year of disposition. Military turbotax Car expenses, Car Expenses, Reporting inclusion amounts. Military turbotax Deductible (Figure B), Gift or entertainment. Military turbotax , Illustration of transportation expenses. Military turbotax five or more cars, Five or more cars. Military turbotax Form 2106, Transportation expenses. Military turbotax Transportation workers, Special rate for transportation workers. Military turbotax , Individuals subject to hours of service limits. Military turbotax Travel advance, Reimbursement, allowance, or advance. Military turbotax , Travel advance. Military turbotax (see also Reimbursements) Travel expenses, Travel, Cruise Ships Another individual accompanying taxpayer, Travel expenses for another individual. Military turbotax Away from home, Traveling Away From Home, Tax Home Deductible, What Travel Expenses Are Deductible?, Cruise Ships Summary of (Table 1-1), Table 1-1. Military turbotax Travel Expenses You Can Deduct Defined, Travel expenses defined. Military turbotax Going home on days off, Going home on days off. Military turbotax In U. Military turbotax S. Military turbotax , Travel in the United States Lodging, Standard Meal Allowance Luxury water travel, Luxury Water Travel Outside U. Military turbotax S. Military turbotax , Travel Outside the United States Travel to family home, Tax Home Different From Family Home Trucks and vans Depreciation, Trucks and vans. Military turbotax Transportation workers, Individuals subject to hours of service limits. Military turbotax Transportation workers' expenses, Special rate for transportation workers. Military turbotax Two places of work, Two places of work. Military turbotax U Unclaimed reimbursements, Where To Report Unions Trips from union hall to place of work, Union members' trips from a union hall. Military turbotax Unrecovered basis of car, How to treat unrecovered basis. Military turbotax V Volunteers, Volunteers. Military turbotax W Weekly travel expense and entertainment record (Table 6-3), THIS IS NOT AN OFFICIAL INTERNAL REVENUE FORM Prev  Up     Home   More Online Publications
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Page Last Reviewed or Updated: 05-Dec-2013

The Military Turbotax

Military turbotax Publication 541 - Main Content Table of Contents Forming a PartnershipOrganizations Classified as Partnerships Family Partnership Partnership Agreement Terminating a PartnershipIRS e-file (Electronic Filing) Exclusion From Partnership Rules Partnership Return (Form 1065) Partnership DistributionsSubstantially appreciated inventory items. Military turbotax Partner's Gain or Loss Partner's Basis for Distributed Property Transactions Between Partnership and PartnersGuaranteed Payments Sale or Exchange of Property Contribution of Property Contribution of Services Basis of Partner's InterestAdjusted Basis Effect of Partnership Liabilities Disposition of Partner's InterestSale, Exchange, or Other Transfer Payments for Unrealized Receivables and Inventory Items Liquidation at Partner's Retirement or Death Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)Partnership Item. Military turbotax Small Partnerships and the Small Partnership Exception Small Partnership TEFRA Election Role of Tax Matters Partner (TMP) in TEFRA Proceedings Statute of Limitations and TEFRA Amended Returns and Administrative Adjustment Requests (AARs) How To Get Tax Help Forming a Partnership The following sections contain general information about partnerships. Military turbotax Organizations Classified as Partnerships An unincorporated organization with two or more members is generally classified as a partnership for federal tax purposes if its members carry on a trade, business, financial operation, or venture and divide its profits. Military turbotax However, a joint undertaking merely to share expenses is not a partnership. Military turbotax For example, co-ownership of property maintained and rented or leased is not a partnership unless the co-owners provide services to the tenants. Military turbotax The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996. Military turbotax Organizations formed after 1996. Military turbotax   An organization formed after 1996 is classified as a partnership for federal tax purposes if it has two or more members and it is none of the following. Military turbotax An organization formed under a federal or state law that refers to it as incorporated or as a corporation, body corporate, or body politic. Military turbotax An organization formed under a state law that refers to it as a joint-stock company or joint-stock association. Military turbotax An insurance company. Military turbotax Certain banks. Military turbotax An organization wholly owned by a state, local, or foreign government. Military turbotax An organization specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). Military turbotax Certain foreign organizations identified in section 301. Military turbotax 7701-2(b)(8) of the regulations. Military turbotax A tax-exempt organization. Military turbotax A real estate investment trust. Military turbotax An organization classified as a trust under section 301. Military turbotax 7701-4 of the regulations or otherwise subject to special treatment under the Internal Revenue Code. Military turbotax Any other organization that elects to be classified as a corporation by filing Form 8832. Military turbotax For more information, see the instructions for Form 8832. Military turbotax Limited liability company. Military turbotax   A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Military turbotax Unlike a partnership, none of the members of an LLC are personally liable for its debts. Military turbotax An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301. Military turbotax 7701-3. Military turbotax See Form 8832 and section 301. Military turbotax 7701-3 of the regulations for more details. Military turbotax A domestic LLC with at least two members that does not file Form 8832 is classified as a partnership for federal income tax purposes. Military turbotax Organizations formed before 1997. Military turbotax   An organization formed before 1997 and classified as a partnership under the old rules will generally continue to be classified as a partnership as long as the organization has at least two members and does not elect to be classified as a corporation by filing Form 8832. Military turbotax Community property. Military turbotax    Spouses who own a qualified entity (defined later) can choose to classify the entity as a partnership for federal tax purposes by filing the appropriate partnership tax returns. Military turbotax They can choose to classify the entity as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor. Military turbotax A change in reporting position will be treated for federal tax purposes as a conversion of the entity. Military turbotax   A qualified entity is a business entity that meets all the following requirements. Military turbotax The business entity is wholly owned by spouses as community property under the laws of a state, a foreign country, or a possession of the United States. Military turbotax No person other than one or both spouses would be considered an owner for federal tax purposes. Military turbotax The business entity is not treated as a corporation. Military turbotax   For more information about community property, see Publication 555, Community Property. Military turbotax Publication 555 discusses the community property laws of Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Military turbotax Family Partnership Members of a family can be partners. Military turbotax However, family members (or any other person) will be recognized as partners only if one of the following requirements is met. Military turbotax If capital is a material income-producing factor, they acquired their capital interest in a bona fide transaction (even if by gift or purchase from another family member), actually own the partnership interest, and actually control the interest. Military turbotax If capital is not a material income-producing factor, they joined together in good faith to conduct a business. Military turbotax They agreed that contributions of each entitle them to a share in the profits, and some capital or service has been (or is) provided by each partner. Military turbotax Capital is material. Military turbotax   Capital is a material income-producing factor if a substantial part of the gross income of the business comes from the use of capital. Military turbotax Capital is ordinarily an income-producing factor if the operation of the business requires substantial inventories or investments in plants, machinery, or equipment. Military turbotax Capital is not material. Military turbotax   In general, capital is not a material income-producing factor if the income of the business consists principally of fees, commissions, or other compensation for personal services performed by members or employees of the partnership. Military turbotax Capital interest. Military turbotax   A capital interest in a partnership is an interest in its assets that is distributable to the owner of the interest in either of the following situations. Military turbotax The owner withdraws from the partnership. Military turbotax The partnership liquidates. Military turbotax   The mere right to share in earnings and profits is not a capital interest in the partnership. Military turbotax Gift of capital interest. Military turbotax   If a family member (or any other person) receives a gift of a capital interest in a partnership in which capital is a material income-producing factor, the donee's distributive share of partnership income is subject to both of the following restrictions. Military turbotax It must be figured by reducing the partnership income by reasonable compensation for services the donor renders to the partnership. Military turbotax The donee's distributive share of partnership income attributable to donated capital must not be proportionately greater than the donor's distributive share attributable to the donor's capital. Military turbotax Purchase. Military turbotax   For purposes of determining a partner's distributive share, an interest purchased by one family member from another family member is considered a gift from the seller. Military turbotax The fair market value of the purchased interest is considered donated capital. Military turbotax For this purpose, members of a family include only spouses, ancestors, and lineal descendants (or a trust for the primary benefit of those persons). Military turbotax Example. Military turbotax A father sold 50% of his business to his son. Military turbotax The resulting partnership had a profit of $60,000. Military turbotax Capital is a material income-producing factor. Military turbotax The father performed services worth $24,000, which is reasonable compensation, and the son performed no services. Military turbotax The $24,000 must be allocated to the father as compensation. Military turbotax Of the remaining $36,000 of profit due to capital, at least 50%, or $18,000, must be allocated to the father since he owns a 50% capital interest. Military turbotax The son's share of partnership profit cannot be more than $18,000. Military turbotax Business owned and operated by spouses. Military turbotax   If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. Military turbotax If so, they should report income or loss from the business on Form 1065. Military turbotax They should not report the income on a Schedule C (Form 1040) in the name of one spouse as a sole proprietor. Military turbotax However, the spouses can elect not to treat the joint venture as a partnership by making a Qualified Joint Venture Election. Military turbotax Qualified Joint Venture Election. Military turbotax   A "qualified joint venture," whose only members are spouses filing a joint return, can elect not to be treated as a partnership for federal tax purposes. Military turbotax A qualified joint venture conducts a trade or business where: the only members of the joint venture are spouses filing jointly; both spouses elect not to be treated as a partnership; both spouses materially participate in the trade or business (see Passive Activity Limitations in the Instructions for Form 1065 for a definition of material participation); and the business is co-owned by both spouses and is not held in the name of a state law entity such as a partnership or LLC. Military turbotax   Under this election, a qualified joint venture conducted by spouses who file a joint return is not treated as a partnership for federal tax purposes and therefore does not have a Form 1065 filing requirement. Military turbotax All items of income, gain, deduction, loss, and credit are divided between the spouses based on their respective interests in the venture. Military turbotax Each spouse takes into account his or her respective share of these items as a sole proprietor. Military turbotax Each spouse would account for his or her respective share on the appropriate form, such as Schedule C (Form 1040). Military turbotax For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account just as it is for federal income tax purposes (i. Military turbotax e. Military turbotax , based on their respective interests in the venture). Military turbotax   If the spouses do not make the election to treat their respective interests in the joint venture as sole proprietorships, each spouse should carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate Form(s) 1040. Military turbotax Each spouse should include his or her respective share of self-employment income on a separate Schedule SE (Form 1040), Self-Employment Tax. Military turbotax   This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. Military turbotax However, this may not be true if either spouse exceeds the social security tax limitation. Military turbotax   For more information on qualified joint ventures, go to IRS. Military turbotax gov, enter “Election for Qualified Joint Ventures” in the search box and select the link reading “Election for Husband and Wife Unincorporated Businesses. Military turbotax ” Partnership Agreement The partnership agreement includes the original agreement and any modifications. Military turbotax The modifications must be agreed to by all partners or adopted in any other manner provided by the partnership agreement. Military turbotax The agreement or modifications can be oral or written. Military turbotax Partners can modify the partnership agreement for a particular tax year after the close of the year but not later than the date for filing the partnership return for that year. Military turbotax This filing date does not include any extension of time. Military turbotax If the partnership agreement or any modification is silent on any matter, the provisions of local law are treated as part of the agreement. Military turbotax Terminating a Partnership A partnership terminates when one of the following events takes place. Military turbotax All its operations are discontinued and no part of any business, financial operation, or venture is continued by any of its partners in a partnership. Military turbotax At least 50% of the total interest in partnership capital and profits is sold or exchanged within a 12-month period, including a sale or exchange to another partner. Military turbotax Unlike other partnerships, an electing large partnership does not terminate on the sale or exchange of 50% or more of the partnership interests within a 12-month period. Military turbotax See section 1. Military turbotax 708-1(b) of the regulations for more information on the termination of a partnership. Military turbotax For special rules that apply to a merger, consolidation, or division of a partnership, see sections 1. Military turbotax 708-1(c) and 1. Military turbotax 708-1(d) of the regulations. Military turbotax Date of termination. Military turbotax   The partnership's tax year ends on the date of termination. Military turbotax For the event described in (1), above, the date of termination is the date the partnership completes the winding up of its affairs. Military turbotax For the event described in (2), above, the date of termination is the date of the sale or exchange of a partnership interest that, by itself or together with other sales or exchanges in the preceding 12 months, transfers an interest of 50% or more in both capital and profits. Military turbotax Short period return. Military turbotax   If a partnership is terminated before the end of what would otherwise be its tax year, Form 1065 must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. Military turbotax The return is due the 15th day of the fourth month following the date of termination. Military turbotax See Partnership Return (Form 1065), later, for information about filing Form 1065. Military turbotax Conversion of partnership into limited liability company (LLC). Military turbotax   The conversion of a partnership into an LLC classified as a partnership for federal tax purposes does not terminate the partnership. Military turbotax The conversion is not a sale, exchange, or liquidation of any partnership interest; the partnership's tax year does not close; and the LLC can continue to use the partnership's taxpayer identification number. Military turbotax   However, the conversion may change some of the partners' bases in their partnership interests if the partnership has recourse liabilities that become nonrecourse liabilities. Military turbotax Because the partners share recourse and nonrecourse liabilities differently, their bases must be adjusted to reflect the new sharing ratios. Military turbotax If a decrease in a partner's share of liabilities exceeds the partner's basis, he or she must recognize gain on the excess. Military turbotax For more information, see Effect of Partnership Liabilities under Basis of Partner's Interest, later. Military turbotax   The same rules apply if an LLC classified as a partnership is converted into a partnership. Military turbotax IRS e-file (Electronic Filing) Please click here for the text description of the image. Military turbotax e-file Certain partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and related forms and schedules electronically (e-file). Military turbotax Other partnerships generally have the option to file electronically. Military turbotax For details about IRS e-file, see the Form 1065 instructions. Military turbotax Exclusion From Partnership Rules Certain partnerships that do not actively conduct a business can choose to be completely or partially excluded from being treated as partnerships for federal income tax purposes. Military turbotax All the partners must agree to make the choice, and the partners must be able to compute their own taxable income without computing the partnership's income. Military turbotax However, the partners are not exempt from the rule that limits a partner's distributive share of partnership loss to the adjusted basis of the partner's partnership interest. Military turbotax Nor are they exempt from the requirement of a business purpose for adopting a tax year for the partnership that differs from its required tax year. Military turbotax Investing partnership. Military turbotax   An investing partnership can be excluded if the participants in the joint purchase, retention, sale, or exchange of investment property meet all the following requirements. Military turbotax They own the property as co-owners. Military turbotax They reserve the right separately to take or dispose of their shares of any property acquired or retained. Military turbotax They do not actively conduct business or irrevocably authorize some person acting in a representative capacity to purchase, sell, or exchange the investment property. Military turbotax Each separate participant can delegate authority to purchase, sell, or exchange his or her share of the investment property for the time being for his or her account, but not for a period of more than a year. Military turbotax Operating agreement partnership. Military turbotax   An operating agreement partnership group can be excluded if the participants in the joint production, extraction, or use of property meet all the following requirements. Military turbotax They own the property as co-owners, either in fee or under lease or other form of contract granting exclusive operating rights. Military turbotax They reserve the right separately to take in kind or dispose of their shares of any property produced, extracted, or used. Military turbotax They do not jointly sell services or the property produced or extracted. Military turbotax Each separate participant can delegate authority to sell his or her share of the property produced or extracted for the time being for his or her account, but not for a period of time in excess of the minimum needs of the industry, and in no event for more than one year. Military turbotax However, this exclusion does not apply to an unincorporated organization one of whose principal purposes is cycling, manufacturing, or processing for persons who are not members of the organization. Military turbotax Electing the exclusion. Military turbotax   An eligible organization that wishes to be excluded from the partnership rules must make the election not later than the time for filing the partnership return for the first tax year for which exclusion is desired. Military turbotax This filing date includes any extension of time. Military turbotax See Regulations section 1. Military turbotax 761-2(b) for the procedures to follow. Military turbotax Partnership Return (Form 1065) Every partnership that engages in a trade or business or has gross income must file an information return on Form 1065 showing its income, deductions, and other required information. Military turbotax The partnership return must show the names and addresses of each partner and each partner's distributive share of taxable income. Military turbotax The return must be signed by a general partner. Military turbotax If a limited liability company is treated as a partnership, it must file Form 1065 and one of its members must sign the return. Military turbotax A partnership is not considered to engage in a trade or business, and is not required to file a Form 1065, for any tax year in which it neither receives income nor pays or incurs any expenses treated as deductions or credits for federal income tax purposes. Military turbotax See the Instructions for Form 1065 for more information about who must file Form 1065. Military turbotax Partnership Distributions Partnership distributions include the following. Military turbotax A withdrawal by a partner in anticipation of the current year's earnings. Military turbotax A distribution of the current year's or prior years' earnings not needed for working capital. Military turbotax A complete or partial liquidation of a partner's interest. Military turbotax A distribution to all partners in a complete liquidation of the partnership. Military turbotax A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. Military turbotax If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. Military turbotax Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year. Military turbotax Effect on partner's basis. Military turbotax   A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner. Military turbotax See Adjusted Basis under Basis of Partner's Interest, later. Military turbotax Effect on partnership. Military turbotax   A partnership generally does not recognize any gain or loss because of distributions it makes to partners. Military turbotax The partnership may be able to elect to adjust the basis of its undistributed property. Military turbotax Certain distributions treated as a sale or exchange. Military turbotax   When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution. Military turbotax Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money. Military turbotax Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items. Military turbotax   See Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Military turbotax   This treatment does not apply to the following distributions. Military turbotax A distribution of property to the partner who contributed the property to the partnership. Military turbotax Payments made to a retiring partner or successor in interest of a deceased partner that are the partner's distributive share of partnership income or guaranteed payments. Military turbotax Substantially appreciated inventory items. Military turbotax   Inventory items of the partnership are considered to have appreciated substantially in value if, at the time of the distribution, their total fair market value is more than 120% of the partnership's adjusted basis for the property. Military turbotax However, if a principal purpose for acquiring inventory property is to avoid ordinary income treatment by reducing the appreciation to less than 120%, that property is excluded. Military turbotax Partner's Gain or Loss A partner generally recognizes gain on a partnership distribution only to the extent any money (and marketable securities treated as money) included in the distribution exceeds the adjusted basis of the partner's interest in the partnership. Military turbotax Any gain recognized is generally treated as capital gain from the sale of the partnership interest on the date of the distribution. Military turbotax If partnership property (other than marketable securities treated as money) is distributed to a partner, he or she generally does not recognize any gain until the sale or other disposition of the property. Military turbotax For exceptions to these rules, see Distribution of partner's debt and Net precontribution gain, later. Military turbotax Also, see Payments for Unrealized Receivables and Inventory Items under Disposition of Partner's Interest, later. Military turbotax Example. Military turbotax The adjusted basis of Jo's partnership interest is $14,000. Military turbotax She receives a distribution of $8,000 cash and land that has an adjusted basis of $2,000 and a fair market value of $3,000. Military turbotax Because the cash received does not exceed the basis of her partnership interest, Jo does not recognize any gain on the distribution. Military turbotax Any gain on the land will be recognized when she sells or otherwise disposes of it. Military turbotax The distribution decreases the adjusted basis of Jo's partnership interest to $4,000 [$14,000 − ($8,000 + $2,000)]. Military turbotax Marketable securities treated as money. Military turbotax   Generally, a marketable security distributed to a partner is treated as money in determining whether gain is recognized on the distribution. Military turbotax This treatment, however, does not generally apply if that partner contributed the security to the partnership or an investment partnership made the distribution to an eligible partner. Military turbotax   The amount treated as money is the security's fair market value when distributed, reduced (but not below zero) by the excess (if any) of: The partner's distributive share of the gain that would be recognized had the partnership sold all its marketable securities at their fair market value immediately before the transaction resulting in the distribution, over The partner's distributive share of the gain that would be recognized had the partnership sold all such securities it still held after the distribution at the fair market value in (1). Military turbotax   For more information, including the definition of marketable securities, see section 731(c) of the Internal Revenue Code. Military turbotax Loss on distribution. Military turbotax   A partner does not recognize loss on a partnership distribution unless all the following requirements are met. Military turbotax The adjusted basis of the partner's interest in the partnership exceeds the distribution. Military turbotax The partner's entire interest in the partnership is liquidated. Military turbotax The distribution is in money, unrealized receivables, or inventory items. Military turbotax   There are exceptions to these general rules. Military turbotax See the following discussions. Military turbotax Also, see Liquidation at Partner's Retirement or Death under Disposition of Partner's Interest, later. Military turbotax Distribution of partner's debt. Military turbotax   If a partnership acquires a partner's debt and extinguishes the debt by distributing it to the partner, the partner will recognize capital gain or loss to the extent the fair market value of the debt differs from the basis of the debt (determined under the rules discussed in Partner's Basis for Distributed Property, later). Military turbotax   The partner is treated as having satisfied the debt for its fair market value. Military turbotax If the issue price (adjusted for any premium or discount) of the debt exceeds its fair market value when distributed, the partner may have to include the excess amount in income as canceled debt. Military turbotax   Similarly, a deduction may be available to a corporate partner if the fair market value of the debt at the time of distribution exceeds its adjusted issue price. Military turbotax Net precontribution gain. Military turbotax   A partner generally must recognize gain on the distribution of property (other than money) if the partner contributed appreciated property to the partnership during the 7-year period before the distribution. Military turbotax   The gain recognized is the lesser of the following amounts. Military turbotax The excess of: The fair market value of the property received in the distribution, over The adjusted basis of the partner's interest in the partnership immediately before the distribution, reduced (but not below zero) by any money received in the distribution. Military turbotax The “net precontribution gain” of the partner. Military turbotax This is the net gain the partner would recognize if all the property contributed by the partner within 7 years of the distribution, and held by the partnership immediately before the distribution, were distributed to another partner, other than a partner who owns more than 50% of the partnership. Military turbotax For information about the distribution of contributed property to another partner, see Contribution of Property , under Transactions Between Partnership and Partners, later. Military turbotax   The character of the gain is determined by reference to the character of the net precontribution gain. Military turbotax This gain is in addition to any gain the partner must recognize if the money distributed is more than his or her basis in the partnership. Military turbotax For these rules, the term “money” includes marketable securities treated as money, as discussed earlier. Military turbotax Effect on basis. Military turbotax   The adjusted basis of the partner's interest in the partnership is increased by any net precontribution gain recognized by the partner. Military turbotax Other than for purposes of determining the gain, the increase is treated as occurring immediately before the distribution. Military turbotax See Basis of Partner's Interest , later. Military turbotax   The partnership must adjust its basis in any property the partner contributed within 7 years of the distribution to reflect any gain that partner recognizes under this rule. Military turbotax Exceptions. Military turbotax   Any part of a distribution that is property the partner previously contributed to the partnership is not taken into account in determining the amount of the excess distribution or the partner's net precontribution gain. Military turbotax For this purpose, the partner's previously contributed property does not include a contributed interest in an entity to the extent its value is due to property contributed to the entity after the interest was contributed to the partnership. Military turbotax   Recognition of gain under this rule also does not apply to a distribution of unrealized receivables or substantially appreciated inventory items if the distribution is treated as a sale or exchange, as discussed earlier. Military turbotax Partner's Basis for Distributed Property Unless there is a complete liquidation of a partner's interest, the basis of property (other than money) distributed to the partner by a partnership is its adjusted basis to the partnership immediately before the distribution. Military turbotax However, the basis of the property to the partner cannot be more than the adjusted basis of his or her interest in the partnership reduced by any money received in the same transaction. Military turbotax Example 1. Military turbotax The adjusted basis of Emily's partnership interest is $30,000. Military turbotax She receives a distribution of property that has an adjusted basis of $20,000 to the partnership and $4,000 in cash. Military turbotax Her basis for the property is $20,000. Military turbotax Example 2. Military turbotax The adjusted basis of Steve's partnership interest is $10,000. Military turbotax He receives a distribution of $4,000 cash and property that has an adjusted basis to the partnership of $8,000. Military turbotax His basis for the distributed property is limited to $6,000 ($10,000 − $4,000, the cash he receives). Military turbotax Complete liquidation of partner's interest. Military turbotax   The basis of property received in complete liquidation of a partner's interest is the adjusted basis of the partner's interest in the partnership reduced by any money distributed to the partner in the same transaction. Military turbotax Partner's holding period. Military turbotax   A partner's holding period for property distributed to the partner includes the period the property was held by the partnership. Military turbotax If the property was contributed to the partnership by a partner, then the period it was held by that partner is also included. Military turbotax Basis divided among properties. Military turbotax   If the basis of property received is the adjusted basis of the partner's interest in the partnership (reduced by money received in the same transaction), it must be divided among the properties distributed to the partner. Military turbotax For property distributed after August 5, 1997, allocate the basis using the following rules. Military turbotax Allocate the basis first to unrealized receivables and inventory items included in the distribution by assigning a basis to each item equal to the partnership's adjusted basis in the item immediately before the distribution. Military turbotax If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Military turbotax Allocate any remaining basis to properties other than unrealized receivables and inventory items by assigning a basis to each property equal to the partnership's adjusted basis in the property immediately before the distribution. Military turbotax If the allocable basis exceeds the total of these assigned bases, increase the assigned bases by the amount of the excess. Military turbotax If the total of these assigned bases exceeds the allocable basis, decrease the assigned bases by the amount of the excess. Military turbotax Allocating a basis increase. Military turbotax   Allocate any basis increase required in rule (2), above, first to properties with unrealized appreciation to the extent of the unrealized appreciation. Military turbotax If the basis increase is less than the total unrealized appreciation, allocate it among those properties in proportion to their respective amounts of unrealized appreciation. Military turbotax Allocate any remaining basis increase among all the properties in proportion to their respective fair market values. Military turbotax Example. Military turbotax Eun's basis in her partnership interest is $55,000. Military turbotax In a distribution in liquidation of her entire interest, she receives properties A and B, neither of which is inventory or unrealized receivables. Military turbotax Property A has an adjusted basis to the partnership of $5,000 and a fair market value of $40,000. Military turbotax Property B has an adjusted basis to the partnership of $10,000 and a fair market value of $10,000. Military turbotax To figure her basis in each property, Eun first assigns bases of $5,000 to property A and $10,000 to property B (their adjusted bases to the partnership). Military turbotax This leaves a $40,000 basis increase (the $55,000 allocable basis minus the $15,000 total of the assigned bases). Military turbotax She first allocates $35,000 to property A (its unrealized appreciation). Military turbotax The remaining $5,000 is allocated between the properties based on their fair market values. Military turbotax $4,000 ($40,000/$50,000) is allocated to property A and $1,000 ($10,000/$50,000) is allocated to property B. Military turbotax Eun's basis in property A is $44,000 ($5,000 + $35,000 + $4,000) and her basis in property B is $11,000 ($10,000 + $1,000). Military turbotax Allocating a basis decrease. Military turbotax   Use the following rules to allocate any basis decrease required in rule (1) or rule (2), earlier. Military turbotax Allocate the basis decrease first to items with unrealized depreciation to the extent of the unrealized depreciation. Military turbotax If the basis decrease is less than the total unrealized depreciation, allocate it among those items in proportion to their respective amounts of unrealized depreciation. Military turbotax Allocate any remaining basis decrease among all the items in proportion to their respective assigned basis amounts (as decreased in (1)). Military turbotax Example. Military turbotax Armando's basis in his partnership interest is $20,000. Military turbotax In a distribution in liquidation of his entire interest, he receives properties C and D, neither of which is inventory or unrealized receivables. Military turbotax Property C has an adjusted basis to the partnership of $15,000 and a fair market value of $15,000. Military turbotax Property D has an adjusted basis to the partnership of $15,000 and a fair market value of $5,000. Military turbotax To figure his basis in each property, Armando first assigns bases of $15,000 to property C and $15,000 to property D (their adjusted bases to the partnership). Military turbotax This leaves a $10,000 basis decrease (the $30,000 total of the assigned bases minus the $20,000 allocable basis). Military turbotax He allocates the entire $10,000 to property D (its unrealized depreciation). Military turbotax Armando's basis in property C is $15,000 and his basis in property D is $5,000 ($15,000 − $10,000). Military turbotax Distributions before August 6, 1997. Military turbotax   For property distributed before August 6, 1997, allocate the basis using the following rules. Military turbotax Allocate the basis first to unrealized receivables and inventory items included in the distribution to the extent of the partnership's adjusted basis in those items. Military turbotax If the partnership's adjusted basis in those items exceeded the allocable basis, allocate the basis among the items in proportion to their adjusted bases to the partnership. Military turbotax Allocate any remaining basis to other distributed properties in proportion to their adjusted bases to the partnership. Military turbotax Partner's interest more than partnership basis. Military turbotax   If the basis of a partner's interest to be divided in a complete liquidation of the partner's interest is more than the partnership's adjusted basis for the unrealized receivables and inventory items distributed, and if no other property is distributed to which the partner can apply the remaining basis, the partner has a capital loss to the extent of the remaining basis of the partnership interest. Military turbotax Special adjustment to basis. Military turbotax   A partner who acquired any part of his or her partnership interest in a sale or exchange or upon the death of another partner may be able to choose a special basis adjustment for property distributed by the partnership. Military turbotax To choose the special adjustment, the partner must have received the distribution within 2 years after acquiring the partnership interest. Military turbotax Also, the partnership must not have chosen the optional adjustment to basis when the partner acquired the partnership interest. Military turbotax   If a partner chooses this special basis adjustment, the partner's basis for the property distributed is the same as it would have been if the partnership had chosen the optional adjustment to basis. Military turbotax However, this assigned basis is not reduced by any depletion or depreciation that would have been allowed or allowable if the partnership had previously chosen the optional adjustment. Military turbotax   The choice must be made with the partner's tax return for the year of the distribution if the distribution includes any property subject to depreciation, depletion, or amortization. Military turbotax If the choice does not have to be made for the distribution year, it must be made with the return for the first year in which the basis of the distributed property is pertinent in determining the partner's income tax. Military turbotax   A partner choosing this special basis adjustment must attach a statement to his or her tax return that the partner chooses under section 732(d) of the Internal Revenue Code to adjust the basis of property received in a distribution. Military turbotax The statement must show the computation of the special basis adjustment for the property distributed and list the properties to which the adjustment has been allocated. Military turbotax Example. Military turbotax Chin Ho purchased a 25% interest in X partnership for $17,000 cash. Military turbotax At the time of the purchase, the partnership owned inventory having a basis to the partnership of $14,000 and a fair market value of $16,000. Military turbotax Thus, $4,000 of the $17,000 he paid was attributable to his share of inventory with a basis to the partnership of $3,500. Military turbotax Within 2 years after acquiring his interest, Chin Ho withdrew from the partnership and for his entire interest received cash of $1,500, inventory with a basis to the partnership of $3,500, and other property with a basis of $6,000. Military turbotax The value of the inventory received was 25% of the value of all partnership inventory. Military turbotax (It is immaterial whether the inventory he received was on hand when he acquired his interest. Military turbotax ) Since the partnership from which Chin Ho withdrew did not make the optional adjustment to basis, he chose to adjust the basis of the inventory received. Military turbotax His share of the partnership's basis for the inventory is increased by $500 (25% of the $2,000 difference between the $16,000 fair market value of the inventory and its $14,000 basis to the partnership at the time he acquired his interest). Military turbotax The adjustment applies only for purposes of determining his new basis in the inventory, and not for purposes of partnership gain or loss on disposition. Military turbotax The total to be allocated among the properties Chin Ho received in the distribution is $15,500 ($17,000 basis of his interest − $1,500 cash received). Military turbotax His basis in the inventory items is $4,000 ($3,500 partnership basis + $500 special adjustment). Military turbotax The remaining $11,500 is allocated to his new basis for the other property he received. Military turbotax Mandatory adjustment. Military turbotax   A partner does not always have a choice of making this special adjustment to basis. Military turbotax The special adjustment to basis must be made for a distribution of property (whether or not within 2 years after the partnership interest was acquired) if all the following conditions existed when the partner received the partnership interest. Military turbotax The fair market value of all partnership property (other than money) was more than 110% of its adjusted basis to the partnership. Military turbotax If there had been a liquidation of the partner's interest immediately after it was acquired, an allocation of the basis of that interest under the general rules (discussed earlier under Basis divided among properties) would have decreased the basis of property that could not be depreciated, depleted, or amortized and increased the basis of property that could be. Military turbotax The optional basis adjustment, if it had been chosen by the partnership, would have changed the partner's basis for the property actually distributed. Military turbotax Required statement. Military turbotax   Generally, if a partner chooses a special basis adjustment and notifies the partnership, or if the partnership makes a distribution for which the special basis adjustment is mandatory, the partnership must provide a statement to the partner. Military turbotax The statement must provide information necessary for the partner to compute the special basis adjustment. Military turbotax Marketable securities. Military turbotax   A partner's basis in marketable securities received in a partnership distribution, as determined in the preceding discussions, is increased by any gain recognized by treating the securities as money. Military turbotax See Marketable securities treated as money under Partner's Gain or Loss, earlier. Military turbotax The basis increase is allocated among the securities in proportion to their respective amounts of unrealized appreciation before the basis increase. Military turbotax Transactions Between Partnership and Partners For certain transactions between a partner and his or her partnership, the partner is treated as not being a member of the partnership. Military turbotax These transactions include the following. Military turbotax Performing services for, or transferring property to, a partnership if: There is a related allocation and distribution to a partner, and The entire transaction, when viewed together, is properly characterized as occurring between the partnership and a partner not acting in the capacity of a partner. Military turbotax Transferring money or other property to a partnership if: There is a related transfer of money or other property by the partnership to the contributing partner or another partner, and The transfers together are properly characterized as a sale or exchange of property. Military turbotax Payments by accrual basis partnership to cash basis partner. Military turbotax   A partnership that uses an accrual method of accounting cannot deduct any business expense owed to a cash basis partner until the amount is paid. Military turbotax However, this rule does not apply to guaranteed payments made to a partner, which are generally deductible when accrued. Military turbotax Guaranteed Payments Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. Military turbotax A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. Military turbotax This treatment is for purposes of determining gross income and deductible business expenses only. Military turbotax For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Military turbotax Guaranteed payments are not subject to income tax withholding. Military turbotax The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. Military turbotax They are also listed on Schedules K and K-1 of the partnership return. Military turbotax The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income. Military turbotax Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. Military turbotax Generally, organizational and syndication expenses are not deductible by the partnership. Military turbotax However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). Military turbotax Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments. Military turbotax Minimum payment. Military turbotax   If a partner is to receive a minimum payment from the partnership, the guaranteed payment is the amount by which the minimum payment is more than the partner's distributive share of the partnership income before taking into account the guaranteed payment. Military turbotax Example. Military turbotax Under a partnership agreement, Divya is to receive 30% of the partnership income, but not less than $8,000. Military turbotax The partnership has net income of $20,000. Military turbotax Divya's share, without regard to the minimum guarantee, is $6,000 (30% × $20,000). Military turbotax The guaranteed payment that can be deducted by the partnership is $2,000 ($8,000 − $6,000). Military turbotax Divya's income from the partnership is $8,000, and the remaining $12,000 of partnership income will be reported by the other partners in proportion to their shares under the partnership agreement. Military turbotax If the partnership net income had been $30,000, there would have been no guaranteed payment since her share, without regard to the guarantee, would have been greater than the guarantee. Military turbotax Self-employed health insurance premiums. Military turbotax   Premiums for health insurance paid by a partnership on behalf of a partner, for services as a partner, are treated as guaranteed payments. Military turbotax The partnership can deduct the payments as a business expense, and the partner must include them in gross income. Military turbotax However, if the partnership accounts for insurance paid for a partner as a reduction in distributions to the partner, the partnership cannot deduct the premiums. Military turbotax   A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an adjustment to income. Military turbotax The partner cannot deduct the premiums for any calendar month, or part of a month, in which the partner is eligible to participate in any subsidized health plan maintained by any employer of the partner, the partner's spouse, the partner's dependents, or any children under age 27 who are not dependents. Military turbotax For more information on the self-employed health insurance deduction, see chapter 6 in Publication 535. Military turbotax Including payments in partner's income. Military turbotax   Guaranteed payments are included in income in the partner's tax year in which the partnership's tax year ends. Military turbotax Example 1. Military turbotax Under the terms of a partnership agreement, Erica is entitled to a fixed annual payment of $10,000 without regard to the income of the partnership. Military turbotax Her distributive share of the partnership income is 10%. Military turbotax The partnership has $50,000 of ordinary income after deducting the guaranteed payment. Military turbotax She must include ordinary income of $15,000 ($10,000 guaranteed payment + $5,000 ($50,000 × 10%) distributive share) on her individual income tax return for her tax year in which the partnership's tax year ends. Military turbotax Example 2. Military turbotax Lamont is a calendar year taxpayer who is a partner in a partnership. Military turbotax The partnership uses a fiscal year that ended January 31, 2013. Military turbotax Lamont received guaranteed payments from the partnership from February 1, 2012, until December 31, 2012. Military turbotax He must include these guaranteed payments in income for 2013 and report them on his 2013 income tax return. Military turbotax Payments resulting in loss. Military turbotax   If guaranteed payments to a partner result in a partnership loss in which the partner shares, the partner must report the full amount of the guaranteed payments as ordinary income. Military turbotax The partner separately takes into account his or her distributive share of the partnership loss, to the extent of the adjusted basis of the partner's partnership interest. Military turbotax Sale or Exchange of Property Special rules apply to a sale or exchange of property between a partnership and certain persons. Military turbotax Losses. Military turbotax   Losses will not be allowed from a sale or exchange of property (other than an interest in the partnership) directly or indirectly between a partnership and a person whose direct or indirect interest in the capital or profits of the partnership is more than 50%. Military turbotax   If the sale or exchange is between two partnerships in which the same persons directly or indirectly own more than 50% of the capital or profits interests in each partnership, no deduction of a loss is allowed. Military turbotax   The basis of each partner's interest in the partnership is decreased (but not below zero) by the partner's share of the disallowed loss. Military turbotax   If the purchaser later sells the property, only the gain realized that is greater than the loss not allowed will be taxable. Military turbotax If any gain from the sale of the property is not recognized because of this rule, the basis of each partner's interest in the partnership is increased by the partner's share of that gain. Military turbotax Gains. Military turbotax   Gains are treated as ordinary income in a sale or exchange of property directly or indirectly between a person and a partnership, or between two partnerships, if both of the following tests are met. Military turbotax More than 50% of the capital or profits interest in the partnership(s) is directly or indirectly owned by the same person(s). Military turbotax The property in the hands of the transferee immediately after the transfer is not a capital asset. Military turbotax Property that is not a capital asset includes accounts receivable, inventory, stock-in-trade, and depreciable or real property used in a trade or business. Military turbotax More than 50% ownership. Military turbotax   To determine if there is more than 50% ownership in partnership capital or profits, the following rules apply. Military turbotax An interest directly or indirectly owned by, or for, a corporation, partnership, estate, or trust is considered to be owned proportionately by, or for, its shareholders, partners, or beneficiaries. Military turbotax An individual is considered to own the interest directly or indirectly owned by, or for, the individual's family. Military turbotax For this rule, “family” includes only brothers, sisters, half-brothers, half-sisters, spouses, ancestors, and lineal descendants. Military turbotax If a person is considered to own an interest using rule (1), that person (the “constructive owner”) is treated as if actually owning that interest when rules (1) and (2) are applied. Military turbotax However, if a person is considered to own an interest using rule (2), that person is not treated as actually owning that interest in reapplying rule (2) to make another person the constructive owner. Military turbotax Example. Military turbotax Individuals A and B and Trust T are equal partners in Partnership ABT. Military turbotax A's husband, AH, is the sole beneficiary of Trust T. Military turbotax Trust T's partnership interest will be attributed to AH only for the purpose of further attributing the interest to A. Military turbotax As a result, A is a more-than-50% partner. Military turbotax This means that any deduction for losses on transactions between her and ABT will not be allowed, and gain from property that in the hands of the transferee is not a capital asset is treated as ordinary, rather than capital, gain. Military turbotax More information. Military turbotax   For more information on these special rules, see Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. Military turbotax Contribution of Property Usually, neither the partner nor the partnership recognizes a gain or loss when property is contributed to the partnership in exchange for a partnership interest. Military turbotax This applies whether a partnership is being formed or is already operating. Military turbotax The partnership's holding period for the property includes the partner's holding period. Military turbotax The contribution of limited partnership interests in one partnership for limited partnership interests in another partnership qualifies as a tax-free contribution of property to the second partnership if the transaction is made for business purposes. Military turbotax The exchange is not subject to the rules explained later under Disposition of Partner's Interest. Military turbotax Disguised sales. Military turbotax   A contribution of money or other property to the partnership followed by a distribution of different property from the partnership to the partner is treated not as a contribution and distribution, but as a sale of property, if both of the following tests are met. Military turbotax The distribution would not have been made but for the contribution. Military turbotax The partner's right to the distribution does not depend on the success of partnership operations. Military turbotax   All facts and circumstances are considered in determining if the contribution and distribution are more properly characterized as a sale. Military turbotax However, if the contribution and distribution occur within 2 years of each other, the transfers are presumed to be a sale unless the facts clearly indicate that the transfers are not a sale. Military turbotax If the contribution and distribution occur more than 2 years apart, the transfers are presumed not to be a sale unless the facts clearly indicate that the transfers are a sale. Military turbotax Form 8275 required. Military turbotax   A partner must attach Form 8275, Disclosure Statement, (or other statement) to his or her return if the partner contributes property to a partnership and, within 2 years (before or after the contribution), the partnership transfers money or other consideration to the partner. Military turbotax For exceptions to this requirement, see section 1. Military turbotax 707-3(c)(2) of the regulations. Military turbotax   A partnership must attach Form 8275 (or other statement) to its return if it distributes property to a partner, and, within 2 years (before or after the distribution), the partner transfers money or other consideration to the partnership. Military turbotax   Form 8275 must include the following information. Military turbotax A caption identifying the statement as a disclosure under section 707 of the Internal Revenue Code. Military turbotax A description of the transferred property or money, including its value. Military turbotax A description of any relevant facts in determining if the transfers are properly viewed as a disguised sale. Military turbotax See section 1. Military turbotax 707-3(b)(2) of the regulations for a description of the facts and circumstances considered in determining if the transfers are a disguised sale. Military turbotax Contribution to partnership treated as investment company. Military turbotax   Gain is recognized when property is contributed (in exchange for an interest in the partnership) to a partnership that would be treated as an investment company if it were incorporated. Military turbotax   A partnership is generally treated as an investment company if over 80% of the value of its assets is held for investment and consists of certain readily marketable items. Military turbotax These items include money, stocks and other equity interests in a corporation, and interests in regulated investment companies and real estate investment trusts. Military turbotax For more information, see section 351(e)(1) of the Internal Revenue Code and the related regulations. Military turbotax Whether a partnership is treated as an investment company under this test is ordinarily determined immediately after the transfer of property. Military turbotax   This rule applies to limited partnerships and general partnerships, regardless of whether they are privately formed or publicly syndicated. Military turbotax Contribution to foreign partnership. Military turbotax   A domestic partnership that contributed property after August 5, 1997, to a foreign partnership in exchange for a partnership interest may have to file Form 8865 if either of the following apply. Military turbotax Immediately after the contribution, the partnership owned, directly or indirectly, at least a 10% interest in the foreign partnership. Military turbotax The fair market value of the property contributed to the foreign partnership, when added to other contributions of property made to the partnership during the preceding 12-month period, is greater than $100,000. Military turbotax   The partnership may also have to file Form 8865, even if no contributions are made during the tax year, if it owns a 10% or more interest in a foreign partnership at any time during the year. Military turbotax See the form instructions for more information. Military turbotax Basis of contributed property. Military turbotax   If a partner contributes property to a partnership, the partnership's basis for determining depreciation, depletion, gain, or loss for the property is the same as the partner's adjusted basis for the property when it was contributed, increased by any gain recognized by the partner at the time of contribution. Military turbotax Allocations to account for built-in gain or loss. Military turbotax   The fair market value of property at the time it is contributed may be different from the partner's adjusted basis. Military turbotax The partnership must allocate among the partners any income, deduction, gain, or loss on the property in a manner that will account for the difference. Military turbotax This rule also applies to contributions of accounts payable and other accrued but unpaid items of a cash basis partner. Military turbotax   The partnership can use different allocation methods for different items of contributed property. Military turbotax A single reasonable method must be consistently applied to each item, and the overall method or combination of methods must be reasonable. Military turbotax See section 1. Military turbotax 704-3 of the regulations for allocation methods generally considered reasonable. Military turbotax   If the partnership sells contributed property and recognizes gain or loss, built-in gain or loss is allocated to the contributing partner. Military turbotax If contributed property is subject to depreciation or other cost recovery, the allocation of deductions for these items takes into account built-in gain or loss on the property. Military turbotax However, the total depreciation, depletion, gain, or loss allocated to partners cannot be more than the depreciation or depletion allowable to the partnership or the gain or loss realized by the partnership. Military turbotax Example. Military turbotax Areta and Sofia formed an equal partnership. Military turbotax Areta contributed $10,000 in cash to the partnership and Sofia contributed depreciable property with a fair market value of $10,000 and an adjusted basis of $4,000. Military turbotax The partnership's basis for depreciation is limited to the adjusted basis of the property in Sofia's hands, $4,000. Military turbotax In effect, Areta purchased an undivided one-half interest in the depreciable property with her contribution of $10,000. Military turbotax Assuming that the depreciation rate is 10% a year under the General Depreciation System (GDS), she would have been entitled to a depreciation deduction of $500 per year, based on her interest in the partnership, if the adjusted basis of the property equaled its fair market value when contributed. Military turbotax To simplify this example, the depreciation deductions are determined without regard to any first-year depreciation conventions. Military turbotax However, since the partnership is allowed only $400 per year of depreciation (10% of $4,000), no more than $400 can be allocated between the partners. Military turbotax The entire $400 must be allocated to Areta. Military turbotax Distribution of contributed property to another partner. Military turbotax   If a partner contributes property to a partnership and the partnership distributes the property to another partner within 7 years of the contribution, the contributing partner must recognize gain or loss on the distribution. Military turbotax   The recognized gain or loss is the amount the contributing partner would have recognized if the property had been sold for its fair market value when it was distributed. Military turbotax This amount is the difference between the property's basis and its fair market value at the time of contribution. Military turbotax The character of the gain or loss will be the same as the character of the gain or loss that would have resulted if the partnership had sold the property to the distributee partner. Military turbotax Appropriate adjustments must be made to the adjusted basis of the contributing partner's partnership interest and to the adjusted basis of the property distributed to reflect the recognized gain or loss. Military turbotax Disposition of certain contributed property. Military turbotax   The following rules determine the character of the partnership's gain or loss on a disposition of certain types of contributed property. Military turbotax Unrealized receivables. Military turbotax If the property was an unrealized receivable in the hands of the contributing partner, any gain or loss on its disposition by the partnership is ordinary income or loss. Military turbotax Unrealized receivables are defined later under Payments for Unrealized Receivables and Inventory Items. Military turbotax When reading the definition, substitute “partner” for “partnership. Military turbotax ” Inventory items. Military turbotax If the property was an inventory item in the hands of the contributing partner, any gain or loss on its disposition by the partnership within 5 years after the contribution is ordinary income or loss. Military turbotax Inventory items are defined later in Payments for Unrealized Receivables and Inventory Items. Military turbotax Capital loss property. Military turbotax If the property was a capital asset in the contributing partner's hands, any loss on its disposition by the partnership within 5 years after the contribution is a capital loss. Military turbotax The capital loss is limited to the amount by which the partner's adjusted basis for the property exceeded the property's fair market value immediately before the contribution. Military turbotax Substituted basis property. Military turbotax If the disposition of any of the property listed in (1), (2), or (3) is a nonrecognition transaction, these rules apply when the recipient of the property disposes of any substituted basis property (other than certain corporate stock) resulting from the transaction. Military turbotax Contribution of Services A partner can acquire an interest in partnership capital or profits as compensation for services performed or to be performed. Military turbotax Capital interest. Military turbotax   A capital interest is an interest that would give the holder a share of the proceeds if the partnership's assets were sold at fair market value and the proceeds were distributed in a complete liquidation of the partnership. Military turbotax This determination generally is made at the time of receipt of the partnership interest. Military turbotax The fair market value of such an interest received by a partner as compensation for services must generally be included in the partner's gross income in the first tax year in which the partner can transfer the interest or the interest is not subject to a substantial risk of forfeiture. Military turbotax The capital interest transferred as compensation for services is subject to the rules for restricted property discussed in Publication 525 under Employee Compensation. Military turbotax   The fair market value of an interest in partnership capital transferred to a partner as payment for services to the partnership is a guaranteed payment, discussed earlier. Military turbotax Profits interest. Military turbotax   A profits interest is a partnership interest other than a capital interest. Military turbotax If a person receives a profits interest for providing services to, or for the benefit of, a partnership in a partner capacity or in anticipation of being a partner, the receipt of such an interest is not a taxable event for the partner or the partnership. Military turbotax However, this does not apply in the following situations. Military turbotax The profits interest relates to a substantially certain and predictable stream of income from partnership assets, such as income from high-quality debt securities or a high-quality net lease. Military turbotax Within 2 years of receipt, the partner disposes of the profits interest. Military turbotax The profits interest is a limited partnership interest in a publicly traded partnership. Military turbotax   A profits interest transferred as compensation for services is not subject to the rules for restricted property that apply to capital interests. Military turbotax Basis of Partner's Interest The basis of a partnership interest is the money plus the adjusted basis of any property the partner contributed. Military turbotax If the partner must recognize gain as a result of the contribution, this gain is included in the basis of his or her interest. Military turbotax Any increase in a partner's individual liabilities because of an assumption of partnership liabilities is considered a contribution of money to the partnership by the partner. Military turbotax Interest acquired by gift, etc. Military turbotax   If a partner acquires an interest in a partnership by gift, inheritance, or under any circumstance other than by a contribution of money or property to the partnership, the partner's basis must be determined using the basis rules described in Publication 551. Military turbotax Adjusted Basis There is a worksheet for adjusting the basis of a partner's interest in the partnership in the Partner's Instructions for Schedule K-1 (Form 1065). Military turbotax The basis of an interest in a partnership is increased or decreased by certain items. Military turbotax Increases. Military turbotax   A partner's basis is increased by the following items. Military turbotax The partner's additional contributions to the partnership, including an increased share of, or assumption of, partnership liabilities. Military turbotax The partner's distributive share of taxable and nontaxable partnership income. Military turbotax The partner's distributive share of the excess of the deductions for depletion over the basis of the depletable property, unless the property is oil or gas wells whose basis has been allocated to partners. Military turbotax Decreases. Military turbotax   The partner's basis is decreased (but never below zero) by the following items. Military turbotax The money (including a decreased share of partnership liabilities or an assumption of the partner's individual liabilities by the partnership) and adjusted basis of property distributed to the partner by the partnership. Military turbotax The partner's distributive share of the partnership losses (including capital losses). Military turbotax The partner's distributive share of nondeductible partnership expenses that are not capital expenditures. Military turbotax This includes the partner's share of any section 179 expenses, even if the partner cannot deduct the entire amount on his or her individual income tax return. Military turbotax The partner's deduction for depletion for any partnership oil and gas wells, up to the proportionate share of the adjusted basis of the wells allocated to the partner. Military turbotax Partner's liabilities assumed by partnership. Military turbotax   If contributed property is subject to a debt or if a partner's liabilities are assumed by the partnership, the basis of that partner's interest is reduced (but not below zero) by the liability assumed by the other partners. Military turbotax This partner must reduce his or her basis because the assumption of the liability is treated as a distribution of money to that partner. Military turbotax The other partners' assumption of the liability is treated as a contribution by them of money to the partnership. Military turbotax See Effect of Partnership Liabilities , later. Military turbotax Example 1. Military turbotax Ivan acquired a 20% interest in a partnership by contributing property that had an adjusted basis to him of $8,000 and a $4,000 mortgage. Military turbotax The partnership assumed payment of the mortgage. Military turbotax The basis of Ivan's interest is: Adjusted basis of contributed property $8,000 Minus: Part of mortgage assumed by other partners (80% × $4,000) 3,200 Basis of Ivan's partnership interest $4,800 Example 2. Military turbotax If, in Example 1, the contributed property had a $12,000 mortgage, the basis of Ivan's partnership interest would be zero. Military turbotax The $1,600 difference between the mortgage assumed by the other partners, $9,600 (80% × $12,000), and his basis of $8,000 would be treated as capital gain from the sale or exchange of a partnership interest. Military turbotax However, this gain would not increase the basis of his partnership interest. Military turbotax Book value of partner's interest. Military turbotax   The adjusted basis of a partner's interest is determined without considering any amount shown in the partnership books as a capital, equity, or similar account. Military turbotax Example. Military turbotax Enzo contributes to his partnership property that has an adjusted basis of $400 and a fair market value of $1,000. Military turbotax His partner contributes $1,000 cash. Military turbotax While each partner has increased his capital account by $1,000, which will be re