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Partnerships

REG Chapter 21 · Area V · Blueprint V.D

A partnership pays no income tax. It files Form 1065 to report its income, and each partner pays tax on a share of it, whether or not any cash comes out. Partnerships are flexible: partners can share items in agreed ways, take guaranteed payments for their work and count their share of partnership debt in their basis. This chapter follows three designers, Rosa, Nora and Lena, as they form Bayside Design Partners: contributions under §721, ordinary business income and separately stated items, guaranteed payments, allocations, self-employment tax, a partner's basis including liabilities, distributions, the sale of an interest, and the Blueprint's analysis tasks of reviewing Form 1065 and resolving its diagnostics. Figures are for tax year 2026.

In this chapter

1. Forming a partnership
2. Ordinary business income and separately stated items
3. Guaranteed payments
4. Allocating items among partners
5. Self-employment tax and partner types
6. A partner's basis
7. Distributions
8. Selling a partnership interest
9. Reviewing Form 1065 and resolving diagnostics

This chapter has 9 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

• Formation
• ordinary income and separately stated items
• guaranteed payments
• partner's basis including liabilities
• distributions

Chapter 20: S corporations · Chapter 22: Limited liability companies