Balance Sheet Basics

1
(No Transcript)
2
Balance Sheet Basics
Assets Liabilities Partner Equity Assets
Liabilities Partner Equity Assets Partner
Equity Liabilities
3
Balance Sheet Basics
Year 1
Year 2 Year 3 Assets
Cash 100,000
50,000 40,000 Inventory
200,000 220,000
180,000 ARs
300,000 250,000 240,000
Total
600,000 520,000 460,000
Liabilities 400,000
440,000 530,000
Partner Equity 200,000
80,000 (70,000) Total
Liabilities Equity
600,000 520,000 460,000
Income (Loss) For Year
0 (120,000) (150,000)
4
Basis 704 (d) Limitation

• Easiest of the three hurdles
• Each partners share of aggregate losses of
  entity from all activities compared to partners
  outside basis. If less, you home free. If more,
  excess carried over.
• Remember 752 basis twist for partnership
  liabilities. This usually saves the day by
  increasing outside basis.

5
At-Risk 465 Limitation

• Theory One should not get loss for money
  that he or she will never lose. Must really be
  at-risk
• Compare partners allocable loss from each
  activity against partners at-risk amount on
  that activity. If loss less, you home free. If
  loss greater, carry forward.
• At-Risk amount is amounts contributed to
  activity and debt for which partner is personally
  liable and partnerships recourse debt. Debt is
  recourse if creditor can sue partner under
  state law and borrowed from person who has no
  interest in activity.
• Big exception Qualified non-recourse
  financing
• - Obtained from commercial lender or
  government
• - Holding of real estate is the
  activity
• - No one personally liable
• - Debt not convertible

6
Basis At-Risk Comparison

• Two Huge Differences
• Basis is applied on aggregate net loss of
  partnership At-Risk is applied separately to
  each activity of the partnership.
• Basis includes all liabilities of partnership,
  including all non-recourse liabilities. At-risk
  includes only recourse liabilities.
• Thus, for at risk, what is recourse becomes a
  big deal.
• - What if only one partner liable for debt?
• - What if other partner not liable directly
  to creditor, but agrees to indemnify party who is
  liable if that partner ever has to pay?
• - What if indemnifying partner can cancel
  indemnity at any time activity is still solvent?
  

7
Non-Recourse Debt Exception Magic
Year 1
Year 2 Year 3 Assets
Cash 100,000
50,000 40,000 Real Estate
3,000,000 2,750,000
2,500,000 Total
3,100,000 2,800,000
2,540,000 Non-recourse debt 3,050,000
3,050,000 3,050,000
Partner Equity 50,000
(250,000) (490,000) Total
Liabilities Equity
3,100,000 2,800,000 2,540,000
Income (Loss) For Year
0 (300,000) (240,000)
8
(No Transcript)
9
(No Transcript)
10
(No Transcript)
11
(No Transcript)