Partnerships
Chapter 8 of my Part 2 study notes — what a partnership is, the 1065 and the K-1, contributions, outside basis, operations and allocations, distributions, guaranteed payments and self-employment tax, sale of an interest, and liquidation. The outline is as I wrote it in 2023; the figures and the handful of rules that moved are brought current to 2026 and tagged. The step-by-step for basis, distributions and buyouts is on the Partnership Basis footnotes page; the client-facing version is Partnerships and Multi-Member LLCs under Topics.
What changed since the exam
| Late-filing penalty | $255 per partner per month for 2025 returns filed in 2026 (was $220 when I studied), 12-month cap, indexed. Rev. Proc. 84-35 relief still works for 10-or-fewer individual partners. |
| Excess business loss | Permanent under the 2025 act. $256,000 / $512,000 for 2026 ($313,000 / $626,000 for 2025); the disallowed amount becomes an NOL carryover. |
| Self-employment tax | Working LLC members: Tax Court functional test (Soroban 2023, Denham 2025) vs. the Fifth Circuit’s state-law test (Sirius Solutions, Jan. 2026). Unsettled; treat as SE income. 2026 wage base $184,500. |
| New forms | Form 7217 for every property distribution (2024 and later). Form 8308 expanded, with the Sec. 751 statement due January 31. K-1 item L on the tax-basis method; K-2 / K-3. |
| Technical termination | Gone since 2018. My notes still had the 50%-sale rule; a partnership now terminates only when the business stops or one owner is left. |
| Flow-through items | 100% bonus permanent (acquired after Jan. 19, 2025); Sec. 174A domestic research expensing; Sec. 163(j) on EBITDA permanently; QBI permanent with 2026 thresholds of $201,750 / $403,500 and a $400 minimum. |
| Disguised sales | Sec. 707(a)(2) is self-executing for transactions after July 4, 2025. |
| Unchanged | Secs. 721–724 contributions, Sec. 705 and Sec. 752 basis, Secs. 731–737 distributions, Sec. 751, Sec. 736, Sec. 741, the tax-year rules, and the centralized audit regime. |
What is a partnership, the agreement, family partnerships, attribution
Tax year, Form 1065 and K-1, penalties, partnership representative
Property, services, liabilities, and gain on contribution
Outside basis, inside basis, holding periods, purchased interests
Liabilities, separately stated items, allocations, basis adjustments, loss limits
Current distributions of money and property, the 7-year rules
Guaranteed payments, SE tax, nonpartner transactions, related parties
Sec. 741, Sec. 751, liabilities in the amount realized, termination
Sec. 736, loss on liquidation, basis of distributed property
My liquidation worksheets and the problems from the chapter
One-liners from the chapter and the practice questions
Sources used for the update
- Rev. Proc. 2025-32 — 2026 inflation adjustments (Sec. 461(l) thresholds, Sec. 199A thresholds, Sec. 6698 penalty)
- P.L. 119-21, One Big Beautiful Bill Act (July 4, 2025) — Secs. 163(j), 168(k), 174A, 199A, 461(l), 707(a)(2)
- Form 7217 and instructions (tax years beginning after 2023); Form 8308 and Notices 2024-19 and 2025-2; Form 1065 and Schedule K-1 instructions
- Soroban Capital Partners, 161 T.C. 310 (2023) and T.C. Memo. 2025-52; Sirius Solutions, No. 24-60240 (5th Cir. Jan. 16, 2026)
- Social Security Administration 2026 wage base announcement; Rev. Proc. 84-35; Rev. Rul. 99-6; Rev. Rul. 84-111
Private reference, not client advice. Original notes written 2022–2023 while studying for the SEE Part 2; figures updated October 2026 (Rev. Proc. 2025-32, Rev. Proc. 2026-15, P.L. 119-21). Verify current-year amounts before relying on them.