For this reason, this article is devoted to UPIA's concepts and underlying principles.In many states, a revised version of UPIA (RUPIA 1997) has replaced the first revision (RUPIA 1962) or the original 1931 law (UPIA 1931).I have had an interest in writing about issues on the accounting for estates and trusts, especially the income/principal distinction which is articulated in the Uniform Principal and Income Act (UPIA) adopted by most states.After all, this income versus principal distinction assists in answering the "who gets what" question as to the economic benefits a trust or estate will be providing its beneficiaries; something the beneficiaries and their advisers should be keenly interested in.When a partner contributes property to the partnership, the partnership's basis in the contributed property is equal to its fair market value ( You contribute land to a partnership with a tax basis of ,000 and a FMV of ,000. Since the FMV of the land is also ,000, you each have equal equity in the partnership, and the total inside basis of the partnership is equal to 0,000, your combined contributions.However, your outside basis differs from your partner's, since your outside basis is ,000, while that of your partner's is ,000.Whether earnings are retained in a partnership or distributed to partners has no affect on the taxation of those earnings, since the partners have to pay tax on the earnings whether they are distributed or not.Earnings are distributed to each partner's capital account from which distributions are charged against.
There are 2 types of distributions: a current distribution decreases the partner's capital account without terminating it, whereas a liquidating distribution pays the entire capital account to the partner, thereby eliminating the partner's equity interest in the partnership.
However, certain types of distributions and any distributions that exceed the partner's basis may result in gains or losses that must be reported for the year in which they occur.
To understand the taxation of partnerships and distributions, it is necessary to know the 2 types of tax bases concerning partnerships.
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