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.A change in reporting position will be treated for federal tax purposes as a conversion of the entity.
752(a) provides that an increase in a partner’s share of the partnership’s liabilities, or any increase in a partner’s individual liabilities because the partner assumed those liabilities, is considered a contribution of money by the partner to the partnership. 752(b) provides that a decrease in a partner’s share of a partnership’s liabilities, or any decrease in a partner’s individual liabilities because the partnership assumed the partner’s individual liabilities, is considered a distribution of money to the partner by the partnership.All but the traditional general partnership have limited liability, and a general partnership can, in most states, achieve limited liability by a simple filing to become an LLP, but, particularly for professionals that limited liability protects against vicarious liability but not against liability for one's own malpractice, including, of course malpractice in giving advice related to partnership tax matters. Distribution to Contributing Partner - Section 737 C. Certain Liquidating Distributions to Corporate Partners 2. Basis Allocations in a Series of Liquidating Distributions 4. All but the general partnership can also have continuity of life, centralized management and free transferability of interest, subject only to the usual practical problems of transferring interests in closely held businesses. Basis of Property Received in Liquidation of a Partner's Interest 1. If you sold your partnership interest for ,000, you would recognize a gain of ,000, whereas your partner, if she sold at the same price, would recognize no gain.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.