Question

Which one of the following is a true statement regarding the allocation of partnership debt among the partners for purposes of calculating basis?

1) For basis purposes, partnership debt is allocated among the partners even if no partner is personally liable for the debt.
2) In a limited liability partnership, debt is allocated among the managing partners, but not the partners with "limited liability".
3) No debt is allocated to LLC members because they are not liable for entity debts.
4) In a limited partnership, debt is only allocated to general partners.
5) Nonrecourse debt is not allocated to general partners unless they personally guarantee the debt.

Answer 1

The correct statement is that nonrecourse debt is allocated to general partners without needing a personal guarantee, opposing the false notion that no debt is allocated to LLC members or that it must be personally guaranteed.

Step-by-step explanation:

The correct statement regarding the allocation of partnership debt among the partners for the purposes of calculating basis is that nonrecourse debt is in fact allocated to general partners; it does not require a personal guarantee. This means that all partners, including general partners in a partnership, can have nonrecourse debt allocated to them for the purposes of increasing their basis in the partnership. This is essential for understanding the tax implications and liabilities for the partners.

In a limited liability partnership (LLP), the benefit is that a partner's liability is limited to their investment in the company, protecting personal assets. On the other hand, a general partnership has notable disadvantages such as shared personal liability for all business debts, which could lead to personal asset loss in case of bankruptcy or lawsuits.