Overview
The general reporting of capital accounts on the tax basis method is required starting in 2020. In addition, partnerships for 2020 must comply with the negative tax basis capital account reporting requirement introduced in 2018 for the 2019 tax year. Partnerships must report on a partner’s Schedule K-1 the partner’s beginning and ending share of tax basis capital if such partner’s beginning or ending tax basis capital account was negative. The IRS has issued FAQs giving guidance on how to calculate a partner’s tax basis capital account and how to use the optional safe harbor approach to do so.
Major Topics:
- Requirement to calculate partner basis on the tax basis
- Specific positive and negative partner basis adjustments
- What is the difference between a partner’s capital account and basis?
- The ordering rules for making multiple basis adjustments
- The treatment of recourse and nonrecourse liabilities as components of basis
- Notice 2019-66 and the one-year delay for reporting partner capital accounts on the tax basis method
- Reporting partner at-risk information and Section 704(c) built-in-gain for 2020
Learning Objectives
- Understand how a partner/member determines and reports his or her tax basis and capital account
- Identify and understand the specific negative and positive adjustments to a partner's basis and the ordering rules applicable to such adjustments
Designed for:
Any tax practitioner with partnerships, multiple member LLCs, or partners/members as clients
Prerequisite:
Basic understanding of tax rules relating to partnerships and partners
Advanced Preparation:
None