New Form 1065 Requirement: Computing Tax Basis Capital Accounts
Author: Greg White
||1 hour for CPAs
1 hour Federal Tax Law Updates for EAs and OTRPs
1 hour Federal Tax Updates for CTEC
Beginning in 2020 Form 1065, we’ve got a new reporting requirement. Capital accounts as shown on Form K-1 will have to be reported on a tax basis (as opposed to GAAP or §704(b)). We’ll cover the issues you need to know:
• How do you compute tax basis capital accounts for this purpose?
• What do you do if you lack sufficient information to compute the current capital account balances?
• Which partnerships will not be subject to this requirement?
Publication Date: December 2020
Practitioners advising partnership clients.
- Issue: K‐1 Capital Accounts Reporting Issue
- Why Does IRS Want Tax Basis Capital Accounts?
- Escape Hatch
- Notice 2020‐43: Four Methods Computing Beginning Tax Basis Capital
- Tax Basis Capital Accounts
- General Rule: Adjusted Basis Partnership Interest
- "Modified Previously Tax Capital Method"
- Method 3: Project Out Partnerships Basis
- GAAP Basis 2019: Choosing a Method
- Keep an Eye Peeled
- Identify partnerships subject to the new rules
- Identify how to compute partnership capital accounts
- Recognize how to navigate complex issues (Sec. 743 step ups, etc.)
- Recognize how to determine the adjusted basis in partnership interests
NASBA Field of Study
Taxes (1 hour)
Basic understanding of Form 1065.