New Form 1065 Requirement: Computing Tax Basis Capital Accounts

Author: Greg White

CPE Credit:  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: September 2020

Designed For
Practitioners advising partnership clients.

Topics Covered

  • Issue: K‐1 Capital Accounts Reporting Issue
  • Why Does IRS Want Tax Basis Capital Accounts?
  • Risk of Not Reporting: Tax Basis Capital Accounts
  • General Rule: Adjusted Basis Partnership Interest
  • Computing Basis Partnership Interest
  • IRS Proposal: Tax Basis Capital Accounts with a "Twist"
  • Notice 2020‐43 ‐‐ Two Methods: Compute Tax Basis Capital
  • "Modified Outside Basis Method"
  • "Modified Previously Tax Capital Method"
  • Method 2: Project Out Partnerships Basis
  • Choosing a Method
  • Form 1065
  • Should You Include Disclaimer? On K‐1?
  • Escape Hatch
  • Comments on Notice 2020‐43
  • Will You Use Tax Basis Capital Account? When Filing Partner's Return?
  • Keep an Eye Peeled

Learning Objectives

  • 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

Level
Update

Instructional Method
Self-Study

NASBA Field of Study
Taxes (1 hour)

Program Prerequisites
Basic understanding of Form 1065.

Advance Preparation
None

Registration Options
Quantity
Fees
Regular Fee $49.00

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