Form 1065 Tax Basis Capital Methods

The instructions to Form 1065 make it clear that partners' capital accounts should be reported using the tax basis method. Further, the instructions state you should "Figure each partner's capital account for the partnership's tax year using the transactional approach." Not all partnerships maintain their books and records on a tax basis, and the transactional approach is not clearly defined.

Partnerships with less than $250,000 in sales and $1 million in assets (those able to omit completion of Schedule L, M-1, and M-2) are not required to report capital account changes in Item L of the Schedule K-1. All other partnerships must report and maintain partners' tax basis capital accounts on partnership returns.

Tax practitioners preparing partnership returns need to understand the current requirement to report tax basis capital for all partners to comply with the latest guidelines, avoid penalties, and properly report tax basis gains and losses.

Listen as our panel of partnership veterans explains what is known to date about tax basis capital account reporting, including the transactional approach in the current Form 1065 instructions, as well as steps practitioners can take to streamline compliance with these latest guidelines.

1. Capital accounts
   1. GAAP
   2. Tax
   3. 704(b)
2. Tax allocations and substantial economic effect
3. Examples
4. Reporting tax capital accounts
5. Other issues

The panel will cover these and other critical issues:

• Tracking capital for tax return reporting versus total basis for partners, including Section 743(b) adjustments and debt
• Using the transactional approach to calculate annual partnership capital account changes
• Practical solutions for handling partnership returns that were noncompliant in the past
• Current guidance for reporting capital balances with Form 1065 instruction guidelines

Learning Objectives

After completing this course, you will be able to:

• Identify partnerships subject to tax basis reporting requirements
• Ascertain when preparers might be subject to penalties for exercising less than ordinary and prudent business care in calculating tax basis capital balances
• Determine how the Section 704(b) method is used to calculate beginning tax basis capital
• Decide which Section 754 transactions affect tax basis capital calculations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).