Outside Basis: Determining, Documenting, and Reconstructing for Partners, Members, and Shareholders

Determining outside basis is one of the most complex yet critical components of flow-through entity taxation. The recent addition of tax basis capital reporting requirements emphasizes the fact that extensive audits of flow-through entities by the IRS will continue. These examinations concentrate on distributions and losses in excess of basis.

Outside basis is a partner's interest in a partnership, while inside basis is the partnership's investment in a partnership. Additional contributions, assumption of liabilities, and taxable and nontaxable income can increase a partner's basis. In contrast, distributions, a reduction in liabilities, and partnership losses and nondeductibles will decrease a partner's basis. Documenting these transactions from the initial entry into a partnership until the partners' exit is critical. This information is necessary to calculate distributions in excess of basis and the deductibility of losses.

All partners and shareholders should update and retain outside basis schedules. However, prior miscalculations, loss of documentation, or the acquisition of a new client can all create the need to reconstruct prior outside basis for a partner or member. Understanding how to best recapture this information using prior returns and client data is key.

Listen as our panel of dispute resolution experts explains the importance of determining, documenting, and reconstructing outside basis if needed to properly determine amounts available for loss deductions and to calculate gains and losses upon the disposition of an interest in a flow-through entity.

1. Outside basis: introduction
2. Determining
   1. Calculating
   2. LLCs vs. S corporations
   3. Distributions
   4. Handling losses in excess of basis
3. Documenting
4. Reporting
5. Reconstructing
6. Avoiding audit flags

The panel will cover these and other critical issues:

• Properly documenting outside basis calculations
• How outside basis is calculated for shareholders, partners, and members
• Avoiding IRS audit flags for basis examinations
• Best practices for reconstructing and correcting outside basis for partners and shareholders
• Calculating losses in excess of basis and carryforward schedules

Learning Objectives

After completing this course, you will be able to:

• Identify items that increase outside basis in an S corporation
• Determine outside basis for partners
• Decide instances when basis needs to be reconstructed for a partner or shareholder
• Ascertain differences in outside basis calculations for shareholders and members

• 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).