Correcting Capital Account Errors on Partnership Returns

This course will provide tax professionals and advisers with an in-depth and practical guide to the accounting and tax disclosure requirements to correct and adjust capital account balances. The panel will focus on reconstructing capital accounts in light of the required reporting of negative tax basis capital accounts and the upcoming required reporting of all tax basis capital accounts. The webinar will also cover the interpretation of partnership agreements and guide advisers on applying partnership provisions to corrective entries and tax disclosures.

The maintenance of capital accounts is one of the more challenging tasks for tax professionals advising partnerships. Due to inexperience, changes in advisers, and errors and omissions, capital accounts are often not maintained accurately. Absent corrections and adjustments, such items can lead to misallocation, phantom income, and basis errors. This, coupled with the IRS requirement to report any partner's beginning and ending tax basis capital, has left tax practitioners with the burden of reviewing or determining tax basis capital for all partners.

Even more frustrating is that the corrective adjustments to bring the accounts back into balance are not always clear. Moreover, these issues will become even more challenging with the advent of the new partnership audit rules.

By its very nature, partnership accounting is complicated, and some transactions and events will cause difficulties in maintaining capital accounts. Some provisions--including allocations of nonrecourse liabilities, minimum gain chargebacks, and multistate filings--can create problems for tax professionals. Advisers must be able to identify and correct capital account discrepancies from both compliance and reporting standpoints.

Listen as our experienced panel provides an overview of common and uncommon capital account errors and scenarios that need corrective measures and explains the best steps to take when calculating partners' capital accounts considering the new IRS reporting requirements.