Mastering Section 263A UNICAP Reporting for Partnerships and S Corporations: Getting K-1 Disclosures Right

The UNICAP rules of IRC 263A, which require taxpayers to capitalize all direct costs, and certain indirect costs, properly allocable to the production of certain property produced by the taxpayer, presents particular responsibilities and challenges for tax advisers preparing partnership and S corporation tax returns. IRS Notice 88-99requires partnerships to include K-1 footnotes reporting capitalized interest expense and production expenditures subject to Section 263A capitalization.

For tiered partnerships, the tax reporting challenges become even more difficult for both upper-tier and lower-tier partnerships. Tax advisers must fully understand the additional calculation and reporting requirements that partnerships require in allocating capitalized costs, especially those related to interest. K-1 disclosure is especially important when the adviser preparing the partnership’s Form 1065 does not also prepare the partners’ returns.

Determining which costs are “properly allocable” to the production of covered property can create significant challenges for tax professionals and advisers. The rules governing capitalization of interest as an allocable cost are particularly complex and can have a measurable impact on the amount of interest costs that can be currently deducted versus those interest costs that must be capitalized. Capitalization rules also play a significant role in calculating ending inventory and cost of goods sold.

Listen as our experienced panel provides a comprehensive guide to the specifics of reporting Section 263A UNICAP for partnerships, including practical examples, an illustration of UNICAP computations, and best practices for planning and compliance with Sect. 263A regulations.

1. Basic UNICAP rules applied to partnerships
2. Tiered partnerships required K-1 calculations and disclosures
3. Items most specific to partnerships (royalties, mineral rights)
4. Real estate interest capitalization

The panel will discuss these and other important issues:

• UNICAP calculation challenges specific to partnerships
• What disclosures does IRS Notice 88-99 require for advisers preparing partnership returns
• What language should the footnote disclosures include
• Interest reporting
• K-1 calculations and disclosures for non-producing partnerships

Learning Objectives

After completing this course, you will be able to:

• Ascertain expenses that must be capitalized under Section 263A
• Identify the disclosures that advisers must make on a K-1
• Discern the specific challenges to reporting capitalization under Section 263A for a tiered parternship
• Recognize the requirements for reporting capitalized interest in a partnership structure

• 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: Basic knowledge of taxation.

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).