Reconciling GAAP Basis and Tax Basis in Partnership Income Tax Returns and K-1 Schedules

Reconciling GAAP to tax basis often presents significant challenges for tax advisers preparing or utilizing K-1 schedules reporting GAAP basis. While some lenders to real estate partnerships will allow tax-basis financials, investors and creditors still look for GAAP basis financials, even without legal requirements.

GAAP basis financials use accrual-based accounting, which creates differences in allocating income and expenses by accounting period. These differences must be reconciled through additional K-1 disclosures to arrive at the partner's capital account balance. For partnerships with distribution-based operating agreements, allocations may create other GAAP reconciliations.

The recently added requirement to report tax basis capital accounts creates new challenges for practitioners. Additionally, the enactment of the centralized partnership audit procedures increases the complexity for tax advisers in accounting for any underpayments assessed due to an IRS examination at the partnership level. GAAP basis partnerships will need to determine whether any assessment is treated as a partnership liability or a transaction between the partnership and its impacted partners.

Listen as our experienced panel provides a practical guide to GAAP/tax basis reconciliations on partners' K-1s.

1. GAAP basis financials reported on K-1
2. Critical differences between GAAP and tax basis
3. ASC 740 for partnerships
4. Tying back Section 704(b) books to GAAP and tax basis schedules
5. Impact of recent IRS tax basis capital reporting requirements
6. Impact of IRS centralized partnership audit regime change on GAAP allocations

The panel will discuss these and other relevant topics:

• What are the most common partnership reconciliation items between GAAP and tax basis?
• How does the presence of a distribution-based partnership operating agreement impact the reconciliation between GAAP, tax basis, and IRC 704(b)?
• Impact of the Section 199A deduction on GAAP basis reporting on partners' K-1 schedule
• What GAAP adjustments are required in cases of an underpayment assessment by the IRS?
• Which partners are impacted by the recent tax basis reporting requirements?

Learning Objectives

After completing this course, you will be able to:

• Differentiate GAAP, IRC 704(b), and tax basis capital accounts
• Recognize the most common partnership reconciliation items between GAAP and tax basis
• Identify various methods of complying with tax basis capital requirements
• Verify that tax basis capital reporting is correct
• Establish the impact of the IRS centralized partnership audit regime change on GAAP allocations
• Ascertain how the IRS will treat imputed underpayments

• 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 at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of tax reporting and planning for partnership and other pass-through entities; familiarity with ASC 740 provisions as they pertain to partnerships

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).