Correcting Capital Account Errors on Partnership Returns

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.

1. Partnership agreement interpretation
2. Required reporting of tax basis capital
3. Finalized BBA rules and their effect on capital accounts
4. Identifying capital account misstatements
5. Book entries
6. Tax reporting and disclosures
7. A case study with illustrations

The panel will discuss these and other critical issues:

• Identifying errors, miscalculations, or misstatements in capital accounts
• Determining and reporting tax basis capital
• Basis and capital account corrections where a valid Section 754 election was in place
• Book vs. tax-corrective adjustments
• Prior year adjustments
• Impact of partnership audit rules

Learning Objectives

After completing this course, you will be able to:

• Distinguish book capital accounts from tax capital accounts
• Determine how to use the transactional approach to calculate annual partnership capital account changes
• Understand how the IRS will treat imputed underpayments
• Identify capital account maintenance rules and errors in maintaining capital accounts

• 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. Specific knowledge of partnership taxation, accounting and tax disclosure requirements, capital account maintenance, correcting capital account mistakes and partnership audits; familiarity with book and tax corrective adjustments, compliance post-TEFRA, and substantial economic effect.

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).