Maintaining Partner Capital Account Balances: Preparing Workpapers, Documenting Allocations and Corrections

Maintenance of capital accounts is one of the more challenging elements of partnership tax compliance. Even experienced professionals sometimes struggle with unclear terms in partnership agreements, applying targeted allocations, and ensuring that allocations and corrections are carried forward in documenting the partners' capital accounts.

Quite often, the capital accounts are not set up correctly, or at all, at the inception of the partnership. Making sure that allocations are properly documented and carried forward, correcting misallocations from prior years, and dealing with complex issues such as nonrecourse liabilities and minimum gain chargebacks can present additional difficulties in maintaining accurate capital accounts.

A critical step in capital account balance maintenance is documenting an adviser's interpretation of the partnership agreement's allocation provisions. The partnership work papers should detail any gray areas where the adviser had to apply independent judgment in making a current year allocation or in adjusting an allocation from prior years. Partnership accounting is by its very nature complicated, and certain transactions and events often cause difficulties in maintaining capital accounts.

Listen as our experienced panel provides a practical guide to creating and maintaining capital account balances, including tips and tools for creating clear and defensible work papers to document partnership allocations and corrections.

1. Setting up capital accounts at the beginning of operations
2. Importance of tracking Section 704(c) allocations
3. Handling adjustments required by Section 754 elections
4. New required reporting of negative tax-basis capital
5. Identifying errors in prior year account calculations
6. Maintaining workpapers and capital account schedules

The panel will review these and other key issues:

• Key tax allocation principles for capital accounts
• Impact of "substantial economic effect" requirements in making capital account allocations
• Documentation that advisers should include with capital account work papers
• Identifying errors, miscalculations, or misstatements in capital accounts
• Documenting prior year adjustments

Learning Objectives

Upon completing this webinar, you will be able to:

• Identify capital account errors, misstatements, and misallocations
• Recognize necessary adjustments to correct capital accounts
• Ascertain the compliance and audit requirements post-TEFRA
• Determine whether a Section 754 election would be beneficial to a partnership and its partners
• Distinguish between basis adjustments under Sections 734 and 743
• Verify that the substantial economic effect test is met
• Establish when mandatory basis adjustments are required and ensure the correct allocation of basis adjustments under Section 755

• 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+ not-for-profit organization tax experience at mid-level within the organization, preparing complex financial statements or tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of not-for-profit asset reporting requirements and financial statement preparation, including determining asset classification.

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).