Capital Accounts: 704(b) vs. GAAP vs. Tax Basis: Comparing and Contrasting Annual Allocations

Meeting New Tax-Basis Capital Reporting Requirements

Recording of a 110-minute CPE webinar with Q&A

Conducted on Wednesday, August 5, 2020

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will address calculating and maintaining partners' capital account balances under 704(b), GAAP, and tax-basis reporting requirements. Our panel of partnership experts will explain the importance of each method, compare and contrast annual recording differences for each, and discuss how to properly maintain these capital account balances for each partner. They will also offer insights into reconciling other methods to tax to comply with the current negative tax-basis reporting requirements and upcoming tax-basis reporting requirements for all capital accounts.

Description

Properly maintaining partners' capital accounts may be the most critical aspect of partnership taxation. It is essential to making accurate distributions, both liquidating and annual, reporting the financial position of the entity, and taxing partners properly. Understanding the differences in each reporting method is a must for tax practitioners working with partnerships and LLCs. Generally speaking, all three methods are necessary for partnership accounting.

Section 704(b) accounts reflect a partner's economic interest in the entity, GAAP balances report balances that comply with accounting board requirements, and tax-basis balances reflect a partner's capital balance under federal income tax principles.

Reporting differences between these methods can include the value of the contributed property, methods of depreciation used, allocations of income, losses, and debt, Section 754 elections, and more. To add to the confusion, the IRS requires that partnerships disclose partners' negative tax capital account balances starting 2018.

Although the IRS attempted to define tax capital in connection with new reporting requirements, no definition exists in the code or regulations. New requirements introduced in 2019 (and postponed until 2020) require that partnerships must report all partners' tax-basis capital account balances.

Listen as our panel of partnership taxation veterans explains respecting partners' allocations under 704(b), the significance of negative capital, maintaining balances under GAAP and IFRS, and how to determine tax capital balances to comply with recent reporting obligations.

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Outline

  1. Partnership capital accounts--an overview
  2. GAAP
    1. Relative authority
    2. IFRS and similar methods
    3. Maintenance
  3. 704(b)
    1. Respecting partners' agreed-upon allocations
    2. Revaluations and restatements
    3. Maintenance
  4. Tax
    1. Defining the undefined
    2. Subchapter K and 704(b)
    3. Maintenance
  5. Reporting issues
    1. Negative tax capital
    2. Tax basis capital

Benefits

The panel will review these and other vital issues:

  • Respecting partnership allocations and 704(b)
  • Reconciling other methods to tax basis capital
  • Revaluations and restatement of capital accounts under 704(b)
  • Schedule K principles and its application to 704(b) and tax capital account reporting
  • Implications of negative tax capital accounts
  • Determining tax basis capital to meet recent requirements

Faculty

Langdon, Nancy
Nancy L. Langdon
Managing Director, WNTS M&A Tax
PwC

Ms. Langdon has 16 years of experience working with clients on a broad range of tax issues and specializes in complex...  |  Read More

Stoner, Megan
Megan Stoner
Senior Manager, WNTS M&A Tax
PwC

Ms. Stoner specializes in partnership taxation. She has significant experience assisting clients with complex...  |  Read More

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