Correcting Capital Account Errors on Partnership Returns

A Comprehensive Guide to Corrections, Allocations, and True-Ups of Capital Accounts

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

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Conducted on Wednesday, January 19, 2022

Recorded event now available

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Course Materials

This course will provide tax professionals and advisers with an in-depth and practical guide to the accounting and tax disclosure requirements to correct and adjust capital account balances. The panel will focus on reconstructing capital accounts in light of the required reporting of negative tax basis capital accounts and the upcoming required reporting of all tax basis capital accounts. The webinar will also cover the interpretation of partnership agreements and guide advisers on applying partnership provisions to corrective entries and tax disclosures.

Description

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 recent IRS requirement to report any partner's beginning and ending tax basis capital when either is negative, 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.

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Outline

  1. Partnership agreement interpretation
  2. New required reporting of negative tax basis capital
  3. Required reporting of tax basis capital
  4. Identifying capital account misstatements
  5. Book entries
  6. Tax reporting and disclosures
  7. Interaction with new partnership audit rules
  8. A case study with illustrations

Benefits

The panel will discuss these and other critical issues:

  • Identifying errors, miscalculations, or misstatements in capital accounts
  • Determining and reporting negative 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 new partnership audit rules

Faculty

Alfonsi, John
John T. Alfonsi, CPA
Managing Director
Cendrowski Corporate Advisors

Mr. Alfonsi has 25 years of tax consulting, business valuation, litigation support and forensic accounting experience....  |  Read More

Colvin, John
John M. Colvin
Partner
Colvin & Hallett

Mr. Colvin's practice emphasizes federal tax controversies and white-collar criminal defense. He is a frequent...  |  Read More

Mandarino, Joseph
Joseph C. Mandarino
Partner
Smith Gambrell & Russell

Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of...  |  Read More

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