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Determining Basis for Partners and Shareholders: AAA vs. Capital Accounts, Debt-Financed Losses, Loans and Guarantees

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

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Conducted on Friday, January 5, 2024

Recorded event now available

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This course will explain basis calculations for S corporations and partnerships. Our panel of tax professionals will compare and contrast debt-financed losses, AAA (accumulated adjustment account) and capital accounts, and basis restoration. The panel will provide examples of these complex calculations for tax practitioners working with flow-through entities.

Description

Basis in a flow-through business is key to deducting losses and calculating gains or losses on disposition. Certain losses deductible by partners in partnerships are not deductible by S corporation shareholders. Entity-level debt and personal guarantees are treated differently for these otherwise similar entities.

Shareholders track their basis using accumulated adjustment accounts, while partners use capital accounts. Both are increased by flow-through income and contributions of cash or property and reduced by distributions and deductions. Similarly, both owners are also subject to at-risk rules before loss deductions are allowed.

Planning techniques are available to increase basis in these flow-through entities to deduct current year losses. Ordering rules for loss deductions and restoration of basis are complex. Tax practitioners need to understand the similarities and differences in basis calculations for owners of both partnerships and S corporations to report annual flow-through income and deductions and ultimately the gain or loss on the disposition of these entities.

Listen as our panel of flow-through tax experts discusses how basis is calculated for partnerships and S corporations, planning techniques to increase basis and deductions for losses when and if they occur, and recent cases challenging basis calculations for flow-through entities.

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Outline

  1. Basis overview
  2. AAA vs. capital accounts
  3. Annual operating increases and decreases to basis
  4. Notes payable and guarantees
  5. Loans from owners
  6. Debt-financed losses
  7. Distributions
  8. Basis restoration
  9. Planning techniques
  10. Recent cases

Benefits

The panel will cover these and other critical issues:

  • Ordering rules for deducting losses from flow-through entities
  • Caveats of decreases in debt basis
  • Differences in entity-level debt and basis computations for LLCs and S corporations
  • Strategies to increase basis for allowable losses
  • How shareholder and partner loans, guarantees, and repayments impact basis calculations

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

Surkin, Dean
Dean L. Surkin, JD, LLM
Professor (Adjunct)
Pace University Graduate School of Business

Mr. Surkin is an attorney engaged in private practice in the New York metropolitan area. He recently retired from the...  |  Read More

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