Form 1065 Tax Basis Capital Methods

Transactional Approach, Handling Prior Year Noncompliance, Tracking Outside and Debt Basis

Note: CLE credit is not offered on this program

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

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Conducted on Wednesday, May 4, 2022

Recorded event now available

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Course Materials

This course will update practitioners on the latest tax basis capital reporting requirements. Our panel of experts will discuss the transactional approach for tax basis capital and best practices for handling partnership returns that may not have been compliant with the new reporting requirement in 2020. They will also provide examples and tips for tax professionals to calculate and comply with these mandated reporting requirements.

Description

Following the release of IRS Notice 2020-43 on tax capital reporting, the IRS admitted it received numerous comments that did not include practical alternative approaches to assist with partnerships' tax basis capital reporting requirements for partners and followed with Form 1065 with instructions stating that partnerships can use the transactional approach for the tax basis method.

Last year, tax practitioners struggled with the burden of calculating beginning tax basis capital for partners whose balances were maintained using an alternative method in prior years. The instructions provide three alternative methods to calculate this beginning balance: the modified outside basis method, previously taxed capital method, or the Section 704(b) method.

Partnerships with less than $250,000 in sales and $1 million in assets (those able to omit completion of Schedule L, M-1, and M-2) are not required to report capital account changes in Item L of the Schedule K-1. All other partnerships must report and maintain partners' tax basis capital accounts on partnership returns.

Tax practitioners preparing partnership returns need to understand the current requirement to report tax basis capital for all partners to comply with the latest guidelines, avoid penalties, and properly report tax basis gains and losses.

Listen as our panel of partnership veterans explains what is known to date about tax basis capital account reporting, including the transactional approach in the current Form 1065 instructions, as well as steps practitioners can take to streamline compliance with these latest guidelines.

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Outline

  1. Tax basis capital reporting
  2. IRS Notice 2020-43
  3. Transactional approach
  4. Methods for computing beginning capital
  5. Section 754 transactions
  6. Transfers of interests, sales, and other issues
  7. Handling prior-year noncompliant returns
  8. Examples

Benefits

The panel will cover these and other critical issues:

  • Tracking capital for tax return reporting versus total basis for partners, including Section 743(b) adjustments and debt
  • Using the transactional approach to calculate annual partnership capital account changes
  • Practical solutions for handling partnership returns that were noncompliant in 2020
  • The interplay of IRS Notice 2020-43 and other guidance for reporting capital balances with Form 1065 instruction guidelines

Faculty

Clayman, Jeffrey
Jeffrey Clayman, CPA, JD, LLM
Tax Senior Manager
Withum Smith+Brown

Mr. Clayman has over 18 years of public accounting experience with a focus on for-profit businesses in many different...  |  Read More

Lovett, Brian
Brian T. Lovett, CPA, JD
Partner
Withum Smith+Brown

Mr. Lovett has extensive experience serving the tax needs of both public companies and closely-held businesses,...  |  Read More

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