Mastering Section 263A UNICAP Reporting for Partnerships and S Corporations: Getting K-1 Disclosures Right

Description

The UNICAP rules of IRC 263A, which require taxpayers to capitalize all direct costs, and certain indirect costs, properly allocable to the production of certain property produced by the taxpayer, presents particular responsibilities and challenges for tax advisers preparing partnership and S corporation tax returns. IRS Notice 88-99requires partnerships to include K-1 footnotes reporting capitalized interest expense and production expenditures subject to Section 263A capitalization.

For tiered partnerships, the tax reporting challenges become even more difficult for both upper-tier and lower-tier partnerships. Tax advisers must fully understand the additional calculation and reporting requirements that partnerships require in allocating capitalized costs, especially those related to interest. K-1 disclosure is especially important when the adviser preparing the partnership’s Form 1065 does not also prepare the partners’ returns.

Determining which costs are “properly allocable” to the production of covered property can create significant challenges for tax professionals and advisers. The rules governing capitalization of interest as an allocable cost are particularly complex and can have a measurable impact on the amount of interest costs that can be currently deducted versus those interest costs that must be capitalized. Capitalization rules also play a significant role in calculating ending inventory and cost of goods sold.

Listen as our experienced panel provides a comprehensive guide to the specifics of reporting Section 263A UNICAP for partnerships, including practical examples, an illustration of UNICAP computations, and best practices for planning and compliance with Sect. 263A regulations.