Reconciling GAAP Basis and Tax Basis in Partnership Income Tax Returns and K-1 Schedules

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

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Conducted on Wednesday, June 29, 2022

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Course Materials

This course will provide tax preparers and compliance professionals serving partnerships with a robust and practical guide to reconciling GAAP and tax basis accounting in preparing partnership income tax returns and K-1 schedules. The panel will discuss complex book-to-tax adjustments and the current tax-basis capital reporting requirements. The webinar will also detail the particular challenges in tying book-to-tax income in partnerships with distribution-based operating agreements with targeted allocations.

Description

Reconciling GAAP to tax basis often presents significant challenges for tax advisers preparing or utilizing K-1 schedules reporting GAAP basis. While some lenders to real estate partnerships will allow tax-basis financials, investors and creditors still look for GAAP basis financials, even without legal requirements.

GAAP basis financials use accrual-based accounting, which creates differences in allocating income and expenses by accounting period. These differences must be reconciled through additional K-1 disclosures to arrive at the partner's capital account balance. For partnerships with distribution-based operating agreements, allocations may create other GAAP reconciliations.

The recently added requirement to report tax basis capital accounts creates new challenges for practitioners. Additionally, the enactment of the centralized partnership audit procedures increases the complexity for tax advisers in accounting for any underpayments assessed due to an IRS examination at the partnership level. GAAP basis partnerships will need to determine whether any assessment is treated as a partnership liability or a transaction between the partnership and its impacted partners.

Listen as our experienced panel provides a practical guide to GAAP/tax basis reconciliations on partners' K-1s.

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Outline

  1. GAAP basis financials reported on K-1
  2. Critical differences between GAAP and tax basis
  3. ASC 740 for partnerships
  4. Tying back Section 704(b) books to GAAP and tax basis schedules
  5. Impact of recent IRS tax basis capital reporting requirements
  6. Impact of IRS centralized partnership audit regime change on GAAP allocations

Benefits

The panel will discuss these and other relevant topics:

  • What are the most common partnership reconciliation items between GAAP and tax basis?
  • How does the presence of a distribution-based partnership operating agreement impact the reconciliation between GAAP, tax basis, and IRC 704(b)?
  • Impact of the Section 199A deduction on GAAP basis reporting on partners' K-1 schedule
  • What GAAP adjustments are required in cases of an underpayment assessment by the IRS?
  • Which partners are impacted by the recent tax basis reporting requirements?

Faculty

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

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

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