Partnership Basis

[oceanlovin'ea]

Okay, I need help. I have a client who bought a restaurant in Oct 2004 and sold it on May 31, 2005. I am doing the bookkeeping and tax returns for both parties.

He sold the business for more than he bought it for. He sold it to the cook and a friend of hers. So now it is a partnership. I was reading in the Tax Book about partnerships. This is the first one I have set up. So here are my questions:

1. What is outside basis and what is inside basis? Differences?

2. I think that one person borrowed the money to buy the business and now both people work in the restaurant. I don't think partner #2 actually contributed any cash. I will find out this afternoon when I meet with them.

3. They say they are 50/50 partners. I believe that I have read that you can be 50/50 partners for income and expenses even if one person actually contributed money to buying the business. Is that correct?

4. Is there anything else that I am missing that I need to do with setting up this partnership?

Thanks so much for your help.

I'm already getting frazzled and it is only February. Guess that is what 2 jobs will do to you.

Linda F

[JoshinNC]

#4. The phone number of someone who knows

what they are doing so they can walk you through this one!

I really have trouble with preparers who take on clients who have issues that are above their head and it appears as this is the case here.

Find someone locally who can help you and work out some kind of fee arrangement for this so that you can learn the ropes of partnerships and the client gets adequate advice.

[oceanlovin'ea]

Additional information

I talked to my clients. They put in equal share of money in the business so they really are 50/50 partners. That makes this a lot easier.

Still would like someone to explain the difference between outside basis and inside basis.

Sorry to disappoint you Josh, but doing the partnership return is something I can do and have done before. I just had not set up the partnership when I wasn't sure of the basis issue. I assure you that I would never finish a return that I felt was not 100% accurate. That if I felt this was over my head I would get the needed help.

I am very thankful for all of those on this board that are willing to answer questions that we have. They are a wonderful support team.

Linda F

[Unregistered]

From http://www.1065accountant.com/basis.htm:

—Partner’s Adjusted Basis (Outside Basis): This is the partner’s investment in the partnership. Outside basis is determined without considering any amount shown in the partnership books as capital, equity, or similar account. When a partner disposes of an interest in a partnership, the difference between the sale price and the partner’s adjusted basis is the taxable gain or loss. Each partner is responsible for keeping track of his/her adjusted basis.

—Partnership’s Basis in Assets (Inside Basis): This represents the tax basis in assets held by the partnership. The inside basis is used by the partnership in computing depreciation, gain or loss on sale of assets, etc. The partnership keeps track of the inside basis of assets.

[oceanlovin'ea]

Thank you

Thank you very much, unregistered guest.

I will keep that website available for future information.

Linda F