Partnership K-1

[Terry]

Facts: Partner's share of liabilities at year end $444.
Beg capital $2125
Current year loss ($1305) Box 1
Distributions ($3069) Box19
Ending capital ($2249)
Distributions in excess of basis should be recognized as income on Schedule D. Would anyone confirm the amount that should be recognized? This is all the information I have. I believe I read where the distribution is deemed to be made on last day of year. Thus I have Basis before distribution of $820 ($2125-1305) + recourse liabilities $444 = $1264, distribution of $3069 = Gain of $1805. Is this correct according to Sec 731? Thanks for your help.

[Gretel]

Welcome to the board, Terry. To figure out the taxable amount you will need to know what his outside basis is. The capital account does not give you this information.

[BOB W]

What about treating the excess as Guaranteed Payments.. I'm not sure that a partnership is viewed the same are an SCorp when it comes to withdrawals in excess of inside/outside basis.

[Terry]

Basis

How is outside basis determined? The taxpayer is a young man working on a carpenter crew, I'm sure he has no idea what his basis is. He probably gave them the initial capital required to be a partner in the partnership, and that's all. He's getting his guaranteed payments and his (I think 4%) of profit/loss based on his ownership interest.

[Gretel]

The Deluxe Edition of TTB 20-7 walks you through this. There is also an alternative rule available, see pg. 20-8 if basis cannot be determined because in biz too long.

Otherwise you have to get all tax returns and go through all income, deductions, contributions and distributions, etc. attributed to this partner to come up with basis.

[Terry]

Thanks, Gretel, I appreciate it!