Just need a check on how I’m treating this matter. I have a client which is a partnership with two 50/50 partners. One bought the other out in August 2013. For the 1065 preparation, I have the final return checked, I have technical termination checked, and the ending balance sheet as all $0. Now my issue, what to do with the ending capital accounts. At the termination date, each of the capital accounts was $5K negative. Do I reflect an additional amount of $5K increase through the “Current year increase(decrease)” on the K-1 to force the ending capital account to $0 or do I reflect the $5K as additional “1. Ordinary business income (loss)” on the K-1 of each? As you can tell, I’m a bit confused here. Any insight is much appreciated.
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"The hardest thing in the world to understand is the income tax" - Albert Einstein -
If you have a total $10,000 negative capital, then you have a liability somewhere that reflects that balance. What are the other items on the balance sheet? Did the two partners individually pay off the $10,000 liability? If so, then you can net the two.
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