Partner Basis---Capital Gain on Excess Distributions

[Super Mom]

Should a partner's medical payments reduce basis?

[Bees Knees]

I'm assuming you mean if a partnership pays medical expenses on behalf of a partner, does that reduce the partner's basis in the partnership? The answer is yes. Anything paid by the partnership on behalf of a partner reduces the partner's basis, whether or not the payment is a tax deduction. Thus, non-deductible expenses paid by the partnership reduce the partner's basis in the partnership even though the partner receives no tax benefit from the expense.

[jsamans]

I'm assuming you mean if a partnership pays medical expenses on behalf of a partner, does that reduce the partner's basis in the partnership? The answer is yes. Anything paid by the partnership on behalf of a partner reduces the partner's basis, whether or not the payment is a tax deduction. Thus, non-deductible expenses paid by the partnership reduce the partner's basis in the partnership even though the partner receives no tax benefit from the expense.

Am I correct in understanding that this is true only if the payment in question is not otherwise accounted for as income to the partner (e.g. can be treated as a guaranteed payment, in which case there is no reduction to basis)?

[Bees Knees]

Am I correct in understanding that this is true only if the payment in question is not otherwise accounted for as income to the partner (e.g. can be treated as a guaranteed payment, in which case there is no reduction to basis)?

If a distribution is treated as guaranteed payments to the partner, it does not reduce the partner's basis in the partnership.