Partner allocation

[Florida_EA]

Assume a partnership was formed in Year 1 with a $50 contribution by Partner 1 and Partner 2 for a 50% and 50% profit and loss ratio and capital ratio

Assume the partnership in year 2 Partner 3 contributes another $50 and now the partnership ratios each are 33.33 % each for profit and loss and capital

How is this treated from a tax perspective as far as the capital accounts are concerned for all the 3 partners?

[Uncle Sam]

Partner Allocation

You need to treat the partnership 50/50 UNTIL the date Partner 3 comes in, THEN it's 33.33% for the remainder of the year.
So you may wish to unofficially close the books up to date of Partner 3 to make the 1st partial year income, then treat the 2nd partial year as 1/3 each.
Look at Sec. 1377 for what's done for part year S Corps when there's changes in shareholders - I'm certain partnerships have similar rules.

[Florida_EA]

Partner allocation

You need to treat the partnership 50/50 UNTIL the date Partner 3 comes in, THEN it's 33.33% for the remainder of the year.
So you may wish to unofficially close the books up to date of Partner 3 to make the 1st partial year income, then treat the 2nd partial year as 1/3 each.
Look at Sec. 1377 for what's done for part year S Corps when there's changes in shareholders - I'm certain partnerships have similar rules.

How do you enter this transfer information in the tax software. Is it treated as if Partner 3 made a capital contribution and then Partners 1 and 2 made capital distributions for offsetting amounts?

[Uncle Sam]

Partner Allocation

I thought you were asking how to calculate the profit/loss via an accounting system - not how to force the calculation on the tax software -

But here's the solution- it's a blended calculation -

50% x (# days 2 man partnership)/365) + (33.33% x # days 3 man partnership/365)
50% x (# days 2 man partnership/365) + (33.33%x # days man partnership/365)
33.33% x (# days 3 man partnership/365)

[Snaggletooth]

The Drake Approach

Drake, on the K-1 information, allows a particular date to be entered for change in partnership ratio. Presumably, this creates ownership/profitsharing weighted average for the entire year.

This approach treats the full-year operation without stopping during the year for a separate accounting. I don't know how to deal with this within Drake if the partners wish for a separate accounting closing a portion of the year prior to change in ownership.

[Florida_EA]

Drake, on the K-1 information, allows a particular date to be entered for change in partnership ratio. Presumably, this creates ownership/profitsharing weighted average for the entire year.

This approach treats the full-year operation without stopping during the year for a separate accounting. I don't know how to deal with this within Drake if the partners wish for a separate accounting closing a portion of the year prior to change in ownership.

How would the transfer be treated for tax purpose in the software for the change in the CAPITAL ratios (going from 50% to 33%). Profit and loss I understand from the responses.

[Uncle Sam]

Partner Allocation

Beginning Ending
Ptr 1 50.00 33.33
Ptr 2 50.00 33.33
Ptr 3 0.00 33.33

[Florida_EA]

Beginning Ending
Ptr 1 50.00 33.33
Ptr 2 50.00 33.33
Ptr 3 0.00 33.33

Agree so when you enter those capital percentages for BOY and EOY does the tax software treat it as a distribution and contribution with equally offsetting amounts. That is a contribution by Partner 3 and distributions by Partner 1 and 2 of equal and offsetting amounts?

[Uncle Sam]

That you'll need to ask your software company. Ask them if you can override balances with absolute $ amounts.
I would expect that since there are unequal amounts for the year of transition, you'll need to override the ending balances to agree to what they should be.