In 2019, my client was one of four partners in a partnership. In 2019, one of the partners wanted to exit the partnership.
Partner 1, P1, my client
Partner 2, P2, exiting partner.
Partners 3 & 4, P3, P4
In 2019, P2 wanted out of the partnership. The partnership paid P2 the FMV of the units she held at the end of 2019, based on the Partnership Agreement. P2 had zero beginning capital in 2019. P2 was not allocated any losses in 2019. Her K1 shows a distribution for the amount she was paid for her units, $135,000. The ending capital account shows a negative $135,000 on her Schedule K-1.
On the 2020 Partnership Tax Return, I now have to figure out how to properly handle this negative capital balance. I originally wanted to allocate the negative capital to the remaining partners based on the 2019 year-end capital percentages, but the partners do not want to reduce their capital accounts. Can I report this negative capital akin to how I would report Treasury Stock if this were a corporation and the corporation bought back shares? If yes, would I name this "Treasury Interest"?
The partnership does not have assets on the books, and the only liability is a credit card. The partnership is Research and Development startup, and the only income is Grants.
Any feedback would be greatly appreciated.
Partner 1, P1, my client
Partner 2, P2, exiting partner.
Partners 3 & 4, P3, P4
In 2019, P2 wanted out of the partnership. The partnership paid P2 the FMV of the units she held at the end of 2019, based on the Partnership Agreement. P2 had zero beginning capital in 2019. P2 was not allocated any losses in 2019. Her K1 shows a distribution for the amount she was paid for her units, $135,000. The ending capital account shows a negative $135,000 on her Schedule K-1.
On the 2020 Partnership Tax Return, I now have to figure out how to properly handle this negative capital balance. I originally wanted to allocate the negative capital to the remaining partners based on the 2019 year-end capital percentages, but the partners do not want to reduce their capital accounts. Can I report this negative capital akin to how I would report Treasury Stock if this were a corporation and the corporation bought back shares? If yes, would I name this "Treasury Interest"?
The partnership does not have assets on the books, and the only liability is a credit card. The partnership is Research and Development startup, and the only income is Grants.
Any feedback would be greatly appreciated.