I have a partner that sold his interest in hi partnership. He received a cash payout and some installment payments last year to compensate him. He never actually contributed cash to the business but was instead given ownership based on his labor. This doesn't count towards his basis, correct? He will recognize a long-term capital gain on the monies that he received based on selling his interest with a basis of $0?
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Was his initial partnership interest in exchange for his services to the company? Did he report it as compensation? If so, he had initial basis. Then his Forms K-1 over the years added to and subtracted from his basis with income, distributions, losses, etc. Did he track his basis? Did you? Does his current K-1 have his inside basis worksheet? -
This is my first year doing his return. His answer when I asked him about basis was that he never contributed money, only labor. Yes, his initial partnership interest was in exchange for his services to the company. There is a line on Statement A-QBI-Pass-Through Entity Reporting that says "Unadjusted Basis Immediately After Acquisition".Last edited by nypreparer; 04-17-2022, 03:03 PM.Comment
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EXTENSION. Then go back to partnership agreement, all his Forms K-1, etc. His partnership interest was valued at something by the partnership and by him. If he got 1/3 for his services while the other two put in $100,000 each, for instance, then his interest cost him $100,000 +/- all his gains/losses over the years. It's to his advantage to track or pay you to track his basis.Comment
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Lion explained it good so make sure you charge for your time accordingly. I had to do something like that because the prior accountant did not keep track. I must have spend over 10 or 15 hours on that. I hope you find a partnership agreement that is worth its paper. In my case it was basically a hand drafted one pager!Originally posted by Lion View PostTaxes after all are the dues that we pay for the privileges of membership in an organized society. - FDRComment
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