Dumb Question

[S T]

I have a partnership return, whereby more than 50% was sold out in one year. So I am preparing the returns for the technical termination and basis adjustment for S743/754. That is an exercise in itself.

However, my question falls to to the fact I can not make the Schedule L on the new (technical) partnership return balance. I think it has something to do with the buyout, but I can't find it? Also something about property being distributed to the retiring members, that might help, as I think about it (might account for a portion of the imbalance)

Question, how does IRS look at the Schedule L, is this really material in the overall reporting. I am off about $24,000. I know that it is somewhere in the capital accounts, buyout and distributions, but can not find it!

Any suggestions?

Sandy

[Uncle Sam]

Dumb Question

Which way doesn't the equity balance?
Do you need more equity to balance, or less?

You might have a problem due to reducing capital upon an ex partner's distribution.

[John of PA]

Capital Contribution and/or Partner's Draw

The most common way 1065's (and 1120S) are balanced is to enter in Sch M-2 whichever you need to balance, either an addition to Capital (Capital Contribution), or a reduction to Capital (Partner's draw or cash distribution). Usually one of thses 2 type of transactions is what has not been recorded so far, becasue they do not go on the P&L.

[Bees Knees]

Section 743/754 elections are tax elections. Same with a partner's basis in partnership assets for depreciation/gain/loss, etc. type issues. All are tax issues.

The balance sheet is per books. A Section 754 election will not be reflected in the books, nor will depreciation for tax purposes.

Example, Rocket Man contributes $50,000 cash. I contribute a machine worth $50,000 and a basis of $20,000.

For book purposes, Assets = $100,000. Capital = $100,000 Depreciation on the machine is based on $50,000

For tax purpses, there is no balance sheet. Depreciation on the machine is based on $20,000. You keep three depreciation schedules, one for book purposes, one for tax purposes, one for AMT purposes.

If you make a Section 754 election, now you keep four depreciation schedules, one for book purposes, one for tax purposes, one for Section 754 election purposes, and one for AMT purposes.

If you try to include tax junk on the balance sheet, it is going to go out of balance.

[S T]

I said it was a dumb question`

Thanks Bees and everyone,

The partnership buyout has given me such a "headache", thanks for all that have replied to my various posts.

Not sure if I have it quite right, but I think I am seeing the "light at the end of the tunnel"

My balance sheet on the Assets is fine and matches the books, it is my Liabilitues and Capital (seems to always be in this area).

Uncle Sam - Liabilities and Capital have to be reduced, they are higher than my Assets.

Way too much money in/out on the remaining partner and moving around money , so I suspect it is there and also the reduction of the terminating partners capital account. Plus a property distribution to terminating partners. I think I have almost gotten it to balance.

Yes Bees, the S754 is giving me grief! And the inside/outside basis. Thanks for pointing that out!

Sandy