1065 M-2

[Unregistered]

I have an LLC that I am preparing a 1065 for. On M-2 line 4 my software is calculating an adjustment to bring the capital capital account in line with the balance sheet. If I do nothing else and file the return as adjusted by the software what, if any, reprecussions could exist in the future for the client? Should I just show additional capital contributions by the partners so the adjustment goes away, or is the adjustment the IRS's preferred method for balancing the account?

Thanks is advance!

[rosieea]

How much is the adjustment? I normally wouldn't ignore it unless it's just a buck or two as a result of rounding. Otherwise you should make a good effort to find out why it doesn't balance.

[Unregistered]

several thousand dollars

The adjustment is $27989. I think it is coming from the balancing of the balance sheet, as my software uses the partner's capital account as the balancing account for forcing the balance sheet to balance. I'll do some investigation as to why this is occurring. If anyone has any ideas please don't hold back.

Thanks!

[Joe Btfsplk]

Partner's Capital accounts.

The partners' capital should equal the capital acct on the balance sheet. If it does not equal there is some reason: possibly additional capital contributed by one or more partners, cash withdrawn by partners or similar things.

If the debits and credits on the books balance, then the balance sheet should be in balance and partners' capital should be correct if the right accounts were debited and credited.

Each partner's beginning capital, contributions, withdrawals and share of profit or loss should show up on the K-1 Forms and tie into the ending capital.

[rosieea]

Some quick thoughts. Is the beginning balance correct? Have items of income and expense been omitted or been entered incorrectly? Are the asset and accumulated depreciation amounts correct? Was the balance forced on the previous year's return, & if so, why? Were there distributions or guaranteed payments omitted? Contributions? Has a liabilty amount been overlooked? Does the capital account on the return differ from the books? You've gotta dig. There's no way an adjustment of that amount can go unexplained.