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Final F1065. One member bought out the other – following Rev…

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Final F1065. One member bought...
Final F1065. One member bought out the other – following Rev Rul 99-6. Pship makes liquidating distributions to both partners; then one bought from another. Pship has assets & liabilities. Buying partner assumed liabilities. Both partners have negative capital account. I understand gain/loss is computed using basis and has nothing to do w capital acct. What happened to the negative capital account?
Submitted: 24 days ago.Category: Tax
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Customer reply replied 24 days ago
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5/30/2018
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 24 days ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,442
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

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Customer reply replied 24 days ago
Hi Lane: Don't need to do phone call for now. Want to confirm if you are still the person helping me?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 24 days ago

I am, and yes, as I mentioned above, no need for a call unless you'd like, just keep declining (wish the site didn't do that)

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 24 days ago

I'm not so sure that ANYTHING needs to be done... You're correct that this is an outside basis issue and amount of distribution issue under RR 99-6.

...

Give me a little more time if you would

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Customer reply replied 24 days ago
Take your time.
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 24 days ago

Yes, I see NOTHING that says (although this makes bookkeepers tear their hair out sometimes, becasue of the "need" to see things balance) that any adjustment needs to be made.

...

Just pulled up a return we did four years ago that I remembered. I added a "see statement" to section L, (ending capital account line), next to the negative number ... and on the statement said "Your capital account is the balance at dissolution of the partnership. Consult your tax advisor"

...

Never had a problem with it. Also consulted a colleague (JD, LLM) and she smiled and said, "It is what it is. You must report this accurately, as information for the tax preparer that does the partners' 1040."

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Customer reply replied 24 days ago
Thanks for your response. I am not able to connect the two sides - partnership and partner. How does the partnership closes its book and have zero balance sheet? When partners have un-restored capital account, aren't they suppose to have capital gain?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 24 days ago

The gain is a partner 1040 issue. You report the ending capital account as it is.

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Customer reply replied 24 days ago
we have two gains? #1: un-restored negative capital account #2: Sec 741 gain on sell of partnership interest?
Customer reply replied 24 days ago
Maybe it's easier to put some numbers in. MMLC to SMLLC on 12/31/17. LLC asset is bldg - $1mil FMV, adjusted basis f $600k. LLC has N/P $900k. Partner Joe bought out Partner Sandy. Per RR 99-6, LLC makes liquidating distribution of asses and liabilities (actually 99-6 does not mention liabilities). Both have outside basis of $300k as of 12/1/17. In arriving at 12/31/17 basis - Does buyer partner's basis increased by the additional loan assumption? At the LLC level, capital account will reduced by the property distribution, net of liabilities, is this correct?
Customer reply replied 24 days ago
I need to go for now, how do I get back in touch with you for follow up?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 24 days ago

You certainly have a gain for the seller. Would have to know the person's outside basis and distribution amounts to calculate the gain.

...

Buyer's basis DOES increase because of loan assumption.

...

And yes, Capital account is reduced by distributions and final year losses ...

..

But debt affects outside basis and capital account differently

...

Under Section 752, any increase or decrease in a partner’s allocable share of partnership liabilities will cause the outside basis of his partnership interest to increase or decrease.

...

But a partner’s capital account is not increased or decreased by partnership liabilities.

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