Picked up a new 1065 client. Two partners.
They’ve been in business for 30 years. Ownership % did change at one point but the history is fuzzy. All I know now is it’s split 60/40. There are no capital contributions. No appreciated property. Distributions historically have been split 60/40 (whether that actually happened or not).
Where should I start? They had negative capital going into 2024, took distributions in excess of net income and ended with negative capital account. There were no capital gains on the personal returns so I’m not sure if the previous accountant had an offline worksheet but with all this history, how does one restart? They are asking about taking an additional dividend before year-end but I am unsure what answer to give.
Research points me to alternative rule under IRC 705(b), using the tax basis balance sheet since no new partners and % has been the same for 20+ years.
Best place to start when recreating outside basis?
byu/Auditor12345 intax
Posted by Auditor12345
1 Comment
This would give my sub K and controversy colleagues a heart attack
It really depends on how many prior years of tax returns you have access to. Partnerships don’t have dividends and their distribution in excess of basis may trigger gain. Honestly I would not have picked up this client knowing any of this ahead of time, it’s potentially a huge project to unravel