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Old 10-08-2013, 09:44 PM
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Ending capital account on K-1 from prior year

I received a final K-1 from a partnership back in 2009 with a positive ending capital account. I reported the income and other data from this K-1 but did not report it as a final K-1 and thus I never wrote off the balance of my capital account.

Is it too late to do anything about this now?



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Old 10-09-2013, 03:41 AM
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Originally Posted by kenwx23 View Post


#1;I received a final K-1 from a partnership back in 2009 with a positive ending capital account. I reported the income and other data from this K-1 but did not report it as a final K-1 and thus I never wrote off the balance of my capital account.



#2;Is it too late to do anything about this now?
#1; A partnership can maintain a single partnership capital account for all partners, with a supporting schedule that breaks down the capital account for each partner. However, it is easier to instead maintain separate capital accounts within the accounting system for each partner; Capital accounts are simply tracked in the bookkeeping records of the P/S. A partner’s capital account is substantially different from his outside basis in the partnership interest.When you reconcile an account, you are proving that the transactions that total to the ending account balance for an account are correct. This means you can prove that the transactions included in an asset, liability, or equity account are valid, and so should not be flushed out of the balance sheet by shifting the transactions into accounts associated with the income statement.

#2;You can adust them at any time. However, this sch M2 need not be completed if neither Sch L nor Sch M-1 is required. If the P/S is a small domestic partnership with income of less than $250K, and assets under $600K, filing sch A of 1065 is optional. Anyway, It's a good idea to adjust them. However, as a practice you can fill out these schedules not on the copy that will be sent to the IRS. That way you will have a starting point when it is needed without telling the IRS more than they require.



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Old 10-09-2013, 09:18 AM
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Winhough,

It is my understanding that once a partnership ends, a positive remaining capital account (which I did not retrieve from the partnership) can be written off as an investment loss.

Is that true to your knowledge? My particular issue is that this partnership ended at the end of 2009, and this is a 2009 K-1. But I never took that investment loss into consideration on any tax returns.

Thanks!



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Old 10-09-2013, 10:19 AM
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Originally Posted by kenwx23 View Post
Winhough,

#1;It is my understanding that once a partnership ends, a positive remaining capital account (which I did not retrieve from the partnership) can be written off as an investment loss.

#2;Is that true to your knowledge? My particular issue is that this partnership ended at the end of 2009, and this is a 2009 K-1. But I never took that investment loss into consideration on any tax returns.

Thanks!
#1; A capital account reflects your stake in the partnership. The exact behavior of a capital account will vary depending on the form of partnership selected. This reflects how a capital account will behave in a general partnership with no special allocation provisions.Capital accounts are not necessarily always in the same ratio, and can see why with the scenario above Each member of the partnership will have a capital account that will be credited with any profits that are left over after liquidating the assets of the partnership. If the partner has a deficit in her capital account, she will be responsible for adding money to it until the balance is zero. This way, the partnership will not end up owing money to any outside parties. P/S needs to liquidate partnership assets first to any creditors, then to the partner for an amount equal to their capital account.



#2; If there's debt, then my recollection is that you're stuck with capital loss treatment. The relief of debt causes the transaction to be treated as a sale/exchange.I guess you can have a final return with a positive capital account; you may need to get all of the prior year's K-1s in order to calculate your basis. You can have a final Sch K-1 with a positive capital account. You need to take the loss in the calendar year of the dissolution, thus when the loss occurred. You are not allowed to carry over losses into future years when dissolving the partnership. Please contact a CPA/ or an IRSEA in your local area for more info in detail for your state/fed returns.



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