Discussion:S-Corp Question - PLEASE HELP!!!
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Stephanie1 (talk|edits) said: | 24 June 2006 |
| An S-Corp is a partner in a limited partnership. They received a K-1 from the partnership with a letter stating that this is the final year that the partnership will be filing an income tax return, hence this is the last K-1 that the S-Corp will receive.
Looking at the K-1, the S-Corp has a negative $35,000 ending capital account balance in the partnership. Is there anything I need to do with this on the 1120S or how do I handle? I have never run into this before so if there is anyone out there who can help me out, I GREATLY appreciate it!!!!!! | |
| 24 June 2006 | |
| If the partnership capital account has been reported on the "tax basis", a negative capital account generally suggests that the S Corp has been passed through losses and/or draws in excess of its tax basis. If that is the case, the negative capital account upon termination would be considered income to the S Corp. If the S Corp has suspended losses from the partnership, they will be trigger upon liquidation and deductible. | |
Stephanie1 (talk|edits) said: | 24 June 2006 |
| Scot - Thanks!! Would that be ordinary income to the S Corp or a Cap Gain? | |
| 24 June 2006 | |
| You need to find out what caused the negative capital account (and in which year it went negative) and whether your client will be assuming any debt in connection with the partnership liquidation.
If the capital account went $35k negative in a prior year due to distributions in excess of basis, a $35,000 gain should have been reported in a prior year. On the other hand if your client will be assuming $35,000 in debt in connection with the liquidation of the partnership, the debt assumption would offset the negative capital account, resulting in no gain. | |
| 25 June 2006 | |
| For outside basis you would need to add any liability shown on the K-1 to the capital account. | |
