Discussion:Partner Guaranteed Payment and zero basis
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| Revision as of 19:05, 6 August 2009 Shipkel (Talk | contribs) (Yes. But it is) ← Previous diff |
Revision as of 19:05, 6 August 2009 Chase (Talk | contribs) (The partner does) Next diff → |
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| + | {{ForumReplyPost|UserID=Chase|Date=6 August 2009|Text=The partner does not have any tax basis in his sweat equity unless he considered the FMV of that sweat equity as ordinary compensation. Sounds like he never had any tax basis in the partnership and therefore should not have been allowed any deductions on his personal tax return related to the pass through losses unless he put some cash or other property in.}} | ||
Revision as of 19:05, 6 August 2009
Discussion Forum Index --> Advanced Tax Questions --> Partner Guaranteed Payment and zero basis
Discussion Forum Index --> Tax Questions --> Partner Guaranteed Payment and zero basis
| 6 August 2009 | |
| I have a client that received a guaranteed payment @$90,000. The partnership had a loss for the year because of the payment. My client's share of the loss is @ $30,000.
However, his basis is less than zero. i am findling conflicting answers in my research, so I want to see if anyone has had this situation and how they dealt with it. The way my software is calculting the taxable is amount is by reducing the $90,000 by the $30,000, give a taxable amount of $60,000. i have found a revenue ruling, 56-675, 1956-2 CB, IRC Sec(s). 707 / and it supports this method. but when I read Pub 541, it states that they can only use the loss up to their basis, and the basis cannot go below zero. Any help would be greatly appreciated! Thanks, | |
Harry Boscoe (talk|edits) said: | 6 August 2009 |
| The partner's deduction of the $30,000 share of the partnership's loss *requires* that the partner have enough basis to deduct the loss. It is "...subject to the limitations of Code Sec. 704(d)" is how my resource described it.
Sounds like the Rev Rul might not be considering the basis limitations when it concludes that the partner's guaranteed payment and share of partnership loss will offset each other. Has your software been *told* that the client/partner/taxpayer doesn't have any basis to allow a deduction of the $30,000 loss? If the software *has* been told that the partner can't deduct the loss, and deducts it anyway, then get better software. On the other hand... On the other hand, I'll be in the kitchen deplenishing the inventory in the fridge. PBR for one and all; the firetrucks just left... p.s. Maybe we could say that your client's capital account in the partnership is negative rather than "his basis is less than zero." Whaddya think? | |
| 6 August 2009 | |
| maybe outside basis is positive? like Harry wrote, cap accounts can be negative. | |
| 6 August 2009 | |
| Ok,If i understand what you are saying correctly -- Even though it is the Guaranteed Payment that caused the loss, if the partner has a less than zero basis, he cannot reduce the taxable amount by his portion of the loss. And, thus his taxable amount is the full $90,000.
I did "tell" the software that the client had zero basis on the 6198, maybe i need to enter the info somewhere else in the software. I will call support. Thanks for your help. | |
| 6 August 2009 | |
| Maybe i need to look up the instructions for calculating basis again, becasue i am not following you guys.
The way this partnership worked is that my client did "sweat equity" to become a partner, and the next 3 years the partnership has had a loss. The way i calculated the basis was: Beginning Equity, $20,000 year 1 loss (10,000) year 2 loss (10,000) year 3 loss (30,000) Caused by Guaranteed Payment end basis $(30,000) / please let me know what i am missing or should have done differently. Thanks so much for the help | |
| 6 August 2009 | |
| Is the guaranteed payment showing up on line 3 of form 6198...."other income from activity" | |
| 6 August 2009 | |
| Yes. But it is the program that is putting it there. Is this my problem and the program should not be puting the payment on line 3?
Thanks! | |
| 6 August 2009 | |
| The partner does not have any tax basis in his sweat equity unless he considered the FMV of that sweat equity as ordinary compensation. Sounds like he never had any tax basis in the partnership and therefore should not have been allowed any deductions on his personal tax return related to the pass through losses unless he put some cash or other property in. | |
