MrMojo
Level 3

"Capital accounts, even tax basis capital accounts rarely = basis. A negative capital account is possible.."

New partnership client.

Negative capital accounts ~($200,000).

Old accountant provided a Partner's basis statement showing ~$150,000 positive basis.

Why the big discrepancy?

It's a relatively simple partnership with 2 rental properties.

 

Having said that...

Partner pulls all the money out each year.

Partnership has a long history and not very positive, Used to have many rental properties, some former properties were sold at losses or had issues esp. during the financial crisis ~2008~2012. Each property had loans on them which the partners signed responsibility for repayment. But they also took all the money from the cash account and loan accounts to live on, hence distribution issues!

Old accountant refuses to discuss anything and partner (couple) has ~10 yrs of returns even though partnership is closer to ~20 yrs old. They aren't on friendly terms.

Looks of issues when you start digging into the history of the partnership and partners so questioning much of the information esp. if all the distributions were recorded correctly and properly.

The taxpayer is responsible for basis tracking, in theory, but in reality, expects the tax pros to do that for them! 

Many tax software allow you to track basis especially if it's a new client since you have all the information. The issue is that some software did not have that capability back then or the accountant did Not use that basis tracking feature. You know the tax software has that feature if it generates a partner's basis statement.

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