LLC is closing. Two partners: #1 has beginning negative capital account of 50K, #2 has positive of 60K (70%:30% capital share though, not sure how that happened). Final year income 70K. How this should be allocated and presented on members' K-1s?
#1- gets 50K ordinary income (box 1) to bring his ending capital to zero
#2 – gets remaining 20K in box 1, but his ending capital now 70K, where is that going to bring his ending capital to zero. I believe on the individual level 20K income is taxable at ordinary, but 70K become ordinary loss?
Would appreciate any help! Thank you
Solved! Go to Solution.
You really need to look further into this to understand why the capital accounts are wrong. Its likely simply an error along the way. Perhaps property was distributed and not booked properly, or any number of other things. You also do not mention anything about debts, but there needs to be an explanation for why the partners capital accounts do not equal the assets of the partnership.
You also would want to confirm how the partnership agreement specifies how the deficit should be restored. Specifically, if it contains a "qualified income offset" or if in fact the negative capital partner is required to repay.