Partner's Outside Basis vs. At-Risk Basis

[mhlester]

If a partner has a $50,000 negative capital account at year end, and the partner's share of debt is:

• Recourse Debt: $5,000
• Qualified Nonrecourse Debt: $250,000
• Nonrecourse Debt: $12,000
• Negative capital account: ($50,000)

What is the partner's outside tax basis?

What is the partner's at-risk basis?

Thanks,

Michael

[TaxGuyBill]

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@mhlester wrote:

 capital account

Was this an original Partner from the start of the Partnership?  If not, Capital Account has little or no effect on things.

[mhlester]

Yes, the original partner who invested cash only at inception, and who during the course of the partnership received debt financed distributions.

[rbynaker]

The only way to know is to go back to the beginning of time and create a basis worksheet for each year.

https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

PDF page 3 (or just google, you can find plenty online or use the IRS one to make your own spreadsheet.)

In a perfect world the partner has all of this information.  Here in the real world you might get lucky and the partnership accountant can get you most of the information.

[mhlester]

But assuming all outside basis transactions other than the original cash contribution took place within the partnership, does the negative capital account reduce the amount of debt that is otherwise included in tax basis and in at-risk basis, or is the negative capital account ignored for that purpose (treated as zero)?

[sjrcpa]

Rick @rbynaker  has the best and correct answer. We only try to approximate outside basis from the tax basis capital account when that is all we've got and efforts to get more info fail.

Taxpayer is at risk for the Recourse Liability and considered to be at risk for the Qualified Nonrecourse Liability.

[sjrcpa]

P.S. As incentive for client to get me the info I need, I tell them I'll just use zero for the basis and the ramifications thereof. Funny how they can find stuff then.

[mhlester]

Thank you.

Using a simpler set of facts,

Partner A contributes $50,000 at inception

In year 1, Partner's A's share of QNR debt is $100,000 and his share of the loss is $60,000, leaving him with a negative capital account of $10,000 at the end of year 1.

Is his tax basis $90,000 or $100,000?

[sjrcpa · Accepted solution]

$90,000

[mhlester]

Thank you sjrcpa... this is the answer i was looking for.