Page 260 - The TEFRA Partnership Audit Rules Repeal:

ALI CLE Live Video Webcast / “The TEFRA Partnership Audit Rules Repeal: Partnership and Partner Impacts” June 7, 2016, Jerald David August and Terence Floyd Cuff
required or permitted to be made by a partnership representative under the new federal partnership audit rules.
We do not recommend this provision.
23. Impact on Capital Accounts.
One of many issues unresolved by the current partnership audit rules is the effect of the new regime on partnership capital accounts. Some of the issues are illustrated in this example:
Example 5. Real Estate Investors, LLC is a partnership between Marion and Kate. This is the balance sheet of Real Estate Investors, LLC at the beginning and end of year x before the allocation of “book” loss for the year:
Beginning of Year x
End of Year x (before allocation for year)
$320,000
$4,000,000 $6,000,000 $1,275,000
($6,807,692) $4,467,308 $4,787,308
$8,049,000 ($1,426,923) ($1,426,923) ($2,853,846)
($407,846) $4,787,308
Change
$20,000
$0
$0 $75,000 ($453,846) ($378,846) ($358,846)
$49,000 $0 $0 $0 ($407,846) ($358,846)
Assets
Cash $300,000 Fixed Assets
Land $4,000,000 Buildings $6,000,000
Furniture, Fixtures and Equipment Less: Accumulated Depreciation Fixed Assets after Depreciation
$1,200,000 ($6,353,846) $4,846,154 Total $5,146,154
Liabilities and Capital
Liabilities $8,000,000
Capital Marion Capital Kate
Subtotal Capital
Net Unallocated Income (Loss)
Total $5,146,154
($1,426,923) ($1,426,923) ($2,853,846)
The Real Estate Investors, LLC partnership agreement allocates all of the $407,846 loss to Marion. The loss allocation by Real Estate Investors, LLC would produce these results if tax law respects the loss allocation in the Real Estate Investors, LLC partnership agreement:
$0
© Terence Floyd Cuff and Jerald David August, 2016
191