7
balance in his capital account:
Partner Capital Account Balance
Parson ($30,823)
Handler (186,739)
Hahn (96,351)
Sargent (85,470)
Tilton (46,138)
The total deficit came to $445,521.
On its 1996 partnership return, W&R elected the cash method
of accounting for tax purposes. The partnership return’s
Schedule M-2, Analysis of Partners’ Capital Accounts, reported
that each withdrawing partner contributed capital equal to the
amount of the withdrawing partner’s negative capital account
balance resulting in total capital contributed of $445,522.4 The
amount reported as capital contributed in 1996 for each
withdrawing partner zeroed out each withdrawing partner’s
negative capital account balance.
W&R reported on its 1996 partnership return total income of
$678,711 and claimed a deduction of $456,522 as “Guaranteed
payments to partners”.5 W&R issued to each withdrawing partner a
4 The $1 difference between the capital account balances
shown on the chart attached and that claimed on Schedule M-2 will
be attributed to rounding.
5 In addition to bringing the negative capital accounts of
the withdrawing partners to zero which made up $445,522, of the
claimed guaranteed payments, W&R actually paid Allen $1,000 for
services rendered and $10,000 to Morse for his services with
regard to the termination and liquidation of W&R’s retirement
plans. The payments to Allen and Morse have been conceded by
(continued...)
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Next
Last modified: May 25, 2011