- 16 -
Schedule K-1 as $55,821. Most of this liability bal-
ance is represented by a first mortgage loan held by a
bank for which partnership real property is pledged.
The partners, including Mr. McDaniel, personally signed
the loan agreement for which they have joint and sev-
eral liability. The bank has not released Mr. McDaniel
from his obligation under the loan agreement.
At the time of Mr. McDaniel's 1992 agreement with
the partnership, as described above, he had a negative
capital account balance of $48,193. His negative
capital account balance was incorrectly reported by the
partnership on his Schedule K-1 as a long-term capital
gain. Mr. McDaniel believes that the correct treatment
of his negative capital account balance on his Schedule
K-1 is to report the $48,193 on line J, box (d), "With-
drawals and Distributions".
The partnership's incorrect assumption that his
negative capital account balance results in long-term
capital gain is inappropriate inasmuch as Mr. McDaniel
continues to be contingently liable for $55,821 in
partnership liabilities. At such time that Mr.
McDaniel's share of partnership liabilities are repaid
by the partnership, or otherwise settled, the appropri-
ate tax treatment of Mr. McDaniel's negative capital
account balance on withdrawal from the partnership can
be determined.
Petitioners filed their 1993 return sometime after October
10, 1994. Petitioners filed their 1994 return sometime after
April 15, 1995. In their 1994 return, petitioners erroneously
claimed a dependency exemption for their daughter Holly McDaniel.
Petitioners did not report any income attributable to Mr.
McDaniel's negative capital account balance in their 1993 return,
their 1994 return, or any other return that they filed.
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011