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Partners’ capital (1,144,342) (1,394,663) (1,592,701)
Analysis of partners’ capital:
Net income per books 384,509 260,450
Distributions (634,830) (458,488)
Balance at year end (1,394,663) (1,592,701)
Beginning year balance (1,144,342) (1,394,663)
In order for the distributions to have exceeded $634,830 for 1996
and $458,488 for 1997, the Bitker partnership would have had to
have depleted its assets, incurred additional debt, or earned more
income.
Under the alternative computation, a partner’s basis is equal
to the partner’s proportionate share of the adjusted basis of
partnership property upon a termination of the partnership.8 That
basis may equal his/her negative capital account plus his/her share
of partnership liabilities. Long v. Commissioner, 77 T.C. 1045,
1084 (1981) (basis equaled negative capital account plus taxpayer’s
8 Section 705(a) sets forth the general rule for
determining a partner’s basis in his partnership interest. Any
increase or decrease in a partner’s share of partnership
liabilities is deemed either a cash contribution by the partner to
the partnership or a distribution to the partner by the
partnership. Sec. 752(a) and (b). The partner’s basis in his/her
partnership interest is increased by the amount of the deemed
contribution or reduced by the deemed distribution.
This is not true as to the partner’s capital account, however.
The capital account generally reflects a partner’s equity
investment in the partnership and is not increased by his/her share
of partnership liabilities. Tapper v. Commissioner, T.C. Memo.
1986-597. Thus, it is possible for partners, like petitioners in
this case, to have negative capital accounts while maintaining
positive tax bases in their partnership interest.
Unlike a partner’s basis, which can never be less than zero,
a partner’s capital account will be negative if the sum of the
capital contributions credited to him on the partnership’s books
and his share of “book” profits is less than the sum of the amounts
distributed to him and his share of “book” losses.
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