Partnership basis calculation is incorrect

[JWellsTax]

ProConnect miscalculates a partner's basis when an ordinary loss and nondeductible expenses exceed the partner's adjusted basis.

See a correct worksheet and calculation (from another software) below. This worksheet correctly reduces the partner's basis after distributions (Line 11) by the entire amount of nondeductible expenses (Line 12) before subtracting losses (Line 15). Note that this follows Treasury Regulation §1.704-1(d)(2): "...basis shall first be increased under section 705(a)(1) and then decreased under section 705(a)(2), except for losses of the taxable year and losses previously disallowed." This also follows the partner basis worksheet provided in the partner's K-1 instructions.

ProConnect (see below) incorrectly allocates the adjusted basis after distributions to both nondeductible expenses and losses. This does not follow the Regulation cited above or the worksheet in the partner's K-1 instructions.

Please update the partner basis calculation and worksheet to reflect the worksheet in the partner's K-1 instructions. Thank you!

[Kathi_at_Intuit]

Hi @JWellsTax Nice to see you in the Community, and thanks for posting! We’ll forward an enhancement request to update the worksheet on your behalf.

[johnsmith1]

At [Content Removed]  we’ve reviewed this issue with ProConnect. Currently, ProConnect miscalculates a partner’s basis when nondeductible expenses and ordinary losses exceed the partner’s adjusted basis. According to IRS rules and the partner’s K-1 instructions, the correct calculation should:

1. Reduce the partner’s basis after distributions by the full amount of nondeductible expenses first,

2. Then subtract allowable losses, following Treasury Regulation §1.704-1(d)(2).

ProConnect’s current worksheet incorrectly splits the adjusted basis between nondeductible expenses and losses, which does not comply with IRS regulations. To ensure accurate reporting, we recommend updating the partner basis calculation to match the K-1 instructions and the IRS-compliant worksheet.

[Content Removed]  can assist in reconciling these calculations to ensure proper basis tracking for all partners.