Where do I record the additional basis for 1 Partner Buying out Another for a higher price?

[sangfroyd]

I have Partner A, who paid $116,500 to acquire the ownership from Partner C, who had a basis of $100,000.  Partner B was unchanged. 

I've adjusted the ownership already so that the $100K original basis transferred to Partner A, however, the additional $16,500 in paid in capital needs to go somewhere.

Not sure if it matters, but the Partnership also sold & distributed all properties this year, so it's a final return.

Currently I put $16,500 into the "Other Increases" section for the Sch M-2 input screen.  But it requires me to put $16,500 as an "Other Decrease" otherwise the Total Capital doesn't balance.  I then did a special allocation between Partner A & Partner C, but that left Partner C with a negative ending capital balance on a final return, and otherwise they have 0's on the rest of their K1... that doesn't seem right to me.  Is there a way to just increase the outside basis for Partner A's additional amount paid without making the others go negative, or how would you record this?

[George4Tacks]

Did partner A give the money to partner C? 

My guess is yes, so the Partnership is not involved, other than to properly allocate the income for the portion of the year each partner was owner. The extra $16,500 is outside basis to Partner A and would be reconciled on their personal return. 

[sangfroyd]

Ah, thank you.  Yes, Partner A paid Partner C directly.  The transaction was not with the Partnership Level.

But I thought for some reason the new partnership tax guidance required outside basis to be recorded at the Partnership Level now, via a Section 754 or 743(b) adjustment.  Is that not the case?

I should clarify that the Partnership was subsequently liquidated and all funds distributed at the end of the year after a real estate sale.  So I was trying to record the step-up in basis to ensure the correct gains are reported on the K1's, currently Partner A's gains are inflated.

As I'm also doing their personal return, when you say "reconciled on their personal return," how would you do that perse?  i.e. are you adding additional outside basis to Form 4797 upon the sale?  Do you have to reduce the gains on 8582?  Or what is the approach you're using?

Thanks so much