Partner Basis vs Capital Account on Liquidation

[RTS1823]

Hoping to get some thoughts from those who deal with these more than me.  Most of the K-1s and partnerships I deal with are small and simple.

I have a client who is a partner of a partnership that ceased operations in 2018 and was issued a final K-1.  He did not receive anything from the partnership when it closed.

The final K-1 lists ordinary loss of $2,153 and Section 1231 Gain of $279,500.

Beginning of year basis is $491,013 + 1231 gain of $279,500 - decreased of share of liabilities of $653,478 - Loss of $2,153 = $114,882

However, the K-1 lists beginning capital account of -$162,465 + current year increases of $372,910 = $210,445.  The difference between the basis and capital is $95,563 which is also the difference between the current year increase and net loss/gain.

I know that the capital account and the basis account are not the same thing, especially since the basis account can't go below zero, but I'm wondering what the $95k would be and if it is something that would affect basis.  Since whatever his basis ends up being is going to become a capital loss to help offset the 1231 gain, the difference is substantial.  Thoughts?  Am I looking at this right?

Thanks!

[sjrcpa · Accepted solution]

It sounds like you have the correct basis 114,882

Does his K-1 have an ending capital account of -0-? That $95K is most likely whatever was needed to zero out the capital account. Capital accounts on K-1s do not equal basis.

[RTS1823]

Thanks for responding.  The ending capital account on the K-1 shows $210,445.

[RTS1823]

So you would ignore the $95K since it's probably a closing entry anyway?  I would just hate to be wrong on such a large amount if it could help them.

[sjrcpa]

If you have the info since inception to calculate your client's basis and have done so, I would use your numbers.

[RTS1823]

That's what I'm going to do then.  Thanks again!

[sjrcpa]

You're welcome