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WHAT IS 704c capital?

WHAT IS 704c capital?

704(c) is intended to prevent the shifting of tax items among partners when a partner contributes property with a fair market value different from its tax basis to a partnership. Under Sec. 704(c), the allocation of tax items for property contributed with a built-in gain or loss must be made using a reasonable method.

What is Section 704c gain or loss?

704(c) generally. Under Sec. 704(c), a partnership must allocate income, gain, loss, and deduction with respect to property contributed by a partner in a manner that takes into account any built-in gain or loss at the time of the contribution.

What happens if a partner’s capital account goes negative?

If any members of a partnership have a negative capital account, that partner is legally obligated to restore their deficit, also known as a DRO (deficit restoration obligation).

What is a 704 B book up?

The procedure provided in the section 704(b) regulations known as “revaluation and book-up” (sometimes called simply “book-up”) of a partnership’s assets and capital accounts is available and often used when a new partner enters an existing partnership and acquires a partnership interest in exchange for cash or …

IS 704c gain taxable?

The purpose of Section 704(c) is to prevent taxable gain or loss inherent in property at time of contribution from being shifted to another partner- looks to the difference between adjusted tax basis and fair market value upon contribution.

How do I zero out my partners capital account?

How to zero out partner capital accounts in a final year

  1. Go into the Input Return tab.
  2. From the left of the screen, select Balance Sheet, M-1, M-2 and choose Sch M-2 (Capital Account).
  3. Scroll down to the Distributions section.
  4. In the field Other decreases (-) (Ctrl+E), enter the appropriate amount.

What happens to a partners capital account when they leave?

If there is no agreement or the terms are silent on partner exit, a partner leaving a partnership will be able to dissolve the partnership and wind it up. As part of this process and provided that there are sufficient funds, they will be entitled to a repayment of their capital contribution after payment of debts.

What is Section 704 B method?

Section 704(b) accounts reflect a partner’s economic interest in the entity, GAAP balances report balances that comply with accounting board requirements, and tax basis balances reflect a partner’s capital balance under federal income tax principles.