Читать книгу Taxation Essentials of LLCs and Partnerships - Larry Tunnell - Страница 38

Lisa and Bill formed a partnership to purchase an office building. Lisa contributed $50,000 cash to the partnership in exchange for a 50% interest therein. Bill contributed land with a tax basis of $25,000 and a fair market value of $50,000 for the remaining 50% interest. The partnership then borrowed $400,000 and purchased an office building for $450,000. The partnership's balance sheets will look as follows immediately after formation:

		Section 704(b)
	Tax	Book
Land	$25,000	$50,000
Building	450,000	450,000
Total assets	$475,000	$500,000
Mortgage, Building	$400,000	$400,000
Capital, Lisa	50,000	50,000
Capital, Bill	25,000	50,000
Total liabilities & capital	$475,000	$500,000

The initial tax balance sheet indicates that Lisa contributed $50,000 toward the tax basis (remaining cost) of the partnership's assets, and Bill contributed $25,000 of this amount. Yet, as indicated on the book balance sheet, Lisa and Bill would each be entitled to receive $50,000 if the partnership were to liquidate. Now assume that in its first year of operations, the partnership earns net income (book and tax) of $120,000 and distributes $40,000 of this amount to Lisa and Bill ($20,000 each). Assuming no change in debt, the partnership's balance sheets would now have the following balances:

		Section 704(b)
	Tax	Book
Total assets	$555,000	$580,000
Mortgage, Building	$400,000	$400,000
Capital, Lisa	90,000	90,000
Capital, Bill	65,000	90,000
Total liabilities & capital	$555,000	$580,000

As illustrated, Lisa and Bill's capital accounts would each be increased by $40,000 on both balance sheets ($60,000 share of partnership net income, less $20,000 distribution received). Therefore, Lisa's $90,000 capital balance on the tax basis balance sheet reflects her total direct investments in the partnership of $50,000 at formation plus her $40,000 of reinvested profits. Bill's capital account on the tax basis balance sheet reflects the $25,000 basis of the land initially contributed to the partnership, plus $40,000 of reinvested profits. The book balance sheet, in contrast, indicates that if the partnership were to sell all its assets at their $580,000 year-end book value, each partner would receive $90,000, after payment of the partnership's creditors. This balance sheet reflects the partners' legal and economic rights to partnership assets, which are based on the fair market values of the properties each contributed (as of the date of contribution), adjusted for additional investments (reinvested profits) and distributions made since that time.

Therefore, the partner capital accounts play a crucial role in determining the consequences for the partners of partnership activities. Because a partner's share of partnership income is credited to his or her capital account, therefore giving him or her a right to withdrawal of a like amount, he or she is taxable on that income even if it is not currently distributed by the partnership. Any income not withdrawn remains in the partner's capital account, and constitutes an additional investment by the partner in the partnership. The partner's basis in the partnership interest is increased to reflect this additional investment. Finally, because the partner retains the right to withdraw his or her capital, including reinvested earnings, from the partnership in the future, his or her interest in partnership assets, as reflected on the book balance sheet, is also increased by any portion of that share of earnings which is not withdrawn (that is, received as a distribution) in the current year.