TAX 9863 Lecture Notes - Lecture 37: Capital Account, General Partnership
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● Balance in each partner’s tax capital account is that partner’s “share of” inside basis
○ I.e. contribution that she has made to inside basis, net of liabilities
● Each partner’s tax capital account equals her outside basis
○ Liabilities reflected in inside basis and in the partners outside basis but not in the partner’s tax
Example #3: assume that the land contributed by C had a fair market value of $250, but was subject to a $100
mortgage, which the partnership assumed.
● C’s capital account credited w/ $150 which is the FMV of the property, net of liabilities, as required by
the basic rules of the regulations
● Pship books the land @ FMV
● List mortgage as liability
● Inside basis: subtracting from the basis of the contributed property the liabilities encumbering the
○ RULE: On contribution of property the contributor’s tax capital account is equal to her
contribution to inside basis, net of liabilities.
■ In this example, C will have tax capital account of zero b/c basis = 100 and liability = 100.
Assets Liabilities & Capital
$150 $150 Liabilities = $100
C $ 0 $150
D 150 150
● Book value of the assets = liabilities + Book capital
● Tax Capital + Liabilities = inside basis
● Assume equal general partnership
○ C will have a $50 share of the liability after the contribution
■ Relieved of 100 liability
■ Net reduction in liab = 50
■ Section 723 and 752 Cs outside basis will be $100-50 or $50.
○ Ds basis will increase by her $50 share of the liability, giving her outside basis of $200