How to handle partnership allocations, maintain capital accounts, track partner basis, and manage Section 704(c) contributions.
Confirm the allocation provisions: profit/loss ratios, special allocations, guaranteed payments, and any preferred return provisions. The agreement controls unless it lacks substantial economic effect.
Track each partner's capital account using tax basis: contributions + allocated income - distributions - allocated losses. Reconcile with the balance sheet at year end.
Calculate each partner's outside basis separately from the capital account. Begin with initial investment, adjust for income, loss, distributions, and partnership liabilities.
When property is contributed with built-in gain or loss, allocate the pre-contribution gain or loss back to the contributing partner under Section 704(c). Choose and document the method: traditional, traditional with curative allocations, or remedial allocation.
Verify that each K-1 reflects the correct allocations for the partner's share of income, loss, deductions, and credits. Cross-check against the partnership agreement and capital account reconciliation.
1065 includes the templates, checklists, logs, and SOPs to execute this workflow consistently across every engagement.