A statement must be attached to each partner’s Schedule K-1 indicating the method used to determine each partner’s beginning capital account and certain other information.The same method must be used for each partner’s beginning capital account.
The Section 704(b) Method (which is generally the partner’s section 704(b) capital account adjusted for the partner’s share of section 704(c) gain or loss in the partnership’s assets).The Modified Previously Taxed Capital Method, or.Partnerships that did not report partners’ capital accounts using the Tax Basis Method last year and did not maintain capital accounts under the Tax Basis Method in their books and records may refigure a partner’s beginning capital account using one of the following methods as described in the instructions.Partnerships that did not prepare Schedules K-1 under the Tax Basis Method for 2019, but otherwise maintain tax basis capital accounts in their books and records (for example, for purposes of reporting negative capital accounts), must report each partner’s beginning tax basis capital account balance for 2020 using the Tax Basis Method.Tax Basis Method was not previously used.If a new partner acquired an interest from another partner, the amount of the beginning capital account that is equal to the transferor partner’s ending capital account with respect to the interest transferred should be included in the beginning capital.If a partner joined the partnership during the year, the opening balance should be zero.
If a negative ending capital account was reported last year and a different amount is determined for this year, an explanation must be provided.If the Tax Basis Method was previously used, the partnership should report the partner’s ending capital account as determined for last year on the line for the beginning capital account. If a section 743(b) adjustment was previously included in the partner’s capital account, those section 743(b) adjustments should be removed from the partner’s capital account in the 2020 tax year as another increase or decrease as well. On the line for other increases and other decreases, partnerships are instructed to include section 734(b) adjustments and certain items with respect to depletion.