Withdrawing partner negative capital account


Entering Capital Account Cash Distribution to a Partner in the Partnership Return: Go to Screen 28, Schedule M-2. Scroll down to the Distributions section and locate the Cash input field. Enter the amount of the cash distributed to all partners in the Federal column; Go to Screen 29, Special Allocations and locate to Capital Account. With a DRO present, the investor’s capital account balance is allowed to be negative because the partner has demonstrated an intention to repay the deficit. However, unlike the capital account, the outside basis is never allowed to drop below zero. The concept of a negative outside basis is similar to an over-depreciation of an asset; the IRS ... ___Define capital account: each partner's initial capital contribution increased by any additional contribution. ___Should partners be allowed to make withdrawals from capital accounts? ___If not, should a unanimous vote of all partners be required to allow a partner to make a withdrawal? A partner’s tax basis capital account can be negative if a partnership allocates tax losses or deductions or make distributions to the partner in excess of the partner’s tax basis equity in the partnership, or when a partner contributes property subject to debt in excess of its Debited to the Profit and Loss Appropriation Account, and; Credited to the Reserve (or General Reserve) Account. Accounting treatment of reserves in case of admission of a partner: In case of admission of a new partner, we need to transfer the reserves or accumulated profits and losses in the balance sheet to the old partners capital accounts.