DESCRIPTION
This module examines the role of capital accounts in partnership taxation, with a focus on §704(b) capital accounts and tax capital accounts. Through lecture, group discussion, and a comprehensive calculation exercise, participants compute both §704(b) and tax capital and analyze how the “tax follows book” concept applies in practice. The module also contrasts capital accounts with tax basis and explains the differences between inside and outside basis, concluding with a practical framework for identifying when §704(b) capital diverges from tax basis.
LEARNING OBJECTIVES
- Distinguish between §704(b) capital accounts and tax capital accounts, including their respective purposes in partnership taxation.
- Differentiate between a partner’s tax capital account and outside capital basis, including how each is computed and used
- Discuss the “tax follows 704(b) book” concept
- Analyze scenarios in which §704(b) capital differs from tax basis and evaluate the tax implications of those differences
- Compute §704(b) capital accounts and tax capital accounts using comprehensive fact-based exercises
