Assume the same facts as in Problem 47, and assume that Suz-Anna prepares the capital account rollforward on the partners’ Schedules K–1 on a tax basis.

    a. What is Suzy’s capital account balance at the beginning of the tax year?

    b. What is Suzy’s capital account balance at the end of the tax year?

    c. What accounts for the difference between Suzy’s ending capital account and her ending tax basis in the partnership interest?

Here is Problem 47:

Suzy contributed assets valued at $360,000 (basis of $200,000) in exchange for her 40% interest in Suz-Anna GP (a general partnership). Anna contributed land and a building valued at $640,000 (basis of $380,000) in exchange for the remaining 60% interest. Anna’s property was encumbered by a qualified nonrecourse debt of $100,000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year:

Sales    560,000      

Utilities, salaries and other operating expenses 360,000

Short-term capital gain                                                                            10,000

Tax-exempt interest income                                                                      4,000

Charitable contributions                                                                            8,000

Distribution to Suzy                                                                                10,000

Distribution to Anna    20,000

During the current tax year, Suz-Anna refinanced the land and building. At the end of the year, Suz-Anna had recourse debt of $100,000 for partnership accounts payable and qualified nonrecourse debt of $200,000.