Question

The LMN Partnership has the following assets and liabilities before any reduction for year-end principal payments on the liabilities. Assume the book basis and tax basis are the same amount. Assets Basis=$300,000 Value= $400,000.   Nonrecourse debt = Basis $500,000 and Value = $500,000. If the partners have a deficit in their capital accounts of ($100,000), what is the amount of minimum gain chargeback if partnership loss for the year is ($20,000) and the liabilities are reduced by $250,000? Please explain answer. A. $0 B. $20,000 C. $50,000   D. $100,000.   Please show explanation and math.

Answer 1

DEFICIT CAPITAL ACCOUNTS IN PARTNERSHIP :

In partnership, the capital of partners is limited. To invest money to the partnership firm there will be risk on invested amount (capital), in deficit capital account the partners will deficit restoration obligation essentially agree to have unlimited liability for whatever the company debts and obligations are at the same time in future.

Partners capital account balance can be allowed to become negative in a given year if the partners agree to a qualified income offset provision.

CAPITAL ACCOUNT BALANCE :

In partnership limited liability company allocates its profit and loss to partners. the partners share is based on their capitals unless they are not maintain specified method. The distribution of profit and loss that reflects a different economic arrangements.

The partners in the LMN Partnership the amount of minimum gain chargeback is $100000 because of the partners have a deficit in their capital accouns of $100000.