b'Changes to Partnership ReportingbyDerrick FooteDuner and FooteT he IRS has had it sites set on how partnerships reportcapital on their K-1s.When the 2019 forms were issued in draft information to their partners.On each partners K-1form, practitioners discovered that the only accounting method at the bottom left corner there is a capital accountthat could be used to report partner capital was the tax method. reconciliation.The capital account reconciliation keeps track ofPartnerships were no longer allowed to report capital using the partners beginning capital, contributions, income or lossesanother accounting method based on the 2019 draft forms. and distributions, so that the reader understands the partnersThe IRS received feedback from the accounting community investment in the partnership.This gives the partner a snapshot(specifically the Big 4 accounting firms) and recognized that of their interest in the partnership.In previous years and up untilmany taxpayers and practitioners would struggle to adopt the 2019, the partner capital account could be reported under fournew rules on such short notice.Under the regulations, it was different accounting methods.The four methods were: Tax Basis,the partners responsibility to track their tax capital, so some GAAP, Section 704(b), and the nebulous Other box, as notedpartnerships didnt have each partners tax capital readily below in an example of a 2018 K-1 capital account disclosure. available.A partnership that reported capital under GAAP for instance, that had been in existence for a long period or had a significant number of partners, was faced with a challenging reporting burden.The IRS subsequently released Notice 2019-66, which provided relief and postponed the implementation of tax capital reporting until 2020 (taxable years that end on or after December 31, 2020).For the 2020 reporting year partners capital will have to be stated on a K-1 using the tax capital method of accounting.The IRS recently confirmed the use of tax capital and the methodologies that can be used in determining partners tax capital under Notice 2020-43. Notice 2020-43 provides guidance on the methodologies that Oftentimes a partnership would choose to report each partnerscan be used to report tax capital for each partner while soliciting capital account reconciliation using Generally Acceptedfeedback from the public regarding the implementation of Accounting Principles (GAAP).This made a lot of sense sincereporting partner capital under the tax method.Currently there the financial statements are oftentimes reported under GAAP dueare two methodologies that are listed within Notice 2020-43:to a requirement from a lender, language within an operating agreement or a regulatory requirement.Using the GAAP methodModified Outside Basis gave the partner an understanding of their portion of the equity reported on the financial statements. Under this method a partners tax capital is determined under the usual manner of increasing their capital by profits, contributions The IRS has been warning taxpayers the last couple of years that they were going to make changes to the reporting of partnerscontinued on page 24Points of InterestFall 2020Page 23'