unfunded capital commitments

Partnership has a partner that has not made their capital account. Per the partnership agreement, the partnership has the ability to charge them interest and sue for receipt.

Does this create a receivable on the partnership books and a contribution (inside tax basis) to the partner? I don't think it does. The partner did not give the partnership a note, and if it is considered a note, they still didn't provide cash or a note that would meet the requirements.

Any insight?

The partnership has an asset consisting of its claim against the partner. So it should be on the books. I suppose the matching entry is to equity, although I wonder if it should be a liability, such as deferred contribution (similar to deferred revenue treatment.)

The partnership has an asset consisting of its claim against the partner. So it should be on the books. I suppose the matching entry is to equity, although I wonder if it should be a liability, such as deferred contribution (similar to deferred revenue treatment.)

I went through the same thought process as you. I don't believe it is an asset, especially since the balance sheet is on tax basis with the capital accounts reported on tax basis.

Maybe we could book an asset with a corresponding liability, but what does that solve? Thanks

I've usually booked this as a contribution receivable and a capital contribution. However, for basis purposes, these net against each other to zero basis, which is the correct conclusion on that dynamic. The interest would increase the receivable, but wouldn't increase the capital of the yet-to-contribute partner. I'd assume the interest income from this receivable would also be allocable solely to the other partners as well. OA should speak to that too.

I've usually booked this as a contribution receivable and a capital contribution. However, for basis purposes, these net against each other to zero basis, which is the correct conclusion on that dynamic. The interest would increase the receivable, but wouldn't increase the capital of the yet-to-contribute partner. I'd assume the interest income from this receivable would also be allocable solely to the other partners as well. OA should speak to that too.

Yes, interest would increase the "receivable", but, as you noted, it isn't interest income to the partnership, but to the other partners. We note it as such in the partner's K-1 footnotes, but all of this occurs outside of the partnership.

I used to book it as a contribution receivable and a capital contribution, but that was when we could report K-1 capital accounts based on book. I'm trying to simplify things, not sure if I'll be successful.

I've usually booked this as a contribution receivable and a capital contribution. However, for basis purposes, these net against each other to zero basis, which is the correct conclusion on that dynamic. The interest would increase the receivable, but wouldn't increase the capital of the yet-to-contribute partner. I'd assume the interest income from this receivable would also be allocable solely to the other partners as well. OA should speak to that too.

Yes, interest would increase the "receivable", but, as you noted, it isn't interest income to the partnership, but to the other partners. We note it as such in the partner's K-1 footnotes, but all of this occurs outside of the partnership.

I don't think you can have it both ways. It either increases the receivable and is partnership income (allocated only to contributing partners) or it doesn't affect the receivable and occurs outside the partnership. IME, if it's not accounted for in the partnership, someone will lose track of it.

I used to book it as a contribution receivable and a capital contribution, but that was when we could report K-1 capital accounts based on book. I'm trying to simplify things, not sure if I'll be successful.

What the IRS demands on a form doesn't dictate how you maintain the books of the enterprise. I did in 2020 and will continue maintaining proper partnership basis books and report Sch L consistent with this (GAAP; Book; 704(b); etc.). I know Sch M-2 won't tie to capital on Sch L, but I maintain a reconciliation in my workpapers. There are plenty of reasons that the partnership needs to have proper accounting on a non-tax basis. I encourage everyone to continue to account for partnerships in the way we have done for years even if each K-1 only shows tax capital.

I don't think you can have it both ways. It either increases the receivable and is partnership income (allocated only to contributing partners) or it doesn't affect the receivable and occurs outside the partnership. IME, if it's not accounted for in the partnership, someone will lose track of it.

I probably wasn't clear. We don't book it as A/R and we don't pick it up as interest income.

I used to book it as a contribution receivable and a capital contribution, but that was when we could report K-1 capital accounts based on book. I'm trying to simplify things, not sure if I'll be successful.

What the IRS demands on a form doesn't dictate how you maintain the books of the enterprise. I did in 2020 and will continue maintaining proper partnership basis books and report Sch L consistent with this (GAAP; Book; 704(b); etc.). I know Sch M-2 won't tie to capital on Sch L, but I maintain a reconciliation in my workpapers. There are plenty of reasons that the partnership needs to have proper accounting on a non-tax basis. I encourage everyone to continue to account for partnerships in the way we have done for years even if each K-1 only shows tax capital.

I agree, the IRS demands do not dictate how I maintain the books, but I'm in the situation to change the books to make tax preparation much easier.