jcappock wrote:They are entitled to fair valuation under the OA. But there is no mention of what happens to the capital account.
This is what I would expect.
It appears to me that you are still confused about this concept. The capital account is simply a representation of the partner's share of the net equity shown on the business books and nothing more. "What happens" to the capital account depends on the manner of the partner's exit.
If other partner(s) purchase the interest and there is NO 754 election in place, the departing partner receives their fair value and the capital account balance simply transfers to the purchasing partner(s).
With a 754 election in place, any amount paid by the purchasing partner(s) in excess of the capital account (assuming tax basis capital) gets allocated among the assets of the business as though each of those assets had been purchased from a third party (a 743(b) ADJ).
If the partnership purchases the interest directly and a 754 election is in place, then the excess is allocated among the assets in a similar manner (a 734(b) ADJ).
In all cases, the exiting partner will have been considered to have sold their percentage of the assets of the partnership. You will likely need the assistance of the partnership's tax preparer to determine the details.
I will usually provide a detailed schedule to the tax preparer of departing partners in this instance.