743b Partnership

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#1
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I have a client with a minority partnership interest who recently received a K1 copy for 2020 where his partner capital account was zeroed out. He asked the CFO's attorney why this was and they explained the capital accounts were adjusted to a zero balance due to an IRC 743B basis adjustment(this was noted in k-1 so the answer seemed ambiguous, perhaps intentionally so). There was no sale made of his interest and there was no further elaboration as to why?

I wonder if a. the k1 should have used a 734B reference in its annotation for some form of depreciation, commercial real estate entity as sole asset of partnership, or if this is something technical that is beyond me. Thoughts? Or suggestions as to how I should inquire for elaboration? My client has a cantankerous relationship with his partners, just fyi. The less I sound like a moron in retort the better.

Thank you kindly,

Leviathan
 

#2
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Usually, when there's a 743(b) adjustment I see positive or negative 743(b) adjustments (Code 11F or 13V respectively), and the remaining net 743 adjustment broken out by asset class as an information item using one of the 20 codes (I do 20AH).

The remaining net 743 adj affects basis of the transferee but I've never seen the adjustment hit tax capital of the transferee.

Did your client buy another member's ownership interest?
 

#3
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Hi ManVsTax,

My client has not done nothing. Evidently, he has neither been diluted nor has his interest increased in any fashion. I wonder whether the zeroing out is superficial? If so, how?
 

#4
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Would a proposed offer for the totality of my client's interest submitted to the other partnership members via a right of first refusal clause trigger a 743b even if the sale never went through?
 

#5
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Not to my knowledge. We need a transfer of the partner's interest. Not a proposal.
 

#6
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Is it possible they're getting 743(b) confused with 734(b)?
 

#7
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That was my initial thought.
 


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