The partners are engaged in a particular business and the purpose of this agreement is to provide for the sale by a partner during a partner's lifetime, or by a deceased partner's estate, of his interest in the partnership, and for the purchase of such interest by the partnership at a price fairly established; and to provide all or a substantial part of the funds for the purchase.
Selling Partnership Interest With Negative Capital Account In Bronx
Category:
State:
Multi-State
County:
Bronx
Control #:
US-00443
Format:
Word;
Rich Text
Instant download
Description
Free preview
Form popularity
FAQ
If any members of a partnership have a negative capital account, that partner is legally obligated to restore their deficit, also known as a DRO (deficit restoration obligation).
A DRO requires a partner to restore any negative balance (deficit) in their capital account upon the liquidation of the partnership. The DRO demonstrates the partner's willingness to assume the economic risk of loss in the partnership.
The partner with a deficit contributes enough assets to offset the deficit balance. The deficit balance is removed from the accounting records with only the remaining partners sharing in future gains and losses. The other partners file a legal suit against the partner with the deficit balance.
A Deficit Restoration Obligation is an obligation by a partner in a partnership (or a member in an LLC taxed as a partnership) to restore the negative balance in its capital account when the partnership liquidates.
This final capital account tabulation is a great indicator of what a partner's taxable gain would be if the interest were sold. From a tax standpoint, a negative capital account is treated as a capital gain upon sale. Conversely, a positive capital account is treated as a capital loss if the interest is sold.
A DRO requires a partner to restore any negative balance (deficit) in their capital account upon the liquidation of the partnership. The DRO demonstrates the partner's willingness to assume the economic risk of loss in the partnership.
How to zero out partner capital accounts in a final year Go into the Input Return tab. From the left of the screen, select Balance Sheet, M-1, M-2 and choose Sch M-2 (Capital Account). Scroll down to the Distributions section. In the field Other decreases (-) (Ctrl+E), enter the appropriate amount.