Do you report a partnership's ownership of other businesses on Sch L of Form 1065?

Forum|Forum|2 years ago
November 21, 2023
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I have a partnership that owns shares in another partnership (e.g., Partnership A owns 50% of partnership B). Partnership B has some nonrecourse debt, and a portion of that is allocable to each partner (here Partnership A). On Sch. L of the Partnership A 1065, do you have to report the capital accounts or nonrecourse debt of partnership B that are allocable to Partnership A (e.g., Partnership A's capital account in Partnership B is let's say $10,000, and has nonrecourse debt allocable to that 50% interest of $5,000)-- is this reported on Sch L or not at all?

Best answer by Rick19744

Some comments on your question(s):

Partnership A needs to record its investment in Partnership B on the balance; typically line 8 of Schedule L
How you record this investment depends on how you are maintaining your books and records
- Some may record this in accordance with GAAP
- Some may record this as a tax basis in their investment (which you need to maintain in some manner)
- Regardless of the method of recording this on the balance sheet, Partnership A will have book to tax differences that need to be recorded and adjusted on their books and records
Partnership A does not need to specifically record any of the liabilities that are reflected on the K-1 received from Partnership B, however, those liabilities need to be passed through to the partners in Partnership A (along with their respective share of liabilities of Partnership A) retaining their same character.
Both partnerships need to pay attention to the questions in Schedule B as a result of the ownership structure and respond keeping in mind the rules of attribution (constructive ownership). These rules are beyond the scope of a forum such as this.

Anonymous_

Employee

I will page @Rick19744.

However, if the partnership owns an asset (or incurs a liability), it most likely needs to be entered on the balance sheet.

Rick19744Answer

Employee

Some comments on your question(s):

Partnership A needs to record its investment in Partnership B on the balance; typically line 8 of Schedule L
How you record this investment depends on how you are maintaining your books and records
- Some may record this in accordance with GAAP
- Some may record this as a tax basis in their investment (which you need to maintain in some manner)
- Regardless of the method of recording this on the balance sheet, Partnership A will have book to tax differences that need to be recorded and adjusted on their books and records
Partnership A does not need to specifically record any of the liabilities that are reflected on the K-1 received from Partnership B, however, those liabilities need to be passed through to the partners in Partnership A (along with their respective share of liabilities of Partnership A) retaining their same character.
Both partnerships need to pay attention to the questions in Schedule B as a result of the ownership structure and respond keeping in mind the rules of attribution (constructive ownership). These rules are beyond the scope of a forum such as this.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.