Can someone explain 704(b) in simple terms?

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Allocate taxable line items in the same way that income was allocated for book purposes. Idea is that I can’t give one partner all the income and another all the expenses for tax purposes, if that’s not how the income was split for book (economic) purposes

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But - “book” ain’t GAAP. Separate accounting method that is closer to tax, but uses different asset values and varies accordingly- different depreciation, amortization, etc.

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It’s a tough thing to explain in simple terms. What EY1 said is great though. It’s really what the economics are of the partnership. When you into the details of it, I think the nice thing about it is that the IRS will allow you to split your income/expenses any which way you want in a partnership agreement as long as (for the most part) the capital accounts are affected by the allocations. So if I receive 50k of losses but my capital account (what I’m economically entitled to) doesn’t decrease by that same amount, then the allocations won’t be accepted by the IRS.

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Pass, put 0s on the 704c lines and list as GAAP basis for 2019. Let the next accountant worry about this shit when you lose the client for laziness.

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Eh, it goes both ways. We all have “that” office (or offices.) Especially with regard to smaller clients.

The real scary ones are the one office firms with the one guy that is their partnership/exempt/business valuation/ASC 740/R&D/welding expert.

Like the one who proudly gave me a AAA reconciliation when I asked for 704(b) capital balances. It had clearly taken him the better part of the week. 

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The correct answer is no. 704(b) cannot he explained in simple terms.

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Hahaha thank you.

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