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

[SGL2023]

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?

[tagteam]

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.

[Rick19744 · Accepted solution]

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.