Question, Impact of Negative Capital account on Gain/Income

[samx99]

A partnership becomes a single member (1065 final), and the ending capital account is negative for the sole owner,

does that negative in capital account get reported on 6198 as a gain (line 2a), and does line 5 amounts on 6198 get reported as gross income?

Separately, is the remaining owner considered to be disposing even though they become 100% owner? or is it a matter that the partnership is disposing to the sole owner, and is that itself a separate form? Or is it merely "disposing" for reporting purposes, meaning a form is suppose to be sent in even though the sole owner still owns the company? How would that be reported?

What other forms might need to be filed by the remaining owner, as there doesn't seem to be a way to get negative capital account onto schedule D except through 6198.

example placeholders for understanding which forms need to be filed:

basis at risk: $10

schedule k-1:

loss line 1: negative $20

 (line L) Capital Account: negative $100

Should Form 6198 look like this:

line 1: negative $20

line 2: $100

line 5: $80

Should 1040 look like this:

schedule-D: $80 (from 6198)

Misc (inc): $80 (manually entered?), or is this double counting?

[Anonymous]

you have several issues  - one there is no such thing as a single partner partnership.  basically the partnership has been dissolved. - it still has to file a final return. hope it has because there are substantial penalties for late filing.  no one can see the return or knows your basis in partnership (in many cases the partner could have outside basis not reflected on k-1.  second the numbers you provide do not make sense.  

you say your basis at beginning of year was $10.  (i assuming no partnership liabilities weren't included which assumption could be wrong and would have a significant effect on what's the correct reporting ),   your say your loss was $20.    this would mean only $10 would be deductible.  the rest just vanishes.  however, you say your capital a/c  on K-1 is negative $100.  the numbers don't reconcile   seek professional help 

[samx99]

let me clarify, the questions relates to when a partnership becomes a disregarded entity, and I am not sure what that means for filing purposes in specific cases.


as for the numbers, they are example placeholders so I can understand the nature of the problem
because my interest is what forms need to be filed, where numbers go, what numbers need to be copied over, and not the numbers per se, thus I am providing placeholders as it helps me mentally understand the problem better.

As such, for the purposes of understanding, mostly ignore the numbers I provided. For the purposes of answering the questions, assume I have correct numbers, everything balances on the balance sheet, the inside basis is known and computed, etc, as is the outside basis. all of that is known.

This is what I need to know:

1) what does negative account mean to a partner when a partnership becomes a disregarded entity due to a technical termination, is it considered income for filing purposes, gains, gross, etc. or should a negative capital account on a technical termination be impossible?

2) what forms/worksheets need to be filed aside from 1065 final

3) does the distributions need to zeroed on k-1's to indicate they are staying with the company (partnership becomes a disregarded entity) or is it still technically a disposition of partnership assets/liabilities to a disregarded entity thereby still requiring the reporting of distributions/dispositions reporting (if they are the same for the purposes of reporting) even though the primary owner or partnership itself didn't sell anything, i.e. are there any other forms needed to be filed?

note:

the only thing I can find is miscellaneous posts saying that a negative capital account on termination/dissolution (not clear in the articles) is a gain and need to be reported on 6198 and gross income. I want to know if this is correct but I also need to know how to do it. (see questions 1-3)

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