Partner Basis and Liabilities
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
Capital-account balance does not determine loss deductibility or distribution gain.
A tax-practice scenario
A partner receives a cash distribution after losses and a liability shift. Roll outside basis forward in statutory order.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Deducting a K-1 loss because the capital account remains positive.
Turn the rule into recall.
Use a basis roll-forward before testing at-risk, passive, and excess-business-loss limits.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.