FTB clarifies California partnership capital account reporting - Spidell

FTB clarifies California partnership capital account reporting

We’ve had numerous Message Board questions concerning whether California conforms to the change in partnership capital reporting on the partnership California K-1 (Form 565). The FTB instructions for the California K-1 (Form 565) tell taxpayers to refer to the federal instructions for purposes of completing the questions and items on the Schedule K-1.

According to the FTB, taxpayers may follow the federal instructions regarding tax basis capital account reporting, but are not required to do so. Although, doing so will ease the filing of the returns. However, the California K-1 does still give taxpayers other method options for reporting their capital accounts.

If a taxpayer does shift to using the tax basis capital reporting method on their California K-1, they should attach a statement with reference to page 31 of the 2020 federal Form 1065 instructions regarding reporting beginning capital account balance.