FTB grants one year reprieve regarding California tax basis capital reporting

Partnerships and LLCs will not have to provide California tax basis capital reporting on their 2021 Schedule K-1s (565 or 568) for the 2021 tax year. In Notice 2022-01, the FTB has confirmed that beginning with the 2021 tax year, the FTB changed their capital accounting reporting requirements to require partnerships and LLCs report their partners’/members’ capital accounts using the tax basis method as modified for California law.

Due to the difficulty that taxpayers are having with complying with this requirement in the middle of tax season, the FTB will allow partnerships and LLCs to report these capital accounts using federal tax basis on their 2021 tax returns. However, beginning with the 2022 taxable year, these entities must report their partners and members’ capital accounts using California tax basis.