FTB requiring California tax basis capital accounts on K-1s

New for this tax season, California is requiring that California Schedules M-2 and K-1 (565/568) report California tax basis capital accounts and not federal tax basis capital accounts.

Last year, when the IRS began requiring partnerships to report partners’ partnership capital on the tax basis method, California gave taxpayers the option to follow the federal instructions regarding tax basis capital account reporting but did not require them to do so. Taxpayers could have still used other method options for reporting their capital accounts. This year, without any advance warning to taxpayers, California changed their form instructions to mandate the use of California tax basis capital account reporting.

For tips on how to address this new reporting requirement, subscribe to Spidell’s California Taxletter and attend our 2022 Post-Tax Season Update and Review webinar.